Liquidity Services, Inc. Stock

Thank you. Welcome to the Liquidity Services third quarter of fiscal year 2026 financial results conference call. My name is Shannon and I will be your operator for today's call. Please note that this conference call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller.

Good morning. On the call today are Bill Engrick, our Chairman and Chief Executive Officer, and Jorge Celaya, our 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 management's views as of today, August 6, 2026, 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 filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, please 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, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable measures as available.

Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we 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 will turn the presentation over to our Chairman and CEO, Bill Engrick.

Thanks, Michael. Good morning, and welcome to our earnings call. Our strong Q3 results reflect the continued success execution of our ARISE strategy, which focuses on four priorities. maximizing recovery for sellers, increasing transaction volume, expanding value-added services, and leveraging technology to drive operating efficiency. Together, these initiatives are producing stronger financial performance as we confidently march towards our $2 billion annual GMV target. and reinforce our leadership position in the $100 billion circular economy. Our strategy is for bringing measurable results. In Q3, GAAP diluted earnings per share of 32 cents, was up 39% year-over-year, by GMV growth of 10% year-over-year to $453 million, gap revenue growth of 8% to $129.6 million, direct profit growth of 17% year-over-year to $3.8 million, and adjusted EBITDA growth to $22 million. Our Rule of 40 score improved to 51%, up from 42% a year ago, while cash and short-term investments increased to $231 million. These results represent our 10th consecutive quarter of year-over-year EBITDA growth.

Our retail segment, GMB, reached a record $121.6 million, increasing 19% year-over-year. Growth was driven by expanding consignment relationships and improved recovery rates across major programs. Our managed direct-to-consumer consignment business nearly doubled from the prior year, and our international clients continued their strong growth trajectory. These programs demonstrate how our flexible service offerings help large retailers recover more value from surplus inventory while improving speed, transparency, and sustainability. Finally, our retail RUS GMB grew sequentially by 50%, reflecting continued progress, attracting demand to our proprietary D2C online auction platform. Our GovDeal segment achieved record GMV of $274 million, up 9% year-over-year, and we set a new quarterly record for unique sellers, marking the seventh consecutive quarter of seller growth. Public sector clients continue to rely on our GovDeals platform to maximize proceeds from surplus assets, This demonstrated by several notable transactions during the quarter, including a $7.7 million State Department of Transportation heavy equipment sale, a $2.5 million generator auction for a federal client, and a $2.6 million Canadian Our strong record of performance has allowed us to win increasingly lucrative engagements.

For example, Miami-Dade County is selling their landmark 28-story, approximately 265,000 square foot county courthouse in the heart of downtown Miami on a in our GovDeals marketplace. GovDeals also established new records bidder and seller engagement, including the most unique bidders in a single month. and most assets available for sale on a single day. Our buyer acquisition and engagement initiatives continue to produce strong results. During the quarter, GovDeal's buyer registrations increased 23 percent, new bidders increased 42 percent, and conversion rates improved 35 percent even as marketing spend declined. reflect investments in AI-enabled marketing, personalization, buyer education, and improved marketplace experiences. These milestones illustrate the growing network effects of our platform and our ability to connect more buyers with more inventory than ever before. Our capital assets group segment continued to demonstrate the strength and resilience of its marketplace platform during Q3. While quarterly results were impacted by the timing of several large projects, CAG delivered another quarter of year-over-year direct profit growth, expanded its client base, improved performance, pricing, performance, and strengthen its pipeline entering the fourth quarter.

Importantly, these large project delays during Q3 reflect timing issues rather than project losses and have strengthened our outlook for upcoming quarters. During Q3, CAG generated $57.5 million of GMV and $9.6 million of direct profit. While GMV declined 1% year-over-year primarily due to project timing and lower volumes in EMEA, APAC, and selected North American industrial markets, direct profit increased 13% year-over-year. year-over-year as a result of stronger pricing and mix. One of the most encouraging indicators during Q3 was our continued improvement in CAG unit economics. TAG's take rate increased 270 basis points from a year ago, reflecting higher margin consignment projects and strong execution across our heavy equipment fleet and industrial verticals. This helped offset the impact of lower transaction volume and enabled direct profit growth despite a roughly full . New CAG account activity remained healthy with 175 new accounts signed during Q3, including a growing mix of recurring and annuity-style relationships.

CAG secured several notable customer engagements during the quarter that reinforce our leadership position across industrial, energy, biopharma, and energy. and manufacturing sectors. Recent wins reflect our competitive advantages, including the largest buyer base within these industrial verticals, our global execution capabilities, our differentiated sell-in-place offering for heavy equipment fleet owners, and our asset zone redeployment platform. On the buyer side, demand for CAG industrial used equipment, energy assets, and heavy equipment remained robust, particularly in North America, where bidder participation across auction events continued at elevated levels during Q3. Our Maschineo business also delivered strong momentum with Maschineo's system. ARR increasing 26% in your region, and then the brain vertical servo.

Thank you. Thank you. Once again, ladies and gentlemen, please remain in your line. Your conference will resume momentarily. Once again, please remain in your line. Your conference will resume momentarily. Thank you. Ladies and gentlemen, please may I align your conference room and resume momentarily.

Thank you. Sir, you may resume your conference. Finally, our machinio business also delivered strong momentum with total system ARR increasing 26% year-over-year and a the Nishinio Marine Vertical growing 95% year-over-year. We continue to modernize our platform ecosystem auction.io and related software initiatives. During the quarter, we enhanced user experiences across multiple liquidity services marketplaces and prepared new marketplace capability design to support future growth. Looking ahead, Liquidity Services is well positioned to continue delivering profitable growth as we reach our $2 billion annual GMB target. are expanding buyer and seller networks, strong debt-free balance sheet, technology investments, and growing services, multiple avenues for value creation. Most importantly, we remain focused on helping our customers maximize recovery, improve sustainability. outcomes and unlock value for other assets. On behalf of our team, thank you for your continued support and confidence in liquidity services.

I'll now turn it over to Jorge for more details on our results and near-term outlook.

Good morning. As Bill indicated, our consolidated results for the fiscal third quarter of 2026 included a 10% increase in GMV to $453 million, setting a new quarterly record with consolidated revenue of $129.6 million of 8%. Gap earnings per share was up 39%, so $0.32 per share. Non-gap adjusted earnings per share was $0.45, up 32%. And non-gap adjusted EBITDA was $22 million, up 30%. This quarter demonstrates how we have been executing on our strategy with the strength of our diversified marketplace platform and how mix and scale can be leveraged for strong fall through to profit. Retail and GovDeals each achieved record levels of volume and profitability. In retail, our focus on buyer liquidity and channel optimization drove expanded margins, while GovDeals continued to scale by expanding marketplace adoption and services.

These results underscore the strategic advantage of scale and our diversification, platform positioning, and proven service offerings that our customers count on, which increasingly position liquidity services as a one-stop platform for sellers and buyers to transact across all asset classes. classes. We ended the fiscal third quarter of 2026 with $231.1 million in cash, cash equivalents, and short-term investments. We continue to have zero debt, and we have approximately $24 million in available borrowing capacity under our credit facility. At the end of this fiscal third quarter, we had $50 million remaining from our authorization to perform additional share repurchases. Turning to our fiscal third quarter segment performance compared to the same quarter last year, Our RSCG or retail segment increased GMV by 19%, revenue by 8% and direct profit by 30%, each setting a new quarterly record, reflecting an expanded buyer base for low touch purchase flows, as well as an increased mix of consignment flows, all while maintaining operating leverage. Our GovDeal segment increased GMV 9%, revenue by 7%, and direct profit by 9%, each setting a new quarterly record. Performance was driven by continued expansion of our buyer and seller base and increased adoption of added services with a record high number of unique clients who sold and customers who bought on the platform during the quarter.

In our capital assets group, or CAG segment, GMV decreased 1%, while revenue increased by 18% and direct profit increased 13%. by a favorable mix of high take rate projects across multiple regions. Machinery and software solutions combine to increase revenue 4% and direct profit by 3% with a focus on transformational initiatives and expanding service capabilities. Moving on to our fiscal fourth quarter outlook. We expect to complete our fiscal full year, 2026, with continued annual growth across all key metrics. Our guidance positions us for the highest annual fiscal year adjusted EBITDA in 13 years. For the fiscal fourth quarter of 2026, we expect continued strong profitability led by our retail supply chain group, solid performance from GovDeals, and growth in cap. GovDeals is expected to remain a major contributor to consolidated profitability supported by continued marketplace adoption and seller activity.

