Welcome to the Liquidity Services, Inc. Third Quarter Fiscal Year 2021 Financial Results Conference Call. My name is James and I will be your operator for today’s call. Please note that this conference call is being recorded. [Operator Instructions] On the call today are Bill Angrick, Liquidity Services’ Chairman and Chief Executive Officer and Jorge Celaya, its Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. The following discussion and responses to your questions reflect Liquidity Services management’s views as of today, August 5, 2021 and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact a financial result is included in today’s press release and in filings with the SEC, including the most recent annual report on Form 10-K. As you listen to today’s call, please have the press release in front of you, which includes Liquidity Services’ financial results as well as metrics and commentary on the quarter. During this call, Liquidity Services management will discuss certain non-GAAP financial measures. In its press release and filings with the SEC, each of which is posted on its website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. Liquidity Services management will also use certain supplemental operating data as a measure of certain components of operating performance, which they also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I’ll turn the presentation over to Liquidity Services CEO, Bill Angrick.

Good morning, and welcome to our Q3 earnings call. I’ll review our Q3 performance and provide an update on key strategic initiatives. Next, Jorge Celaya will provide more details on the quarter. We are grateful for our team’s efforts to safely deliver outstanding results for our customers during the quarter. Our pioneering e-commerce marketplace solutions continue to power the $100 billion plus circular economy and our triple bottom line, which benefits businesses, communities and the environment. We achieved this through our safe and effective resale and redeployment of Surplus assets, a reduction of waste; and by creating markets for items that would otherwise be landfilled. During the quarter, we enabled a growing number of large enterprises, small businesses and government entities across the world to realize meaningful financial benefits and advance their sustainability programs. Our Q3 results reflect continued strong growth across each of our segments, fueled by our scalable marketplace platform, software and expert services. As we continue to expand the volume and breadth of assets transacted on our marketplace platform, we are attracting more buyers, collecting more data to drive higher recovery value for sellers and in turn, attracting more sellers. This technology-enabled Liquidity Services flywheel effect is a very attractive feature of our two-sided marketplace business model and is responsible for generating $61.5 million of operating cash flow and $40.5 million of adjusted EBITDA over the last 12 months through Q3. GMV in our GovDeals segment grew 152% over the prior year’s comparable quarter, driven by the increasing adoption of our digital marketplace solution by government agencies over the traditional sales methods used for a broader array of assets, including vehicles, heavy equipment and real estate. GMV in our Retail Supply Chain Group segment grew 36% over the prior year’s comparable quarter, as large and SMB retail…

Thank you, Bill and good morning. We ended the quarter above guidance on all metrics, with continued strength of activity across all our businesses contributing to the better-than-expected results. We completed the third quarter of fiscal year 2021 with GMV of $244.7 million, an 88% increase from $130.1 million in the same quarter last year. Revenue for the third quarter was $69.7 million, a 46% increase compared to the same quarter last year; while net income for this third quarter was $8.4 million, resulting in diluted earnings per share of $0.24. Non-GAAP adjusted EBITDA was $13.3 million or 19.1% of revenue, a $9.7 million improvement year-over-year for the fiscal third quarter ending June 30 of 2021. Compared to last year, our volumes are up and our gross margin is up, which, combined with our cost control over operating expenses yielded fall-through, resulting in the solid bottom line results. We are proud of the accomplishments since we began our transformation that has positioned us well to benefit from the accelerated rise in ecommerce B2B activity. We feel poised to further optimize our technology and services as we look ahead to executing on our growth initiatives. Registered buyers are now at almost $4 million, with auction participation up 47% this quarter, which is typically one of our seasonally high quarters and compared favorably to the pandemic low third quarter last year; while completed transactions were up 38% quarter-over-quarter. The third quarter fiscal year 2021 comparative year-over-year consolidated financial results demonstrated the impact our multiyear business transformation and investments in technology are having on our businesses. We are driving operating leverage from our platform and diverse service offerings, allowing us to capitalize on the market opportunity presented by the increasing demand for sustainable ecommerce solutions by large enterprises, small businesses and government entities.…

Thank you. [Operator Instructions] Our first question comes from Gary Prestopino of Barrington Research.

