Liquidity Services, Inc. (LQDT) Earnings

Management highlights

- Overall Strategic Execution * The company's Arise Strategy, focused on four core priorities (maximizing seller recovery, increasing transaction volume, expanding value-added services, leveraging technology for operating efficiency), has delivered 10 consecutive quarters of year-over-year EBITDA growth. Q3 2026 results hit a Rule of 40 score of 51%, up from 42% YoY, and the company remains on track to hit its $2 billion annual GMV target. * The company ended the quarter with $231.1 million in cash, cash equivalents, and short-term investments, no debt, and a strong debt-free balance sheet to support future growth. - Segment-Specific Operational Milestones * Retail: Growth is driven by expanded consignment relationships, improved recovery rates, the managed direct-to-consumer consignment business nearly doubling YoY, and strong international client growth. RetailRust GMV grew 50% sequentially, reflecting growing demand for the proprietary D2C online auction platform. * GovDeals: Achieved 7 consecutive quarters of seller growth, with a new record for unique sellers. Set new records for monthly unique bidders and daily available assets for sale, with buyer registrations up 23%, new bidders up 42%, and conversion rates up 35% even as marketing spend declined. Won the high-profile engagement to sell the Miami-Dade County historic downtown courthouse, demonstrating the platform's ability to handle very large, high-value assets. * CAG: Quarterly GMV was impacted by timing delays of large projects (delays are timing-only, not project cancellations, and strengthen the pipeline for future quarters). 175 new accounts were signed in the quarter, with a growing mix of recurring annuity-style relationships, and strong demand for industrial and heavy equipment assets, particularly in North America. - Technology and Product Development * The company continues to modernize its platform ecosystem through auction.io and related software initiatives, enhancing user experiences across all marketplaces and adding new capabilities to support future growth. AI-enabled marketing and personalization have driven improved buyer conversion and engagement across segments.

Guidance

- For full fiscal 2026, management expects continued annual growth across all key metrics, and the company is positioned to deliver the highest annual adjusted EBITDA in 13 years. - For Q4 fiscal 2026: * Consolidated GMV is expected to range between $450 million and $455 million. * Non-GAAP adjusted EBITDA is projected to range from $22 million to $25 million. * GAAP diluted earnings per share is expected to range from 30 cents to 39 cents, with GAAP net income between $10 million and $13 million. * Non-GAAP adjusted diluted earnings per share is projected to range from 41 cents to 50 cents per share. * The effective tax rate is expected to approach the low-to-mid 30% range for the quarter. * Capital expenditures are expected to be between $2.5 million and $3 million. * Consignment GMV is expected to represent the mid-80% range of total GMV, consolidated revenue as a percent of GMV is expected to be in the mid-20% range, and total segment direct profit as a percent of consolidated revenue is expected to be in the mid-50% range, leading to improved year-over-year direct profit margins from favorable mix changes. * Retail is expected to deliver strong direct profit performance with operating leverage despite sequentially lower GMV and revenue, while GovDeals will remain a major contributor to consolidated profitability, and CAG will grow on the back of a strong project pipeline.

Segment performance

1. Retail Segment (RSCG): GMV of $121.6 million (19% YoY growth, new quarterly record), contributing 26.8% of total consolidated GMV. Revenue grew 8% YoY, and direct profit grew 30% YoY to a new quarterly record. 2. GovDeal Segment: GMV of $274 million (9% YoY growth, new quarterly record), contributing 60.5% of total consolidated GMV. Revenue grew 7% YoY, and direct profit grew 9% YoY to a new quarterly record. 3. Capital Assets Group (CAG) Segment: GMV of $57.5 million (1% YoY decline), contributing 12.7% of total consolidated GMV. Revenue grew 18% YoY, and direct profit grew 13% YoY to $9.6 million, driven by a favorable mix of high-margin projects and a 270 basis point increase in take rate. 4. Machinio and Software Solutions Segment: Revenue grew 4% YoY, and direct profit grew 3% YoY. Total system ARR for Machinio increased 26% YoY, with the Machinio marine vertical growing 95% YoY. Consolidated total Q3 GMV was $453 million (10% YoY growth), with total GAAP revenue of $129.6 million (8% YoY growth).

Risks & headwinds

The only identified operational impact noted was temporary quarter-over-quarter GMV declines in the CAG segment stemming from timing delays of large projects. Management emphasized these are timing issues only, not project cancellations, and do not represent underlying weakness in the segment pipeline. No other material business risks, operational failures, or forward-looking risk factors were discussed in the prepared remarks portion of the call.

Analyst Q&A

• Q: With registered buyers up 9% and transactions up 17% YoY, but overall auction participants down 5%, what is driving this dynamic and how will the company address this metric going forward? /

  A: The decline in auction participants reflects a strategic shift toward higher-value, larger asset assignments, which results in fewer total lots sold but higher average GMV per lot. The number of competitive bidders per individual lot remains at healthy levels, and the mix shift can cause quarterly fluctuations in the overall participant count. The company maintains focus on asset-level competitive liquidity and has delivered improved yield and recovery rates even with lower marketing spend, which aligns with its efficiency priorities.

• Q: What are tangible examples of AI and machine learning delivering improved operational performance across the business? /

  A: AI algorithms power personalized asset recommendations to buyers based on browsing behavior and asset category patterns, matching relevant assets to likely buyers to improve conversion rates. The company also cross-pollinates buyers across its legacy platforms and Machinio, for example connecting existing Liquidity Services buyers to new marine assets on Machinio, to drive higher retention and participation. This AI-enabled automation also allows the company to operate at larger scale with lower cost, improving overall operating efficiency.

• Q: What perspective can management share on the upcoming high-profile Miami-Dade County courthouse auction on GovDeals? /

  A: This auction demonstrates the high level of trust public sector clients have in Liquidity Services' execution, even for extremely high-value landmark assets, and proves the platform can scale to handle very large, unique asset categories. The win also positions the company for further growth in the fragmented real estate vertical, where the company already has strong existing relationships with public sector agencies and has expanded complementary services for tax lien and foreclosed real estate transactions. The auction will conclude in August, and results will be visible to the public once finalized.