In retail, expanded channel placement, current backlog, product mix, and higher demand during the fiscal fourth quarter are expected to support continued strong direct profit performance with operating leverage, despite anticipating sequentially lower GMB and revenue for retail. Our capital assets group has a strong pipeline of international project-based work and continued momentum in its North American heavy equipment category. On a consolidated basis, consignment GMV for the fiscal fourth quarter is expected in the mid 80s as a percent of total GMV. Consolidated Revenue as a percent of GMV is to be in the mid-20s. and total segment direct profit as a percent of consolidated revenue is expected to be in the mid-50% range, resulting in the improved direct profit margins year-over-year from the expected changes in mix. These ratios can vary based on overall business mix, including asset categories in any given period. Management guidance for the fiscal fourth quarter of 2026 is as follows. expect GMV to range from $450 million to $455 million. We estimate non-GAAP adjusted EBITDA to range from $22 million to $25 million.

GAAP net income is expected in the range of $10 million to $13 million with corresponding GAAP diluted earnings per share ranging from 30 cents to 39 cents per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of 41 cents to 50 cents per share. Both GAAP and non-GAAP earnings per share are expected to reflect a higher effective tax rate approaching the low to mid-30s for the fiscal fourth quarter of 2026. GAAP and non-GAAP earnings per share guidance assumes that we have approximately 33 million fully diluted weighted average shares outstanding for the fiscal fourth quarter of 2026. And capital expenditures are expected to be between $2.5 to $3 million for the fiscal fourth quarter of 2026. Thank you, and we will now take your questions. Thank you.

We will now begin the question and answer session. If you have a question, please press star 11 at this time. If you wish to be removed from the queue, please press star 11 again. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. George Sutton from Craig Hallam is on the line with a question.

Thank you, great results guys. So a couple metrics I found interesting. registered buyers up 9%, transactions up 17%, but your auction participants were down 5%. It sort of sounds like an 80-20 rule is in place. here, but I'm just curious, looking at that auction participant number particularly, how do you market differently or how do you put more pressure on that statistic going forward?.

Well, we talk about capturing the full value within client engagements and accounts. So we've moved upstream to capture higher value assignments and asset categories, which on balance has moved our average GMV per lot close. It's important to get the number of unique bidders per lot. healthy level that that has maintained so if we have fewer lots at a higher value that number of auction participants can tip down but GMB can still grow and we can have a very efficient business the mix you know will vary quarter to quarter for example you know when you're selling you know heavy equipment fleet for millions of dollars and maybe less in a low value individual consumer items you know that actually result in mathematically auction participants going down because you have fewer lot sold in a given period but the GMB can be higher so We're very dialed in at the asset category level and at the unique lot sold level to make sure we have the right buyers bringing competitive liquidity to each of our seller assignments. and we have benefited as I called out that despite limiting marketing spend we're seeing better yield and and better recovery rates. And recovery rates, that's the R and rise, that leads the way to a more efficient business model.

Got you. In your press release, you mentioned the smart use of machine learning, AI and software to drive a lot of these improvements. I wondered if you could just point to a couple of the more tangible examples where you're seeing that impact.

Well, it's pattern recognition with an algorithm. So we know who's browsing every moment on our marketplaces and who are the lookalike buyers that should be bidding on lots based upon relationships of asset classes if needed. If I'm looking at a forklift, I probably need to be seeing other material handling equipment. over-the-road vehicles. I want to see all of the commercial heavy equipment items, you know, marine assets that we've been growing within the Nishinio system. We've been able to cross-pollinate legacy LSI buyers for marine assets with new dealer customers on Machinio. And so it's a combination of more browsing on the sites, good organic traffic, and then higher conversion rates to show browsers the right equipment. And then that evolves into registration, evolves into a bidder.

And then eventually that drives recovery rate and higher their, you know, buyer participation and retention. And so we're pleased that fine-tuning the algorithm, retention, which means we're doing a good job showing buyers something that's relevant to their interests. Most of our buyers are business-oriented, so they don't want to waste time, and they want to see things that bring value to their supply chain or their operation. that's exactly what I will work in a small division and there's also importantly a trust factor that you know being in business as long as we have you bring credibility bringing you know blue chip clients with well-maintained well-documented assets to marketplace George all allow us to improve you know that in that relationship with buyers, and then you overlay this orchestration of AI-enabled automation, it just means that you're doing things at scale with less cost.

Got you. Well, the outgoes are probably picking up that Logan and I have been actively watching the Miami courthouse auction. First, a comment. Make sure you're in front of the Ken Griffin folks. They came into some money recently and may want a place to hang out. But I am curious if you can give us any perspective on that auction specifically. We've seen the appraisal values, but any sense on that auction from your perspective, it.

provide a meaningful bump in Q3? Well, I mean, there are a couple elements there. One, it just shows the level of trust we've earned with our clients, particularly... I think one of the most discerning client bases, which are government agencies, government agencies entrusting us with information The most valuable jewels in the crown type of assets, like this gothic design 1920s alt office building show that we have a tremendous amount of performance and reliability. So that's point one. Point two, it's also showing that we can move up to very high value assets and execute a well-designed go-to-market strategy, getting the right buyers on the platform who are, you know, We're talking about $30 million plus value here. So there's a wide range of activities that go on to support that. We think that's institutional quality asset, institutional quality buyers. And certainly, we want to make sure they get you on the mailing list if that's a condo conversion for you and your team to have a second place to come when it's cold up north.

But. I think the thing about real estate is it's a very fragmented business. We are very well known and trusted within public sector agencies, federal, state, local. So we think the real estate vertical continues to offer growth opportunities. And then we've expanded services, that S and rise in service expansion. We've expanded services in tax lien and... judicial foreclosed real estate through sheriffs and other law enforcement channels that also augments this type of program. So we'll see the results just like you. You can log in and you know that auction in Miami will be coming to a head in.

you know, a few weeks in August. And we're excited. Great. It's only cold eight to nine months per year in the north, just to be clear. But good luck with the auction. Thanks, guys. Thank you.

Thank you. We have no further questions at this time. This concludes today's conference. Thank you all for your participation. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Welcome to the Liquidity Services Second Quarter of Fiscal Year 2026 Financial Results Conference Call. My name is Daniel, and I will be your operator for today's call. Please note that this conference call is being recorded. [Operator Instructions] I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller.

Good morning. On the call today are Bill Angrick, our Chairman and Chief Executive Officer; and Jorge Celaya, our 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 management's views as of today, May 7, 2026, 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, please 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, management will discuss certain non-GAAP financial measures.

In our press release and in our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable GAAP measures as available.

Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we 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 will turn the presentation over to our Chairman and CEO, Bill Angrick.

Thank you, and good morning. Against the backdrop of global tariffs, weather disruptions, and geopolitical tensions, I'm pleased to report that Liquidity Services continued to grow its market share and create value for customers and shareholders during our March quarter. Our second quarter results were fueled by our broad industry coverage, robust buyer liquidity and improved operating leverage, which drove an 18% year-over-year increase in our consolidated direct profit and a 37% year-over-year increase in our consolidated adjusted EBITDA.

Our asset-light business model continued to generate strong operating cash flow in excess of adjusted EBITDA and we ended the quarter with $204 million in cash and 0 financial debt. We expect to allocate capital to high-quality internal growth initiatives, complementary acquisitions and targeted share repurchases. Our diversified marketplace portfolio continues to show strength in uncertain times, and our performance reflects the disciplined execution across each segment of our business.

Our RSCG segment continues to leverage our enormous data flows, analytics and domain expertise to dynamically match increased product flows with the right buyer channels to improve recovery and drive meaningful operating leverage. Our Retail segment GMV and direct profit were up 10% and 29% year-over-year, respectively, as higher consignment flows in our Retail segment were driven by several top 20 retail accounts following the peak holiday return season.

