Good day, ladies and gentlemen, and welcome to the Q2 2017 Liquidity Services' Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to Senior Director of Investor Relations, Julie Davis. You may begin.

Thank you, Leanne [ph]. Hello, and welcome to our second quarter fiscal year 2017 financial results conference call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer; Jorge Celaya, our Chief Financial Officer; and Michael Sweeney, our Chief Accounting Officer. We will be available for questions after our prepared remarks. The following discussion or responses to your questions reflect management's views as of today, May 4, 2017, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent Annual Report on Form 10-K. As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results, as well as metrics and commentary on the quarter. During this call, we will discuss certain non-GAAP financial measures. In our press release and our filings with SEC, each of which is posted to our Web site, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. We also use certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. The supplemental operating data includes gross merchandise volume, and should not be considered a substitute for or superior to GAAP results. At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.

Thank you, Julie. Good morning, and welcome to our Q2 earnings call. I'll review our Q2 performance and provide an update on key strategic initiatives. Next, Mike Sweeney will provide more details on the quarter. Finally, Jorge Celaya will provide our outlook for the current quarter. Liquidity Services reported Q2 results in line with our GMV guidance, and above the guidance range on adjusted EBITDA, driven by growth in our GovDeals state and local marketplace, and our strong GMV in our network international energy marketplace. Our DoD marketplace GMV was down 21% year-over-year, reflecting lower volumes and a less favorable product mix. The focus of our long-term strategy remains the growth of our commercial and GovDeals state and local government marketplaces. And we are pleased to report that aggregate GMV in these marketplaces grew 14% organically over the prior year period. This marks a return to top line organic growth for the second consecutive quarter in this focus area, and demonstrates our ability to attract new clients and expand existing relationships. The rise of e-commerce is driving the need for our marketplace channels and services. For example, our return to management solutions are well-suited to the rapid growth of product returns, which totaled $260 billion of merchandise in 2016 according to the National Retail Federation. During Q2, our retail supply chain group signed a number of online retailers, omnichannel retailers, and manufacturers who will use our return to management and marketplace solutions to reduce the number of product crutches [ph] and transportation costs incurred with these products. Our fully integrated solution provides space, returns credit reconciliation, reporting, and best-in-class B2B and B2C sales channels to maximize value for retailers and manufacturers of all sizes. Another driver for our business is the trend of globalization, and the need for manufacturers to…

Thanks Bill. So as Bill noted, we finished the second quarter of fiscal '17 above the company's guidance range for GAAP net loss, GAAP EPS, and non-GAAP adjusted EBITDA, and within the guidance range for GMV and non-GAAP adjusted EPS. So next, I'll comment on our second quarter results with comparison to the prior year period. The amount of GMV increased 7% or $10.7 million to $167.7 million due to increases of 30% or $14.7 million in our state and local government or GovDeals marketplace, and 3% or $2.1 million in our commercial marketplaces, partially offset by a 21% decrease or $6.1 million in our DoD businesses. Total revenue decreased $14.6 million or 17% to $72.3 million, and was a result of decreases in our commercial and DoD marketplaces, partially offset by increases in our GovDeals state and local government business. Revenue from the commercial marketplaces was down 18% or $8.7 million due to a decrease in revenue within our industrial vertical, which had strong prior year results, as well as a decrease in Truck Center sales resulting from our exit of the land-based live auction in retail business. The commercial declines were partially offset by an increase in our energy vertical, as well as an increase in revenue from growth of new programs as well as core accounts in our retail marketplace. Revenue from our DoD contracts declined 21% or $7.3 million due to lower volume and lower service revenue related to our surplus contract. GovDeals revenue increased 26% or $1.4 million due to an increase in the number of new sellers and additional sales volume from existing clients. Reconciling the GMV increase to the revenue decrease, the changes were driven by a shift in the mix of consignment deals and principal deals. GMV is up from stronger consignment…

Good morning. Reflecting on our first-half fiscal year 2017 results, our commercial marketplaces combined with the GovDeals state and local government marketplace have achieved double-digit organic GMV growth for the past two quarters as we continue to build more depth in our client base and grow our network of relationships within our core vertical markets. As we implement our new platform to combine and leverage our buyer base across our marketplaces for our seller clients we anticipate benefits that will position us to continue to grow our GMV activity. As Bill has indicated, we are advancing our long-term growth strategy and transformation plan to deliver the most trusted, integrated e-commerce marketplace solutions on services to manage value and sell inventory and equipment for our clients with self-service to full-service solutions across industry verticals that include energy, industrials, consumer goods, technology, government, and others where we have domain expertise to value and manage assets [indiscernible]. Looking towards our second half, we will reach a major milestone as we launch our network international energy marketplace on to the new Liquidity One platform, an ERP system, to drive a better user experience and more efficient operations to help grow our buyer and seller base in the U.S. and internationally. Additionally, we are ramping up our efforts to complete the design and deployment of our remaining commercial marketplaces on to the new e-commerce platform, including the architecting of our expanded self-service and returns management solutions. This increased project activity will result in higher spending associated with our Liquidity One program as we ramp up project resources and incur higher integration and consulting expenses. We are also creating a new beta warehouse product to supply data reporting services to our marketplace clients and third parties. We expect our Liquidity One IT project expenses to range…

[Operator Instructions] And our first question comes from Gary Prestopino with Barrington Research. Your line is open.

Hi, good morning everyone.

Good morning, Gary.

I think prior quarters you've called out between $1 million to $2 million of spend on Liquidity One initiative per quarter, and now it's up to $2 million to $3 million. I just want to make sure I've got that right.

