On this page of StockholderLetter.com we present the 1/19/2024 shareholder letter from LIQUIDITY SERVICES INC — ticker symbol LQDT. Reading current and past LQDT letters to shareholders can bring important insights into the investment thesis.
2023 Annual Report
Fellow Shareholders, As a leading global commerce company powering the circular economy, Liquidity Services continued to create value for sellers, buyers and the planet against a backdrop of economic uncertainty and disruption this past year 3ur unique role as a diversi ed, billion dollar plus, two-sided marketplace platform with growing network effects proved very resilient even as the Federal Reserve executed its tightening campaign to control persistent high in ation We achieved a record $1.2 billion in Gross Merchandise Volume (GMV) in FY23, eclipsing the $1 billion GMV milestone for the second consecutive year and did so with an increasingly diversi ed business. We continue to be an engine of opportunity for buyers to save money by providing convenient access to our global supply of used and returned goods which has allowed us to grow our registered buyer base to approximately 5.1 million at scal year end, up 5 YoY. 3ur outstanding buyer participation and exible service offerings continue to attract more government, industrial and retail industry sellers and drive better seller recovery, which, in turn, powers our growth. Our market leading liquidity helped clients sell every asset in their supply chain in our one stop solution for everything surplus in 2023, including: automobiles, trucks, construction equipment, airplanes, helicopters, energy equipment, medical devices, biopharma lab equipment, retail merchandise, IT assets, manufacturing equipment, machine tools, and even a crystal chandelier originally installed in the ballroom of the Louisiana Superdome in New Orleans, LA. FY23 Business Highlights The resilience and strength of Liquidity Services was on full display during FY23 as we delivered outstanding results. Our team, characterized by a culture of integrity, customer focus and relentless improvement, has been pivotal in achieving successful outcomes for our customers and shareholders, including: We grew our GovDeals segment GMV to $726 million. While up only 1 for the full year due to a vehicle supply shortage in the rst part of the year, GMV in our GovDeals segment increased 1 YoY in 5 , re ecting the normalization of the vehicle industry s supply chain. In August 2023, GovDeals eclipsed $4 billion in cumulative GMV, an accomplishment which underscores our unwavering commitment to sustainable value creation for our customers. Additionally, we successfully rolled out the next generation GovDeals marketplace that enhances the buyer experience with improved search, navigation, bidding and a mobile responsive design, which, in turn, will improve recovery rates realized by our sellers. We executed this initiative with minimal disruption to our sellers and buyers on the platform. We grew our Retail Supply Chain Group (RSCG) segment GMV to $2 6 million, up 21 YoY providing retail clients with highly reliable marketplace services to manage and monetize the industry s growing volume of returned consumer goods. We expanded our AllSurplusDeals consumer auction marketplace with curbside pick up to Pittstown, PA, Cincinnati, Ohio and Indianapolis, IN to support growth with existing and new RSCG clients and further strengthen our multi-channel buyer base to boost recovery. Our RSCG segment was honored with the 2023 Innovation Solutions Partner Award by the Reverse Logistics Association, which recognized our Automated Sell-in-Place program, a software solution that has increased recovery on average by 20 while eliminating touches and reducing our retailer client s carbon footprint. This industry award is granted to the company that demonstrates measurable improvements in e ciency and return on investment for customers, seamlessly integrates reverse logistics solutions with customers technology infrastructure, and exempli es innovative use of technology. We grew our Capital Assets Group (CAG) segment GMV to $1 1 million, up 1 YoY as increases in our global biopharma, energy and heavy equipment categories did not fully offset the prior year s large international spot purchase transactions. Our CAG segment s role as a trusted global market maker for high-value equipment amidst a constant cyclical economic environment drove new business pipeline growth worldwide in 2023. Our CAG Heavy )quipment eet category grew GMV more than 25 organically during the year and continues to make progress growing signed contracts, new sellers, transacted opportunities, and net new revenue. Recent wins include several national accounts with strong upside potential positioning our heavy equipment category to become a major driver for our CAG segment for years to come. Our Machinio classi eds marketplace segment grew revenue by 14 over the prior year, increasing to $13.8 million, with continued increases in customer
and recurring revenue growth. Machinio s digital advertising and storefront solutions deliver equipment dealers substantial return on investment, cost savings, and convenience, aligning well with the current economic landscape. Machinio has invested in additional capacity to expand its offerings in Asia which we expect will be a key growth opportunity in the near future. We also generated strong free cash ow of $41.6 million in FY23, ending the year with approximately $118 million in cash and zero nancial debt. We continue to allocate capital in a prudent manner and expended approximately $21.2 million in share repurchases (1.6 million shares repurchased at an average price of $13.19). We continue to have an undrawn $25 million line of credit with Wells Fargo. Re ecting our core value of Doing Well and Doing Good , we made a positive impact in the communities we serve by supporting a number of impactful charitable organizations, including Big Brothers Big Sisters mentoring programs for at risk children and the Arizona Children s Association and Chicanos Por La Causa which provide housing and nancial support for low-income families and seniors in the Phoenix area. Our Strategy Our mission to build the world s leading marketplace for surplus assets to bene t buyers, sellers and the planet continues to deliver win-win outcomes for all constituents. As