Our D2C marketplace, Retail Rush, more than doubled its GMV sequentially during Q2 and continues to establish new records on a month-over-month basis. Geographically, we've continued to grow our retail buyer and seller base in Canada, Mexico, and Brazil and expect these markets to be fertile ground for our RSCG marketplace. In GovDeals, the impact of significant winter weather events resulted in lower-than-expected GMV growth of 5%.

However, GovDeals segment direct profit grew 12% year-over-year, and we set a number of new records in Q2 for GovDeals, reflecting the strong position of our market-leading business, including a record number of new accounts signed, which was up 30% year-over-year, a record number of unique sellers in the single quarter, too, and a record number of unique bidders in a single month.

Yes, we continue to see significant expansion opportunities in the $3 billion GMV public sector personal property market as the majority of large cities and counties still use some form of high-cost full-service takeaway options.

Our lower cost, flexible solution provides clients a superior net recovery, and we're very excited about the growth opportunity to continue to bring value to these government agency clients. Q2 GMV in our CAG segment increased 3% and direct profit increased 11% year-over-year, driven by growth in high-margin consignment flows within our CAG industrial client base and our continued strength in heavy equipment categories with recurring sellers.

We have continued to grow our CAG buyer base as segment unique bidders grew 36% year-over-year. The outlook for CAG is quite good as we have a record backlog of new business from existing and new clients with particular strength in energy, biopharma and heavy equipment.

Machinio continued its strong trajectory with 8% revenue growth and is approaching $20 million of annual recurring revenue with 90% plus direct profit margins, reflecting the successful transformation of Machinio into a valued solutions provider of digital commerce offerings to equipment dealers, including lead generation, hosted websites, inventory management, customer management and marketing tools and service quote pricing and related financing.

Machinio's expansion into the marine industry vertical is going exceptionally well. We have more than doubled the number of new marine customers and revenues sequentially in Q2. Across Liquidity Services, we continue to use technology, software and data analytics to optimize recovery and operations. For example, we continue to enhance our inventory scanning, classification, image quality and asset descriptions to maximize recovery. We have also leveraged AI tools to improve seller asset management, valuations and customer service.

Our marketplace continues to scale in size and engagement. We now serve 6.3 million registered buyers, an increase of 8% year-over-year with 983,000 auction participants during the last quarter and 280,000 completed transactions, each demonstrating the growing relevance and liquidity of our platform. Looking forward, we are a well-differentiated marketplace in the $100-plus billion circular economy with outstanding liquidity in every major asset category.

Our scaled technology-driven platform, which is now approaching $1.8 billion GMV run rate brings transparency and efficiency as the market leader for sellers and buyers in every segment of the economy.

We will continue to create value by growing supply and demand within our existing and new asset categories, geographies, and service areas such as auction software and our Machinio dealer service offerings. Thank you for your confidence and continued support. We're well-positioned to build on our early momentum in fiscal '26 and deliver another year of profitable growth. Now I'll turn it over to Jorge for more details on the quarter.

Good morning. During the fiscal second quarter of 2026 compared to the same period last year, we continue to grow GMV and revenue while also growing our total of segment direct profits 18% and adjusted EBITDA by 37%, resulting in our total adjusted EBITDA as a percent of segment direct profits at 30% for the quarter. As we have commented before, our Rule of 40 is calculated as the growth in the sum of our segment direct profits and our adjusted EBITDA as a percent of segment direct profits.

On that basis, while our total fiscal year 2025 Rule of 40 was 42% and our fiscal first quarter of 2026 was 46%, our fiscal second quarter of 2026 was 48%, showing continued performance against our long-term goal for balancing growth and profitability. Our results reinforce how we can sustain long-term profitable growth through the diversified markets we serve and a scalable model with profitability enhanced by operating leverage.

Strong buyer demand, expanded participation and disciplined execution continue to support our model designed for continuing profitable growth, creating compelling long-term value. Our approach enables us to efficiently match assets and product flows with the right buyers at scale, improving engagement and enhancing the economics for all users of our platform and services.

With our strong year-over-year profitability growth in the fiscal second quarter, our trailing 12-month performance for net income and non-GAAP adjusted EBITDA surpassed $30 million and $70 million, respectively, with operating cash flow over the same period exceeding $86 million. Our long-term effort to carefully select a diversified set of target markets for sustainable growth and to invest in transformative tech-enabled services, leveraging scalable solutions, continues to pay off. The reliability and best-in-class performance for our sellers and buyers alike, remains a pillar of strength anchoring client relationships for over 25 years.

Our consolidated results for the second quarter of fiscal year 2026 included GMV of $389.9 million, up 6% and revenue of $120.7 million, up 4%, while GAAP earnings per share were $0.23, up 5%. Non-GAAP adjusted earnings per share were $0.35, up 13% and non-GAAP adjusted EBITDA was $16.7 million, up 37%. GAAP EPS grew at a lower rate than non-GAAP adjusted EPS, primarily due to the year-over-year increase in performance-based stock compensation expense.

Both GAAP EPS and non-GAAP adjusted EPS grew at a slower rate than non-GAAP adjusted EBITDA, principally on the increase in income tax expense associated with the lower tax benefit from stock compensation. Our effective tax rate was slightly up this fiscal second quarter, also partly due to the effect of equity comp. We ended the fiscal second quarter of 2026 with $204 million in cash, cash equivalents and short-term investments.

We continue to have 0 debt, and we have $26 million of available borrowing capacity under our credit facility. At the end of this fiscal second quarter, we had $50 million remaining from our authorization to perform additional share repurchases. Turning to segment performance compared to the same quarter last year.

Our RSCG segment increased GMV by 10%, revenue by 1% due to the expected shift in mix compared to last year and direct profit by 29% from a high volume of low-touch seller inflows in high demand and a variety of client programs during the seasonally high fiscal second quarter of our Retail segment as well as realizing operational efficiencies.

Our GovDeals segment increased GMV 5%, revenue by 11% and direct profit by 12%, reflecting continued growth in sellers and buyers, higher vehicle volumes, the effect of expansion of service offerings and operational efficiencies resulting in a higher revenue to GMV ratio. Our CAG segment increased GMV by 3%, revenue by 12% and direct profit also 12%. Growth was broad-based across the key industry verticals in North America we serve, supported by continued expansion of our recurring seller base of heavy equipment assets.

Our Capital Assets Group also continues to leverage global customer outreach, resulting in a strong auction pipeline across key verticals targeted for their broader base growth potential. Machinio and Software Solutions combined to increase revenue by 12% and direct profit by 10%, reflecting Machinio's expansion of its offering to marine dealers and Software Solutions focused on expanding its recurring SaaS business. We now enter what has traditionally been our seasonally high fiscal third quarter.

Our guidance for the fiscal third quarter of 2026 anticipates year-over-year growth to continue and includes execution on the strong pipeline at CAG, including in energy and continued high volume in our Retail segment despite coming off its seasonally high fiscal second quarter while expecting some mix shift in product flows sequentially. GovDeals is expected to continue to grow GMV as it enters its typical seasonally high quarter and onboards new clients.

Our Machinio and Software Solutions businesses are expected to continue to grow as we expand service offerings and further develop recurring revenue streams. On a consolidated basis, consignment GMV for the fiscal third quarter is expected in the low to mid-80s as a percent of total GMV, with purchase GMV sequentially stable. Consolidated revenue as a percent of GMV is expected to be in the mid- to high 20s and total segment direct profit as a percent of consolidated revenue is expected to again be in the mid- to high 40 percentage range.

These ratios can vary based on overall business mix, including asset categories in any given period. Management's guidance for the third quarter of fiscal year 2026 is as follows: we expect GMV to range from $425 million to $465 million. We estimate non-GAAP adjusted EBITDA to range from $17 million to $20 million. GAAP net income is expected in the range of $7 million to $10 million with corresponding GAAP diluted earnings per share ranging from $0.21 to $0.30 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.30 to $0.39 per share.

Both GAAP and non-GAAP earnings per share are expected to reflect a higher effective tax rate approaching the mid-30s for the fiscal third quarter of 2026. For non-GAAP earnings per share, the effect of non-GAAP adjustments is also reduced by an increase in our effective tax rate.

The GAAP and non-GAAP earnings per share guidance assumes that we have approximately 33 million fully diluted weighted average shares outstanding for the third quarter of fiscal year 2026. Capital expenditure is expected to remain consistent with recent levels of approximately $2 million per quarter. Thank you, and we will now take your questions.