Good morning, everyone. Bill, a couple of things here. In terms of driving returns, increase in returns, should we look at your increase in gross profit as maybe a proxy for what you have done to the company over time to position it to drive higher returns in the market?

Absolutely. I think the gross profit dollars, which approximate net revenues in substance for us because it’s net of cost of services or any product COGS, which is only about 15% of our GMV. That’s derived directly from revenue sharing, commission arrangements with our sellers. So as we sell assets for more value, we drive higher proceeds for our sellers and higher commission revenues for Liquidity Services and that’s certainly reflected in gross profit. We also benefit from penetrating higher value asset categories. And we commented that more and more of our corporate and government clients are seeing our platform, which is effectively AllSurplus.com, as a one-stop platform for all assets, including construction equipment, trucks, vehicles, cars and those higher value assets are fundamentally higher margin, because we’re putting more dollars through every completed transaction. And I just think there is an ongoing continuous improvement ethos within how we manage the marketplace. We are becoming better at matching prospective buyers, existing registered buyers, with the right assets. We harvest quite a bit of information about browsing and buying and bidding history. And we make those correlations of what a new buyer would be interested in based on prior patterns of legacy buyers. And that better matching means more auction participation, which drives higher recovery. So for all those reasons, we agree with your statement.

Okay. And then, is there any way that you can factor out what the catch-up in GMV in Q4 was last year, so we can get more of a normalized growth rate for GMV versus the guidance you have given? I mean, I went back and looked and I think it was in Q4 of ‘19, I think you did $158 million of GMV, because usually, seasonally, you do have a step-down here. So I am just trying to get an idea of what a more normalized growth would be?

Gary, this is Jorge. So the best way, I think to look at it – for you to look at it is to, yes, look at our 2019 numbers. But then also, you can see the drop in last year’s numbers in the third quarter, where our GMV dropped to 130 from what would have been a higher typical run-rate that you would have seen sequentially the two prior quarters. So when you see that drop, you get a sense of what was the COVID drop, so to speak. As we have indicated, most of that, from a backlog perspective, was caught up in the fourth quarter of 2020, where we had close to $197 million or so in GMV in the fourth quarter of last year. So despite having that high fourth quarter last year of – excuse me if I got the number wrong – about $197 million in GMV last year, our guidance is still sequentially well above last year’s number. And I think that is depictive of the more general momentum that we are trying to indicate about our fundamental business and macroeconomic trends in what we do.

Gary, just to add on – we have a framework we described where we are focused on sustaining profitable growth. We believe the market a very attractive existing market for commercial, retail supply chain, government allows us to drive say 20% top line growth and 20% EBITDA margin. So those lines are similar to the notion of the rule of 40 for very attractive sustainable growth businesses. And we pointed out that we like to point to gross profit as a proxy for net revenue, because it neutralizes any differences for GAAP accounting on consignment versus purchase model GMV and that number has been up 35% over year-over-year of the prior 12-month trailing period. So, that gives you a sense of sort of the normalization of growth.

Right. And I am just – I am getting a lot of questions here as to why the stock is down and the only thing that I can think of is that to some, the guidance for GMV is not showing the kind of growth that they wanted and trying to get an understanding of what the catch-up was in Q4, but I think if you use the baseline Q4 number, you can see there is a tremendous amount of growth in GMV quarter-to-quarter there?

And as Bill indicated, Gary, one of the reasons we commented on the trailing 12 months is because it kind of normalizes these quarter-to-quarter things. We remind everyone that the fourth quarter is typically you go back as many years as you want to go back, you are only going to find a couple of occasions where that has not been the case where the fourth quarter sequentially drops slightly. And that’s what we are indicating at this time that we think the seasonal trend will be that. That does not necessarily have any bearing on what goes beyond that, right.

Right.

And you are exactly right, when you compare this quarter we just finished to the same quarter last year, the same quarter last year was unusually low, but the fourth quarter of last year, which we are now giving guidance to compare to had a lot of that catch-up, it was unusually high. But when you see the trends over the last 12 months, pick your metric, right, pick your growth, pick your cash, pick your profitability metric, pick your margin, pick any metric and I think it tells the story of where we are today.

Okay, thank you.

[Operator Instructions] And it would appear we have no more questions.

Thank you, James. Thank you everybody.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.