the most trusted, reliable platform in our industry, we enable our corporate and government clients to achieve their nancial, operational and sustainability goals by helping them to monetize and extend the life of assets; prevent unnecessary waste and carbon emissions; and reduce the number of products headed to land lls. Notably, we align our success with customers who sell on our marketplace as 87 of our GMV is transacted on a consignment basis whereby clients reap the bene t of our continuous efforts to increase the recovery realized for assets sold on our platform.1 Our use of a technology based, asset light marketplace model generates a high return on invested capital for shareholders2 and we have nominal working capital requirements enabling us to continuously invest in enhancing our services and growing our customer base. We generate strong free cash ow and allocate capital prudently using a combination of organic investment projects, acquisitions and share repurchases to create long term shareholder value. Our strategic priority remains investing in pro table market share expansion in our current segments and scalable technologies that drive both customer value and operating e ciencies as we grow. Our expertise in diverse sectors, strong buyer base and global reach are continuing to provide advantages for our clients as they navigate the current volatile macro environment. With our strong business pipeline, trusted marketplace solutions and nancial strength, we are well positioned to gain additional market share across our segments and create long term value for our shareholders. In closing, we are proud of the achievements and progress made in scal year 2023. Our commitment to innovation, sustainability, and excellence has positioned Liquidity Services as a leader in the circular economy, and we are immensely grateful for the support of our dedicated team members, customers, and shareholders who have played a pivotal role in our success. As we look forward to the opportunities and challenges of the coming year, we remain hungry for growth, ready for challenges, and committed to building a better future for all our stakeholders. Thank you for your continued trust and support. Sincerely, William P. Angrick, III Chairman, CEO & Co-Founder Consignment data for three months ended September 30, 2023. Similarly, for non-consignment clients we drive maximum recovery through regular business reviews with customers to reduce supply chain costs and unlock improved operational and buyer performance. 1 We generated a pre-tax return on invested capital of 26 during FY23 which is calculated as (Non-GAAP Adjusted Net Income Provision for Income Taxes Income Tax Impact of the Non-GAAP Adjustments)/Equity Book value. 2
GovDeals Case Study: Switching from Live Auctions Resulted in Increased Pro ts for the State of Colorado Facing the challenge of e ciently selling large volumes of surplus items, including more than 300 vehicles annually, the State of Colorado sought out GovDeals to modernize and simplify its surplus management process while enhancing pro ts. Having previously struggled with time-consuming listing processes and meager pro ts with a general e-commerce website, the State sought out a solution speci cally tailored to its needs. GovDeals provided the State with a customized sales and marketing plan, access to a niche market, and a templatized auction listing system. The exibility offered by GovDeals allowed the State to streamline its sales processes, resulting in a 33 increase in vehicle sales pro ts in the rst year, successfully selling over 900 vehicles and generating more than $6 million in sales since the partnership began. Retail Supply Chain Group Case Study: Oliver Space Frees Up Space, Liquidates $12 Million in Two Months When furniture provider Oliver Space began experiencing warehouse capacity issues due to its circular furnishing experience model, the company turned to Liquidity Services for a solution. We implemented a multi-channel liquidation strategy which included conducting a 30-day market analysis on Liquidation.com to determine optimal prices, utilizing Automated Sell-in-Place technology to streamline the auction process, and leveraging a private direct sales network and our AllSurplus Deals marketplace to liquidate higher-value items and boost total recovery. In total, 120 truckloads of product were e ciently disposed of in 60-90 days, with a total retail value exceeding $12 million. The approach not only freed up warehouse space and reduced opportunity costs for the client, but also achieved an attractive recovery rate. Capital Assets Group Case Study: Accelerated Expansion Schedule Requires Immediate Removal of Construction Surplus Venture Global LNG, a leader in the lique ed natural gas (LNG) industry, faced challenges with its Louisiana plant s expansion, necessitating rapid clearance of its lay-down yard and e cient surplus management. The company partnered with Liquidity Services to expedite asset disposition and maximize capital recovery. Liquidity Services comprehensive strategy included pre-sale eld services, dedicated resource allocation, a specialized management team, regular communication, and detailed asset valuation for internal transfers. The project s success was marked by over $5.7 million in gross merchandise value, 3,954 bids from 202 bidders, and a 99 lot sale rate, signi cantly boosting Venture Global s growth in the LNG sector. Machinio Case Study: How Can-Am Machinery Overhauled Their Outdated Operations to Maximize Revenue with Machinio System Can-Am Machinery Inc., one of the largest paper/pulp machinery dealers in the world, sought to modernize its operations to enhance e ciency and revenue. Challenges included time-consuming manual SEO management, data inaccuracies, and disconnected work ows. Machinio System consolidated Can-Am s internal business processes by implementing a comprehensive and automated SEO strategy, integrating its website and CRM, centralizing work ows, and converting the organization to modern, cloud-based software. As a result, Can-Am Machinery Inc. experienced a signi cant increase in organic website tra c and leads, streamlined operations, and eliminated the need for unnecessary manual data entry. The adoption of Machinio System led to increased inbound leads and decreased time-to-sell, empowering business growth.