[Operator Instructions] Our first question comes from Gary Prestopino with Barrington.

A couple of questions here. First of all, these pertain to GovDeals. With what the weather impact that you experienced last quarter, does that snap back rather sharply here going into this quarter, Bill, in terms of were there delayed auctions or delayed product flows?

Yes, Gary, those items, principally vehicles and heavy equipment that were not allotted in the March quarter didn't go anywhere. So they'll work their way through the system, and we'll get credit for that. And I would just point out what was sort of the headline of the quarter, which is our largest segment had this exogenous factor that limited production, i.e., the weather. And yet the breadth and diversity of our portfolio pushed through that to deliver strong results.

Okay. And then just a follow-up there. It seems like the last couple of quarters, you've really increased your account base, and I think you're up 30% this quarter as well. What are you doing differently? Or have you just really added to the sales force and you're just attacking the market in full bore?

We have made investments in growing the size of the sales organization within GovDeals, and we're complementing that with very productive software and AI-related tools that make that sales organization more productive, targeting the right people at the right time with the right message, and that's improving conversion.

That's good. And then just lastly, backlog in CAG is at a record. Are you -- can you -- are you at liberty to discuss the size of that backlog? And how long will it take for that backlog to start working its way through the system?

Well, I think I can, in broad strokes, say that we have several hundred million of GMV in backlog, and we continue to win global mandates from Fortune 500, even Fortune 50 organizations that are looking at liquidity services on a multiyear basis to manage value and sell equipment. And we've noted that we've had strong results in energy, biopharma, health care, transportation and heavy equipment. So I think with more objects in the pipeline with recurring sellers, we have a very strong position.

[Operator Instructions] Our next question comes from George Sutton with Craig-Hallum.

Nice results. So Bill, I wondered if we could talk from a 2-sided marketplace thought process. You've done an incredible job of getting more registered buyers, more auction participants. We always have the vagaries of the supply in any specific quarter. I'm curious if you're making investments or if you can kind of define some of the investments you're making to build up the supply side separately? And then is that also an area you're contemplating more actively from an M&A perspective?

Thank you. Yes, we continue to have a multipronged approach to attracting supply in a couple of different areas. One, we want to go deeper with existing accounts. We want to get every asset in the supply chain, every asset on the balance sheet identified, valued and on the platform. And that means making sure that our account management functions within government, within industrial, within retail are just providing more data analytics to our clientele. So they know that we can sell everything in their portfolio, and that includes new, used solids and scrap.

So more assets coming out of existing accounts. Two, we're obviously adding accounts, which we just discussed. I think we're becoming more productive in converting prospects to active sellers. Three, we're adding geographies to our platform. Within the U.S., we've gone to larger metro areas, larger counties, kind of westward expansion. We've gone into Canada.

And then through the work that we've done, particularly in our Retail segment and our Capital Asset Group segment, we're building more international clientele, clientele that can list and sell directly to the platform. We don't have to open up facilities. We just give them access to the buyer liquidity and these, I think, very effective tools to quickly describe the assets, enhance the descriptions, make sure that they do that in a self-managed way. And then our buying community loves accessing that new supply even outside the United States.

And then finally, services. I think we're adding services that clients value and pay for, both within sort of the transactional marketplaces, things like financing, variations of asset valuations and then our auction software tools, which allow some of our clients to license our applications to create white label marketplaces and then cross-list the assets within our aggregated marketplace.

And Machinio, which is targeting the dealer community has gone from what it was when we first started, George, in 2018 as sort of a lead generation platform that created a lot of value to allow buyers and sellers to get connected on a particular piece of equipment and close the deal.

We've evolved to a comprehensive digital solutions platform, which is allowing the dealer to move everything into the cloud, their inventory management, mobile responsive website, e-mail management, customer management, digital marketing tools and then financing tools and the ability for dealers to also monetize their services as well as their inventory by selling and pricing their services with various quote tools to buying customers, and that's where a lot of the margin for dealers are.

And then we've taken that digital solution stack and have expanded into the marine vertical, boats and water vessels, which is a huge dealer community that is showing a high propensity to buy the Machinio services. So we're excited about expanding services broadly.

You talked about dynamically matching flows in the Retail segment. I wonder if you could just give us a bit of a picture as to that matching process. And if you can also address the Retail Rush that the numbers are growing very quickly there. We've looked at you as a potential Shopify alternative to some extent. Can you just give us a broader update there?

Sure. Well, there's just -- think of a river of returns coming every day from the retail, particularly online retail activities. And so the job is to quickly use decision support tools for each item by seller to determine what's it worth and who's the right buyer net of cost. So by being able to create a catalog by customer of their entire inventory supply chain and then mapping that to historical sales, which we've been doing for over 20 years, you then create a decision on where to allocate that item.

Should that item be sold in a pallet to truckload quantity based on its condition and item retail and resale value or should it be spotlighted and sold in a single unit through a direct-to-consumer channel like Retail Rush. And we also do manage third-party consumer-facing marketplaces for our clients. And so that ability to make the right disposition decision based on data, and that data is updated daily is what allows us to extract more and more value over time.

And the Retail Rush example, which is still nascent, but we think it has a lot of significant value in the industry is allowing us to route higher-value in-demand product based on these decision support tools to a consumer buyer who would then have it visible in an online setting, bid for and buy the item and then essentially self-fulfill the item by visiting the location, going inside the Retail Rush pickup location, getting a scan barcode or QSR on where the item is on the aisle on the shelf and then picking it up and putting it into their car and driving away.

So it's an elegant way to reduce the fulfillment cost and get the right items to a consumer buyer who will pay more money for the item. And so it helps build the flywheel. And we think that Retail Rush channel, which is powered by our own auction software and powered by our data analytics, can proliferate throughout North America in strategic locations and just give more value to the entire retail supply chain. And it's a very low cost way to bring value to all participants.

Thank you. I'm showing no further questions at this time. This concludes today's conference call. Thanks for participating. You may now disconnect.

Ladies and gentlemen, welcome to the Liquidity Services First Quarter Fiscal Year 2026 Financial Results Conference Call. My name is Michelle, and I will be your operator for today's call. Please note that this conference call is being recorded. [Operator Instructions]

I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller. Please go ahead.

Good morning. On the call today are Bill Angrick, our Chairman and Chief Executive Officer; and Jorge Celaya, our 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 management's views as of today, February 5, 2026 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 filings with the SEC, including our most recent annual report on Form 10-K.

As you listen to today's call, please 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, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliation of these measures with their most comparable GAAP measures as available. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we 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 will turn the presentation over to our Chairman and CEO, Bill Angrick.

Good morning. We began fiscal year 2026 with strong momentum delivering the first quarter that reflects the power of our platform, the resilience of our multichannel marketplace model and our continued commitment to profitable technology-enabled growth. I am pleased to report that Liquidity Services once again demonstrated the ability to scale efficiently, deepen buyer and seller engagement and create long-term value for our customers and shareholders. In the first quarter, while GAAP revenue was flat due to the increasing share of consignment sales are consolidated gross merchandise volume and direct profit increased to $398 million and $57 million, respectively, and our profitability expanded meaningfully and with GAAP net income up 29%, non-GAAP adjusted EBITDA growth of 38% year-over-year to $18.1 million and adjusted EPS growth of 39% year-over-year to $0.39 per share. We closed the quarter with $181.4 million in cash and no financial debt providing strategic flexibility as we continue to invest in growth and technology.

Our performance reflects disciplined execution across each segment of our business. GovDeals delivered 7% GMV growth fueled by Accella acquisition and continued market share expansion, including an all-time record of over 500 new agency clients such as the Pennsylvania Department of Transportation, the State of New York Housing and Urban Development Agency, the New York Authority, Agency in the city of Malibu, California. Clients continue to be attracted by the breadth and liquidity of our GovDeals marketplace, which transacts in over 500 asset categories providing our clients a one-stop solution to optimize their surplus and idle assets. Direct profit grew 13% year-over-year, benefiting from enhanced services, stronger than forecast pricing on asset sales, driven by robust buyer participation and higher average commission rates. SEG segment achieved 3% GMV growth and a 16% increase in segment direct profit driven by strong buyer participation and improved product mix. despite a year-over-year decline in purchase model programs.

