LIQUIDITY SERVICES INC Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Team made progress towards strategic goals despite economic uncertainty, with current GMV annualized run rate at $1.67 billion, moving toward $2B annual GMV.
• Expanded market presence and service offerings, growing volumes, buyer base, and recovery rate in key categories like construction, equipment, etc.
• Generated over $21 million of operating cash flow in Q2, debt-free with $149M cash. Met 20% EBITDA margin goal as % of direct profit/net revenue.
• GovDeals expanded target market to $5.4B, CAG had record buyer participation in heavy equipment, RSCG expanded relationships and offered sell-in-place software.

Segment Performance

• GovDeals: GMV up 9%, revenue up 5%, segment direct profit up 3%. Expanded target addressable market to an estimated $5.4 billion. Attracted new higher volume clients with hybrid solutions.
• CAG: GMV up 14%, revenue down 22%, segment direct profit down 6%. Drove rapid growth in heavy equipment category with record unique sellers, repeat sellers, GMV, and completed transactions.
• RSCG: GMV up 29%, revenue up 46%, segment direct profit slightly down 3%. Expanded relationships across categories/geographies, but margins flat due to weak consumer, higher inbound purchase rates, and logistics costs.
• Machinio and software solutions: Revenue up 22%, segment direct profit up 19%. Continued solid performance and benefited from acquisition of Auction Software.

Guidance

• Q3 2025 GMV expected to range from $395 million to $430 million.
• GAAP net income expected to range $6 million to $9 million, GAAP diluted EPS $0.18 to $0.28, non-GAAP adjusted diluted EPS $0.27 to $0.36.
• Non-GAAP adjusted EBITDA expected to range $14.5 million to $17.5 million.
• Outlook for Q3 reflects solid year-over-year growth at midpoint, with potential volatility due to macroeconomic uncertainties, but CAG expected to grow led by heavy equipment, GovDeals entering seasonal peak, RSCG expected to see growth in retail GMV and revenue.

Risks

• Emerging economic uncertainty impacting business.
• Tariff policies potentially disrupting supply chains and affecting timing/volume of asset sales.
• Weather-related delays in Q2 affecting GovDeals' vehicle turnover and rolling stock listing process.
• Mix of contracts and inbound logistics costs impacting margins in purchase transactions.

Q: How did weather impact GovDeals, specifically related to vehicle turnover vs real estate?

A: Storms like tornadoes and extreme weather events interrupted access to physical assets, affecting rolling stock listing at various locations.

Q: Talk about the step down in gross profit on purchase transactions and its impact on adjusted EBITDA?

A: Mix of industrial CAG principal deals and retail supply chain purchase model programs, use of third parties with rev share, inbound logistics costs for new programs, multiyear rate steps, and tempered consumer demand contributed to lower gross profit. Also, comparison to prior year with catch-up GMV last year, and mix of lower-touch products affecting operating expenses offsetting some direct profit drops