Yes. And one of the things that I think I've mentioned in the past is that we tended to be on the low end of that $1 million to $2 million range. And what we've done is that we wanted to go at a faster place, plus entering into the actually Go-Live and UAT testing is -- you get to this phase of the project and it's all hands on deck. Plus, a couple of other new initiatives like the beta management that I mentioned. I think this all is coming together that I think it's prudent to increase the range. I'm still hopeful that it won't be on the high end of that range as we manage the expenses through that. And getting our ERP solution online is also partly part of that cost. So, yes, the $2 million to $3 million I think is prudent. So I certainly think we're going to be at or above the $2 million of the range that we have previously given.

No, that's fine. And then in terms of this whole Liquidity One transformation, I seem to recall at one time you said this would be done by the end of fiscal '18, Bill. Is that still your target or is this going to continue to bleed into fiscal '19?

We're really focused on having the aggregation of our buyer base visible to our customers in fiscal '18. There are lots of nuances related to the sun-setting of back-office tools. Our target is to continue to do that through this year and fiscal '18. There's potentially, depending on risk mitigation or potentially scenarios where there could be a tail of back-office tools beyond fiscal '18. But I think the real value add for us is having the supply and demand generation in a single e-commerce spec, and that's our focus for fiscal '18.

Okay. And then as I recall from your narrative, you're talking about some new services that are driving your growth. Could you maybe just elaborate -- or it's driving some growth. Could you elaborate on what some of these key services are, please?

Sure. Well, we're a data-intensive business. We've continued to grow our valuation services, we've done a number of global asset valuation projects to help clients understand what's in their supply chain and help them bring those assets to market. We've also done a nice job of integration returns management solutions within into our marketplace solutions for the sale of assets. As you know, the secular growth of online retail continues unabated. And coming out of the last holiday season, where we got a lot of very nice coverage, the focal point for many of the retail clients and their vendors has been how to manage this increasing volume of returns. Returns volumes are exploding as a result of the growth of online retail. We position ourselves, Gary, to handle the physical flow of those returns, the identification, and in some cases value-add to those returned items, the credit reconciliations so that both sellers and manufacturers can close their books. And then we provide disposition recommendations on how to recover value from those assets, and these could range from home goods, consumer electronics, heavy tools and equipment, [indiscernible] do-it-yourself home improvement stores. And we're positioning the business to continue to provide this turnkey returns management and as a dispositions solution to solve the needs of the retail supply chain industry. And during the last quarters I noted in my remarks, we brought on a number of pure e-commerce retailers who are growth in their categories, omnichannel retailers that are providing both buy online, buy in the store, and in some cases return at the store or return through online solutions. So that creates a need for our services. And we're also working with manufacturers. Manufacturers want to make sure that they understand the volume and nature of what is being returned, and they want compliant disposition channels to project their brand image in the secondary marketplace. We're well positioned to deal with those issues for manufacturers.

Okay, thank you.

[Operator Instructions] And your next question comes from Colin Sebastian with Robert W. Baird. Your line is open.

Good morning, this is Dalton Kern on for Colin. Just a couple of questions, first being, we're looking at a ramp in spending the next quarter related to the Go-Live for the Liquidity One platform. I was wondering if you can give us any more visibility on what we can expect for normalized margin structure moving forward after these initiatives start gaining traction, can we expect them to go back to historical levels or are we going to see a more elevated level of spending related to that?

Well, I think as we look through [technical difficulty] you know, fiscal '17, even to fiscal '18, you're going to have continued spend on ERP and marketplace rollouts. I think you'll see some tapering as we consolidate systems, and reduce the number of consultants and launch activities. And at the same time, we'll be continuing to market to buyers and sellers the benefits of these new systems. So would say you'll have some tapering in the second half of fiscal '18 as we take the one-time projects costs, and conclude those project costs. But there's still important work and integration that we're doing. And we wouldn't say full normalization during fiscal '18.

Great, thank you. And then in terms of the growth you're seeing, particularly in commercial and GovDeals, can you give any color there in terms of how much of that is coming from the addition of new customers versus increasing spending from your existing customers?

Well, we also manage those. I think, staying in the local marketplace, there is a secular shift underway, and we're leading that. Of the 16,000 or so public sector agencies, we're closing in on about 10,000. So we have another growth opportunity in Canada. And on a combined basis we're less than 10% penetrated. We're picking up larger municipalities and agencies. So for example, we signed the City of Boston, we signed a contract with the State of California, we're working to expand west of the Mississippi, and feel good about the Pacific Northwest, and that brings us north of the border to Canada as well. So, we're a best-practice, we're bringing greater value, greater convenience. And then there is the network effect of both the buying and selling on the platform, but also the decision makers who are managing operations and fleets for these public sector agencies, who are talking to their peers, looking for best practices in GovDeals is at the top of that list. With respect returns management and what we're seeing there I think, again, you have supply chain professionals who are running their businesses, and looking for cost control, looking for maximum utilization of their distribution centers and retail stores. And so the fact that we have a national distribution center network, we can relieve them of their space constraints, we can handle the physical flow of goods, the financial settlement and reconciliation of returned products. And then also, we have value recovery channels that are unmatched you know, in registered buyers, so we're able to take product in large volumes and velocity, and move them through our B2B channels. We also have the ability to segregate high-value assets, and even do repair and refurbishment and move those through B2C channels. We actually connect buying…

Great. Thank you.

And I'm showing no further questions. I would now like to turn the call back to Julie Davis for any further remarks.

Thank you for participating in our call today. Please let us know if you have any follow-up questions, and have a nice day.