Our direct-to-consumer GMV increased 40% year-over-year as we tap growing consumer demand. We have continued to leverage technology and process improvements to drive efficiencies as our direct profit per labor hour surged over 48% year-over-year in Q1, reflecting improved productivity. Our CAG segment saw a 17% GAAP revenue growth supported by increased activity in industrial spot purchases, heavy equipment transactions, partially offsetting lower GMV year-over-year related to the prior year's unusually large energy projects. Our heavy equipment category continued its strong expansion, logging 27% year-over-year organic GMV growth and 88% growth in the number of transactions, fueled by strong buyer participation. We signed over 100 new seller clients in our CAG segment during Q1 and are expecting a steady ramp during the balance of fiscal year 2026. Machinio and Software Solutions continued its strong trajectory with 27% revenue growth, reflecting subscription expansion and the successful integration of our auction software business.

Machinio's launch of its advertising and systems offerings into the marine industry vertical is going exceptionally well. Machinio was also growing the number of service providers on its marketplace, which enhances Machinio.com as a full-service destination for buyers of used machinery and equipment. Our auction solutions business is focused on building the world's most scalable multi-tenant auction platform for resellers, retail liquidators and traditional auction houses. This niche is perfectly suited for the buyers of products on our liquidation.com B2B marketplace. Our interim goal is scaling our Auction Software business to 1,000 customers with ARR of $10,000 or more. Across Liquidity Services, we are benefiting from the operating leverage created through our intelligent deployment of AI data analytics and automation, which is improving efficiency, strengthening decision-making and enhancing the customer experience.

For example, we continue to refine our asset categories and product taxonomy to improve buyer navigation and conversion. We've also leveraged AI to enhance our predictive lead scoring for new customers and engagement with our existing customers based on role-based signals. We also successfully launched Retail Rush, our new consumer auction channel, leveraging our software solution suite to expand our reach into the retail secondary market and attract new buyers and sellers to our ecosystem. Our marketplace continues to scale in both sides and engagement. We now serve 6.2 million registered buyers, an increase of 9% year-over-year, with 983,000 auction participants and 264,000 completed transactions, in this quarter alone, each demonstrating the growing relevance and liquidity of our platform.

Looking ahead to the second quarter, we anticipate double-digit adjusted EBITDA growth versus the prior year, supported by a healthy business development pipeline, continued strength in GovDeals, expanding consignment activity in retail and solid buyer demand across our categories. Our business model remains resilient, underpinned by durable long-term trends in circular commerce, sustainability, digitization and the growing need for enterprises to manage surplus assets efficiently. We remain committed to disciplined investment and technology that analytics multichannel marketing and operational excellence. As we expand our platform and capabilities, our focus remains on delivering superior outcomes for sellers, exceptional value for buyers and sustained returns for shareholders. Thank you for your confidence and continued support. We are well positioned to build on our early momentum and deliver another year of profitable growth.

I'll turn it over to Jorge now for more details on the quarter.

Good morning. Our fiscal year 2026 is off to a solid start. Our first quarter non-GAAP adjusted EBITDA was $18.1 million, increasing 38% over the first quarter of fiscal year 2025. And which itself had grown adjusted EBITDA by 81% over the first quarter of fiscal year 2024. GovDeals continues to grow and reported expanded margins compared to the same quarter last year while heavy equipment category in our Capital Assets Group, or CAG segment also continued to perform strongly in the market. And our retail segment or RSCG, generated stronger margins for the quarter as its product mix included an increased proportion of lower touch flows for both purchase and consignment. Our non-GAAP adjusted EBITDA has reflected continued growth in lower touch consignment transactions and expanding multichannel buyer outreach, particularly in our Retail segment.

These results also demonstrate our efforts to continuously improve our operating efficiency, with operating leverage resulting in strong fall-through, again during this past quarter. Our consolidated results for the fiscal first quarter of 2026 include GMV of $398 million, up 3%, while revenue was slightly down by 1% to $121.2 million, reflecting the previously anticipated mix shift of lower purchase transaction activity in our retail segment, mostly offset by consignment flows. Our GAAP earnings per share was $0.23, up 28% and our non-GAAP adjusted earnings per share was $0.39, up 39%, and our non-GAAP adjusted EBITDA was $18.1 million, up 38%. GAAP earnings per share grew at a slightly lower rate than our non-GAAP profitability metrics due to performance-based stock compensation expense. We ended the fiscal first quarter with $181.4 million in cash, cash equivalents and short-term investments. We continue to have 0 debt and we have $26 million of available borrowing capacity under our credit facility.

During the fiscal first quarter, we conducted $1.5 million of share repurchases. At the end of the quarter, we had $15 million remaining on our authorization to perform additional share repurchases. Specifically, comparing segment results from this fiscal first quarter to the same quarter last year, our GovDeals segment was up 7% on GMV, up 9% on revenue and up 13% on direct profit due to market share expansion and improved rates across certain sellers, while also reflecting the operating efficiency initiatives implemented over the last 2 quarters. Our Retail segment was up 3% on GMV, down 6% on revenue, yet up 16% on direct profit. Segment direct profit was $21.5 million, setting yet another quarterly record following continued growth in key consignment programs, higher volumes of lower touch purchase flows and strong multichannel buyer participation. Our CAG segment was down 10% on GMV, yet up 17% of revenue and up 7% on direct profit. The GMV to revenue ratio for CAG was in line with the low purchase activity in the fiscal first quarter of last year.

These results reflect the continued growth and market share expansion in our heavy equipment consignment category while the prior year contained some larger yet lower take rate projects in the energy category. Machinio and Software Solutions combined to increase revenue by 27% and direct profit by 23%, driven by increased machine subscriptions and pricing for its services as well as contributions from our recently acquired Software Solutions business. Moving on to our outlook for the fiscal second quarter of 2026. We are continuing to focus on delivering profitable growth. GMV is expected to grow year-over-year. While we began the quarter with difficult weather conditions across the country, we expect the remainder of the quarter to deliver solid activity and still anticipate strong year-over-year growth for both GMV and profit from our GovDeals and Retail segments.

We also have been implementing operational efficiencies, improvements that will continue to show in higher drug profit margins compared to last year. Our second quarter outlook does include onetime costs and operating expense of approximately $300,000 to $400,000 related to streamline a retail operating location to continue enhancing our processing productivity for higher touch flows. The fiscal second quarter guidance also reflects a products mix within retail for purchase flows that sequentially are currently expected to be at a slightly lower margin than this past fiscal first quarter, including a modest seasonal increase in logistics costs as we enter the post holiday season. Our low end of guidance range reflects continued double-digit growth in adjusted EBITDA compared to the same quarter last year. We also remain well positioned based on trends in current seller flows and buyer demand as we look ahead to the fiscal second half of 2026.

GAAP and non-GAAP adjusted EPS in are expected to remain solid despite a comparatively low effective tax rate in the second quarter of fiscal 2025. These guidance ranges reflect higher-margin business mix compared to last year delivered with continued operational efficiency. On a consolidated basis, consignment GMV is expected to continue to be in the low 80s as a percent of total GMV. And Consolidated revenue as a percent of GMV is expected to be slightly below 30% and the total of our segment direct profit as a percent of consolidated revenue is expected to be in the mid- to high 40% range. These ratios can vary based on our overall business mix, including asset categories in any given period. Management's guidance for the second quarter of fiscal year 2026 is as follows. We expect GMV to range from $375 million to $415 million. GAAP net income is expected in the range of $6.5 million to $9.5 million, with corresponding GAAP diluted earnings per share ranging from $0.20 to $0.29 per share. Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.29 to $0.38 per share.

We estimate non-GAAP adjusted EBITDA to range from $14 million to $17 million. The GAAP and non-GAAP earnings per share guidance assumes our second quarter income tax rate will be in the mid- to high 20s and that we have approximately $32.5 million to $33 million fully weighted average shares outstanding for the second quarter of fiscal year 2026. CapEx is expected to remain consistent with recent levels of approximately $2 million per quarter and free cash flow conversion should be in line with historical and seasonal patterns.

Thank you, We will now take your questions.

[Operator Instructions] And our first question will come from George Sutton with Craig-Hallum.

Nice results. So Bill, you mentioned multiple times in your prepared comments that you're seeing tech-enabled growth, you're leveraging technology. I wondered if you could call out some of the bigger drivers that you're referring to there.

Well, we've commented in the last year about improving the conversion rate of buyers -- browsers that eventually become registered buyers, that have actually become bidders. That is the dynamic that drives higher recovery rate and more satisfied sellers. And there's no doubt that the investments we've made in machine-driven systems and intelligent signaling of when's the right time to show the buyer a particular asset has boosted results. The fact that that's happening in an automated way without a high content of labor makes it more productive. Another example would be the operational realm of scanning an asset and making it available for purchase online, that is historically a very labor-intensive process with defects. Did I get the right number of photos? Did I get the right number of angles? Did I get the right description? Did I append the description with the right OEM data? All of that can be automated and we are automating it, and it's delivering a more accurate description more quickly and with less labor content.

On the sales and marketing side, the inbound leads we've automated the process of identifying who are the right parties to contact and to engage that contact through campaigns at the right points in time with automation and harnessing a lot of the historical data regarding the $15 billion in sales that we've completed and bringing that data to life for prospects to make them aware of our expertise, which increases the likelihood that they're going to convert to a new customer. You heard that we signed an all-time record 500-plus actually new agency clients in our government market. A lot of that has to do with what I've just described and that extends to our commercial segments as well.

Well, I did want to focus on that last comment specifically because it was impressive that you called out the growing number of CAG and GovDeal clients. Obviously, that would give a sense of a durability of growth. Any sense on sort of how significant the impact of bringing in these new clients are in these verticals? And any plans were any sort of suggestions for growth and continued additions there?

I think we've got a great runway in both the public sector, government market and in the commercial markets, not only within Capital Assets Group and the star being our heavy equipment category. But also the retail industrial supply chain. I mean we are people are coming home to the platform, and it's not hard to understand why. We've got the most buyers delivering the highest recovery. We've got all the value-added services to help reduce supply chain costs. We got the best data to give them appraisals of what their assets are worth. Buyers like the platform, the reach and depth of what we have for sale. They can find a lot of value, a lot of end-user businesses can source what they need. So we think there's a structural improvement in buyer and seller acquisition having in the platform.

And I think as we move through 2026, I mean there's going to be 10-digit asset sales and programs being announced with Fortune 1000 clients. That's where we live. I mean if you're a large blue chip company, you want a proven solution. You don't want someone learning on the job. You want trust, you want loyalty. You want something that can -- at industrial scale execute. We have great compliance by the way. there's been reports about greater fraud happening in the returns reverse logistics space. And just generally, and we have tremendous experience identifying and qualifying our buyer base to essentially remove that fraud risk. And that's another reason why sellers transact on the liquidity services marketplace platform.

And the next question will come from Gary Prestopino with Barrington.

Following up on George's question and the theme that you've set forth in terms of using technology to increase efficiencies. Have you been increasing your sales force commensurate with the ability to drive growth in new client acquisition? Or is a lot of this just really coming from the tech investments that you're making that are making it easier to drive new business?

Gary, the majority would be leveraging improved automation and scoring of the right companies and delivering the messages at the right times to increase conversion. Having said that, we absolutely, in a targeted fashion, have added resources to support the sales outreach because when you have a great story to tell, it's important that you get people in the channels to spread awareness. And we're just getting started in many of our categories like heavy equipment, is showing tremendous promise. We've been at nearly 30% compound annual growth per quarter on a GMV basis there. And we think that can be a $1 billion GMV business. And call it, we're at $100 million, $110 million GMV run rate. So there's plenty of room there.

We have added targeted resources in our GovDeals marketplace. I've rattled off some of those new clients. These are big structural wins when you're talking about New York Housing Urban Development, New York State Port Authority, State of Pennsylvania Department of Transportation, And when you win these types of mandates, these are agencies that do a lot of new diligence. They want to understand your ability to scale and service large flows of assets and do so in an efficient way. And so we've answered emphatically that we are the best-in-class for those types of clients. So with the benefit of automation we can get some increasing operating leverage, but we're always going to be hunting for growth and we have added resources in the areas I mentioned.

So. Okay. That's great. So you also mentioned your heavy equipment sales were up 20% or GMV was up 20%. You're offering more or less a sell and place solution, right, with heavy equipment? And I guess the question I would have is what -- are you looking at niches that are not currently covered by some of the larger players in the market, I guess, what would be the competitive advantage that you have that you're able to gain this kind of share?

Well, you've got a number, One, lower net commission rates, lower take rates, Two, lower out-of-pocket transportation and make ready costs. Three flexibility for the seller to set the terms and conditions of sale for the ability to produce data-driven reserve prices that protect the sellers' downside. Fourth, we've got a tremendous buyer base, and we're delivering very good recovery rates on the gross asset sales. And those things have come together to give us that differentiation and adoption.

Okay. Is it -- are you -- and I remember speaking with you about this, When you're talking about heavy equipment, does that include [indiscernible] land?

Yes.

Okay. All right. And then lastly, where do we stand with the Retail Rush product?

So we're live in the first prototype with Retail Rush. It's ramping week over week, month-over-month. The pickup location is in Columbus, Ohio, And the really important point is that we're seeing the uptick in recovery rate for the same assets sold in the Retail Rush channel versus wholesale channel. There's insatiable appetite for value with consumer buyers. And so we're tapping that. And we're carefully creating an auction experience that combines value with a treasure hunt experience and automating as much of that process as we can. And so we think there's a niche there. And we know from our tens of thousands of B2B buyers in the retail marketplace. These are people that would love to have the same capabilities of the retail rush software platform. So over time, we can envision partnering with our buying customers on the liquidation.com platform by giving them a license to use this B2C auction model and set up their pickup locations in different points of presence around the United States and then eventually in Canada.

And we have no further questions at this time. This does conclude today's conference call. Thank you for participating and you may now disconnect.

Welcome to the Liquidity Services Inc. Fourth Quarter of Fiscal Year 2025 Financial Results Conference Call. My name is Liz, and I will be your operator for today's call. Please note that this conference call is being recorded. [Operator Instructions] Later, we will conduct a question-and-answer session. I will now turn the call over to Michael Patrick, Liquidity Services Vice President and Controller.

Good morning. On the call today are Bill Angrick, our Chairman and Chief Executive Officer; and Jorge Celaya, our Executive Vice President and Chief Financial Officer. They will be available for questions after their prepared remarks. Following discussion and responses to your questions reflect management's views as of today, November 20, 2025, 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 filings with the SEC, including our most recent annual report on Form 10-K.

As you listen to today's call, please 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, management will discuss certain non-GAAP financial measures. In our press release and filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including the reconciliations of these measures with their most comparable GAAP measures as available. Management also uses certain supplemental operating data as a measure of certain components of operating performance, which we 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 will turn the presentation over to our Chairman and CEO, Bill Angrick.

Good morning, and welcome to our Q4 earnings call. I'll review our Q4 performance and the progress of our business segments and next Jorge Celaya will provide more details on the quarter. Our outstanding Q4 results reflect the depth, scale and liquidity of our proprietary e-commerce marketplaces, value-added software solutions and our teams, customer-focused culture. Our ability to connect buyers and sellers in the circular economy across hundreds of diverse categories ranging from multimillion dollar industrial and construction assets to vehicles and retail consumer goods is a key competitive advantage and positions us well in any economic climate.

We continue to expand and enhance our capabilities including our recent integration of a new payment solution to improve the buyer experience and operational efficiency of our marketplaces. Our growth in Q4 reflects the strong operational execution of our RISE strategy. As GMV, adjusted EBITDA and our adjusted EPS grew 12%, 28% and 16% year-over-year, respectively, all above our guidance range. Our Q4 adjusted EBITDA margins as a percentage of direct profit grew over 310 basis points over the prior year to 32.8%, reflecting a continued mix shift to higher-margin consignment and software solutions and the operating leverage of our technology platform.

For the full year fiscal 2025, Liquidity Services made strong financial and strategic gains and we see a clear path to our midterm goals of $2 billion in annual GMV and $100 million of annual adjusted EBITDA. Let me now cover some of the key highlights from our fiscal year 2025. We achieved a record $1.57 billion in GMV in fiscal '25 eclipsing the $1.5 billion GMV milestone for the first time and achieved revenues of nearly $477 million, up 31% year-over-year. We achieved these marks with an increasingly diversified business as every LSI business segment grew both its top and bottom line during the year.

Our strategy has prioritized low-touch consignment services and software solutions with recurring revenue characteristics that are creating substantial value for customers within a $100 billion-plus GMV market opportunity across the government, industrial and retail sectors. Second, we generated strong profitability and free cash flow during fiscal '25 with adjusted EBITDA of $60.8 million, up 25% year-over-year, our highest EBITDA in 11 years. Our asset-light business model and operational efficiencies, including the increasing use of AI-assisted technologies allowed us to generate $59 million of free cash flow during the year, providing strong flexibility to execute our strategic plan.

Our buyer base and liquidity continue to be a strong competitive advantage for LSI. And during fiscal '25, we eclipsed 6 million registered buyers for the first time on our platform and set a new record of 4.1 million auction participants on our platform. We continued our expansion and diversification of our GovDeals segment during the year, which achieved a record $903 million of GMV, up 8% over year, eclipsing $900 million GMV threshold for the first time driven by consistent growth in the number of new sellers, active sellers and record vehicle and equipment sales volumes.

We have further segmented our North American territories, identified government adjacent markets and added capacity to our GovDeal sales organization to drive further growth. We also continued to expand our CAG heavy equipment fleet category during fiscal '25, which grew GMV 35% organically during the year. Our strong buyer base, sell in place service model and user-friendly experience has allowed us to develop and grow relationships with national equipment fleet owners with recurring sales volumes. This has propelled this category from 0 a few years ago to a run rate of more than $100 million of GMV resulting in higher and more consistent growth and profitability within our CAG segment.

Our Retail segment grew GMV 30% year-over-year by securing new recurring program flows from existing and new clients and leveraging the strength of our multichannel buyer base and agile operating footprint. Additionally, we recently launched our new localized consumer auction channel Retail Rush to drive higher recovery for our clients and value for consumers. We also further scaled our Machinio classified and dealer management software business in fiscal '25. In addition to achieving record revenue and EBITDA during the year in Machinio segment. We have expanded our Machinio sales capacity and develop platform innovations to target new growth opportunities within the heavy equipment marine and service industries. We completed the purchase of auction software in January of fiscal '25 to expand our software development capacity to grow our SaaS offering with existing and new customers and to provide a platform for the launch of our new consumer online auction channel Retail Rush. We are excited by the opportunity to accelerate and expand our innovations in the circular economy with our new auction software team and technology platform, which anchors our new software solutions business segment.

During fiscal '25, we continued to advance our LSI product road map with several innovations. For example, we deployed our new Seller Asset Management, or SAM tool in Canada on our GovDeals in all surplus marketplaces. The new SAM tool incorporates mobile responsive design templates, AI-assisted listening, tools and asset verification tools which enhance the speed and quality of our customers' daily usage on our platform. We are well underway in rolling these new tools out in the U.S. market to our over 15,000 sellers. During fiscal '25, we also deployed new payment processing capabilities as a value-added service.

We expect this to improve the convenience of choices of payment for our buyers but also to enhance our margins over time. Finally, we benefited during fiscal '25 from strong employee engagement, collaboration and recruiting new talent this past year. Our human resources team sourced 51 management and functional support new hires during the year. And for the first time in our history, did so without using external recruiting agencies. Nearly 20% of our total new hires have been referrals from existing Liquidity Services team members, reflecting the pride we have within our organization. In summary, our role as the leading global provider of e-commerce marketplaces and software solutions, powering the circular economy is a strongly differentiated valuable business.

Our resilient, diversified platform provides stability for our customers and investors alike amid ongoing economic uncertainty. With our proven service offerings and continued investment in innovation, we are uniquely equipped to empower our buyers and sellers and drive sustainable long-term growth in the large and fragmented circular economy market. With over $186 million of cash on our balance sheet and 0 debt, we continue to evaluate M&A opportunities in the large fragmented circular economy market that is still early on in digital transformation. I'll now turn it over to Jorge for more details on the quarter and business outlook.

Good morning. For the full year fiscal year 2025, we surpassed $1.5 billion of GMV setting a new annual record. We exceeded our Rule of 40 goal with solid double-digit top line growth and strong adjusted EBITDA growth of 25% to $61 million, the highest profitability in over a decade. And on the heels of the past 4 years where we consistently grew adjusted EBITDA steadily from $43 million to $48 million, fiscal year 2025 reflected our capacity for operating leverage with our resilient, diversified business model that delivered the $61 million this year in adjusted EBITDA, which was a 300 basis point improvement in our adjusted EBITDA margin as a percent of our segment's direct profit.

Our cash flow performance also remained strong, generating $66.8 million in operating cash flow and achieving significant free cash flow conversion, which, on average, over the last 5 years, has exceeded 100%, where free cash flow is operating cash flow less CapEx. Our business model is focused on key financial objectives, including growing our segment's direct profit, a metric that serves to equalize the effect of growing consignment versus purchased GMV streams. We, therefore, also focus on adjusted EBITDA as a percent of our segment's direct profit. Consistently serving our customers with reliability, while providing technology-enabled solutions and seller access to our significant buyer base globally has enabled our market share gains.

Investing in our marketplaces and embedding leading technologies into our platform, including AI enhancements, reflects our commitment as industry leaders. Our fiscal year 2025 financial results are highlighted by strong year-over-year growth across each of our key metrics. Our consolidated GMV increased 15% and revenue grew 31% to $476.7 million, reflecting the significant purchase volumes in our retail segment earlier in the year. Our segment's direct profit in total, grew 13% year-over-year. GAAP net income of $28.1 million increased 41%, resulting in earnings per share of $0.87 for the fiscal year 2025. On a non-GAAP adjusted basis, earnings per share for the year was $1.28.

Our effective tax rate for the fiscal year 2025 was 28.8%. And we spent $7.8 million in CapEx for the year. Our non-GAAP adjusted EBITDA was $60.8 million, up 25% versus the prior year. Our fiscal year 2025 was capped by a very strong fourth quarter, led by our GovDeals and Retail segments. While for this fourth quarter, the retail segment's revenue was down sequentially from the fiscal third quarter from lower purchase volumes, which we guided to at the end of last quarter, GMV was sequentially up and the segment's direct profit and overall profitability also improved. Our consolidated results for our fiscal fourth quarter of 2025 includes GMV of $404.5 million, up 12%, revenue of $118.1 million, up 10% resulting in a revenue to GMV ratio of 29% for the quarter with a lower mix of purchase flows in retail during the second half of the quarter.

Our GAAP earnings per share was $0.24, up 20%. Our non-GAAP adjusted earnings per share was $0.37, up 16%, and our non-GAAP adjusted EBITDA was $18.5 million, up 28%. During the fiscal fourth quarter, we generated $38 million in cash flows from operations conducted $16.1 million of share repurchases and ended the quarter with $185.8 million in cash, cash equivalents and short-term investments. We continue to have 0 debt, and we have $26 million of available borrowing capacity under our credit facility. At the end of the quarter, we had $1.5 million of authorization remaining to perform share repurchases and we have since received authorization from our board for an additional [ $15 million ].

Specifically comparing segment results from this fiscal fourth quarter to the same quarter last year, our CAG segment GMV was up 18%, up 20% on revenue up 16% on segment direct profit from continued growth of recurring sellers in the heavy equipment category and international industrial sales events. Our GovDeals segment GMV was up 12%, revenue up 17% and direct profit up 19%, driven by high dollar value asset sales. The GovDeals segment direct profit of $22.3 million set a new quarterly record. The retail segment was up 8% on GMV, up 6% on revenue, growing consignment programs, which offset the anticipated lower purchase volumes.

Retail's direct profit increased 19% also set a new quarterly record of $20.3 million, reflecting improved recovery rates on select purchase model programs, the mix in flows and lower transaction processing fee. Machinio and Software Solutions combined to increase revenue by 29% and direct profit by 24%, driven by increased Machinio subscriptions and pricing for its services and the new software solutions business, which offers online auction solutions under a SaaS model.

Moving to our outlook. For our fiscal first quarter of 2026, our guidance range includes double-digit year-over-year growth in our profitability metrics, driven by the continuation of our recent higher-margin business mix combined with operational discipline. Despite last year's fiscal first quarter consolidated GMV and revenue growing 26% and 72%, respectively, GovDeals, CAG and the Machinio and Software Solutions segments are expected to continue to reflect top line growth year-over-year, while comparatively lower expected inventory purchased by our retail or RSCG segment may result in tempered year-over-year consolidated GMV and revenue.

However, Retail is expected to reflect higher segment direct profit margins and improved overall profitability compared to the fiscal first quarter of last year. On a consolidated basis, consignment GMV is expected to continue to be in the low 80s as a percentage of total GMV. Consolidated revenue as a percent of GMV is expected to be slightly below 30% in the total of our segment direct profit as a percent of consolidated revenue is expected to again be in the mid- to high 40% range. These ratios can vary based on overall business mix including asset categories in any given period.

We will continue to focus on growth in our segment direct profits and our adjusted EBITDA targeting our Rule of 40 through optimizing product and service mix and long-term operating leverage to improve margins and maintain strong cash conversion. Our business model is focused on our financial objectives while we emphasize serving our customers with reliability and innovation, enabling market share gains with technology-enabled services. Management's guidance for the first quarter of fiscal year 2026 is as follows: we expect GMV to range from $370 million to $405 million. GAAP net income is expected to range from $5 million to $8 million with corresponding GAAP diluted earnings per share ranging from $0.15 to $0.25 per share.

Non-GAAP adjusted diluted earnings per share is estimated in the range of $0.25 to to $0.35 per share. We estimate non-GAAP adjusted EBITDA to range from $13.5 million to $16.5 million. The GAAP and non-GAAP earnings per share guidance assumes that our effective tax rate will be similar to fiscal year 2025 and that we have approximately 32.5 million to 33 million fully diluted weighted average shares outstanding for the first quarter of fiscal year 2026. We expect CapEx will remain consistent with our recent levels of approximately $2 million per quarter, and our free cash flow conversion to remain in line with the historical patterns.

As has been our typical seasonal pattern, we expect the fiscal second half of fiscal year to show higher GMV and higher profitability than our first half of the fiscal year. Thank you, and we will now take your questions.

[Operator Instructions] Gary Prestopino from Barrington is on the line with a question.

Several questions. Bill, good margin improvement here. You mentioned a new payment solution that is lowering, I guess, your cost of transactions. Could you maybe go into a little more detail on that and some of the things that also are positively impacting that adjusted EBITDA margin you're generating?

Thanks for the question. I think one is just inherent operating leverage we're generating and putting more volume through our fixed costs, Gary, which is the beauty of the 2-sided marketplace once you get to scale, Additionally, and this is all with respect to the margin question, like many firms, we're studying and integrating AI system technologies to maintain or improve quality of service but also reduce cost of efficiencies. We're seeing that play out in a number of areas. Customer service and customer support, the onboarding of identifying, recruiting and onboarding of employees, the payment solutions process which does incorporate both some internally developed and third-party functionality to streamline and enhance how buyers pay.

We want to make sure that buyers have a full range of payment options, ease of sign on, ease of payment, tracking their invoice. And because we're able to spread that investment over now $1.6 billion of GMV, every basis point of savings is starting to multiply and reflect our EBITDA margin. Also, we'll see continued enhancement of our search and the matching of assets to buyers based on predictive analytics and also the historical record of bidding and buying. We're also introducing AI tools with regard to seller asset listing processes, we can enhance and improve and streamline that process for both third-party seller organizations and our internal organizations, which just means that we're enhancing and automating the data that is tagged to the assets being uploaded. It's a lot less manual and a richer description.

And this is a huge opportunity in a business like ours where each asset has some unique providence or unique condition categories so we're excited about that. Part of that is in the seller asset management tool set I mentioned on the call, Sam, which touches every seller in our government business and our industrial CAG business. We rolled that out in Canada as a Phase I to get feedback from clients on what they like, what they would continue to put in or suggest in queue. And with that feedback, we're now taking aim at a much larger U.S. market. So that's another part of the lift of EBITDA. So it's just a ton of opportunity for our business combining continued scale, contain enhancement of the buyer-seller experience and then the use of AI.

Okay. But when you say new payment solutions, you're not like now allowing some of your buyers to use something like, say, a buy now pay later, you've got a better rate on a credit card or a credit. These are all internally developed things.

These are payment processing capabilities. We're not providing credit or a new payment solution like you mentioned buy now pay later. That's not what this is about. This is about taking the combination of third-party available technologies, integrating them into our processes. And so it's a software-driven upgrade. It has nothing to do with providing financing solutions.

Okay. And then your guidance for consignment sales as a percentage of GMV is about, what, 82% for Q1. As the company is evolving, do you think that can stay in the low 80s because that definitely also leads to some margin improvement obviously, because...

I would expect that to tick up over time, Gary.

Okay. And then lastly Retail Rush, I think you said you were doing this in Columbus. Is that right? Are you expanding this nationwide?

We have a single fulfillment activity in Columbus. It's an online consumer auction experience. And we're testing it in Columbus as the customer, the winning bidder on the platform is responsible for picking up the item that they won and we are using our own internally developed software to essentially on an expedited basis, screen and list and then make available for customer pickup in a location in Columbus, there absolutely is application for both internal and third parties to use the software and the platform nationally, but we're working on a prototype and test in a single location prior to expanding beyond the single location. .

George Sutton from Craig Hallum is on the line with a question.

Thank you. Nice results. So for those listening or reading the transcript versus listening recognize that Bill has a cold. So I am curious, you mentioned diversification of GovDeals in a variety of different routes that you're taking there. Can you just walk through what is the goal of GovDeals? How broad do you see that being? When you talk about government adjacent, what kinds of things are you talking about?

Sure. Well, the public sector agencies that sell on Gov deals have a recurring flow of assets. And in some cases, they may use assets that they don't know and in that case, we would be using the platform to service less or worse, who own the assets that the government might lease for service providers that may take possession of assets at some point in the process. And when you look at the used vehicle market, the construction equipment market, which is a big part of GovDeals historical liquidity and volume, adjacent sellers in the markets that we're serving. When I say markets, the physical locations. They're asking us, "Hey, how can we get involved here?" And so we're very deliberate on who we can invite and support in the marketplace.

And we do segregate the account management when the commercial seller comes on board. So if you're leasing equipment, maybe it's construction equipment and you have some government accounts, you may be interested in selling with us. And when I highlighted that our heavy equipment category in CAG for commercial sellers has grown from essentially a start-up to over $100 million of GMV. That's a great example of a government adjacent market, sellers on -- they have government clients and commercial clients, and they have a lot of used equipment and they want to have a great experience and good recovery. So we're basically giving the same value prop to them that we have delivered successfully for over 20 years on the government side.

Got you. Okay. That's helpful. One other question on retail. And I just want to make sure we understand the focus on consignment versus purchase. You mentioned new recurring program flows. I assume you're referring to consignment flows. Can you give us kind of a broader picture of the competitive landscape and kind of why you're heading in this consignment direction?

Well, people who followed our business for a long time know that when we started in this business, we offered a consignment only solution. And the market spoke and said we want value-added services, we have some accounting reasons or SOX control reasons. We want to be able to use a purchase model arrangement. And so from really the beginning of the business, we've been agnostic. We'll provide the bundle of services and different pricing models depending on what you need, and we'll share the data. We'll give you our advice and the advice has always been you, the seller you can make more money selling on consignment with our platform because you're sharing and retaining most of the upside.

And I think people have become more comfortable with our scale and service and transparency, are more comfortable with consignment. The old SOX rule was if you have your inventory leaving your facility, you're losing physical custody of that. You might only allow that to happen if you have a purchase invoice. And that really has nothing to do with the economics, has to do with financial controls -- controllership. So I think that's the bias that's existed in the retail world for a long time. We've changed the narrative there because we can track that license plate of every item and the client can see that virtually on their dashboard. And when we sell it, they keep the majority of that net proceeds. And that's where the -- I think the market is going. We facilitated that transition because of our success and ability and willingness to share data. And so I'd say the majority of new client programs coming online with us are consigned oriented, and we're excited by that.

That will conclude today's question-and-answer session. This concludes today's conference call. Thank you for participating. You may now disconnect. .