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LQDT 1/19/2024 Shareholder/Stockholder Letter Transcript:

2023
Annual Report


Fellow Shareholders,
As a leading global commerce company powering the
circular economy, Liquidity Services continued to create
value for sellers, buyers and the planet against a
backdrop of economic uncertainty and disruption this
past year  3ur unique role as a diversi  ed, billion dollar
plus, two-sided marketplace platform with growing
network effects proved very resilient even as the
Federal Reserve executed its tightening campaign to
control persistent high in  ation 
We achieved a record $1.2 billion in Gross Merchandise
Volume (GMV) in FY23, eclipsing the $1 billion GMV
milestone for the second consecutive year and did so
with an increasingly diversi  ed business. We continue
to be an engine of opportunity for buyers to save money
by providing convenient access to our global supply of
used and returned goods which has allowed us to grow
our registered buyer base to approximately 5.1 million at
  scal year end, up 5 YoY. 3ur outstanding buyer
participation and   exible service offerings continue to
attract more government, industrial and retail industry
sellers and drive better seller recovery, which, in turn,
powers our growth. Our market leading liquidity helped
clients sell every asset in their supply chain in our    one
stop solution    for everything surplus in 2023, including:
automobiles, trucks, construction equipment, airplanes,
helicopters, energy equipment, medical devices,
biopharma lab equipment, retail merchandise, IT assets,
manufacturing equipment, machine tools, and even a
crystal chandelier originally installed in the ballroom of
the Louisiana Superdome in New Orleans, LA.
FY23 Business Highlights
The resilience and strength of Liquidity Services was on
full display during FY23 as we delivered outstanding
results. Our team, characterized by a culture of integrity,
customer focus and relentless improvement, has been
pivotal in achieving successful outcomes for our
customers and shareholders, including:
    We grew our GovDeals segment GMV to $726
million. While up only 1 for the full year due to a
vehicle supply shortage in the   rst part of the year,
GMV in our GovDeals segment increased 1  YoY in
5 , re  ecting the normalization of the vehicle
industry   s supply chain. In August 2023, GovDeals
eclipsed $4 billion in cumulative GMV, an
accomplishment which underscores our unwavering
commitment to sustainable value creation for our
customers. Additionally, we successfully rolled out
the next generation GovDeals marketplace that
enhances the buyer experience with improved
search, navigation, bidding and a mobile responsive
design, which, in turn, will improve recovery rates
realized by our sellers. We executed this initiative
with minimal disruption to our sellers and buyers on
the platform.
    We grew our Retail Supply Chain Group (RSCG)
segment GMV to $2 6 million, up 21 YoY providing
retail clients with highly reliable marketplace
services to manage and monetize the industry   s
growing volume of returned consumer goods. We
expanded our AllSurplusDeals consumer auction
marketplace with curbside pick up to Pittstown, PA,
Cincinnati, Ohio and Indianapolis, IN to support
growth with existing and new RSCG clients and
further strengthen our multi-channel buyer base to
boost recovery. Our RSCG segment was honored
with the 2023 Innovation Solutions Partner Award by
the Reverse Logistics Association, which recognized
our Automated Sell-in-Place program, a software
solution that has increased recovery on average by
20 while eliminating touches and reducing our
retailer client   s carbon footprint. This industry award
is granted to the company that demonstrates
measurable improvements in e  ciency and return
on investment for customers, seamlessly integrates
reverse logistics solutions with customers   
technology infrastructure, and exempli  es innovative
use of technology.
    We grew our Capital Assets Group (CAG) segment
GMV to $1 1 million, up 1 YoY as increases in our
global biopharma, energy and heavy equipment
categories did not fully offset the prior year   s large
international spot purchase transactions. Our CAG
segment   s role as a trusted global market maker for
high-value equipment amidst a constant cyclical
economic environment drove new business pipeline
growth worldwide in 2023. Our CAG Heavy
)quipment   eet category grew GMV more than 25
organically during the year and continues to make
progress growing signed contracts, new sellers,
transacted opportunities, and net new revenue.
Recent wins include several national accounts with
strong upside potential positioning our heavy
equipment category to become a major driver for our
CAG segment for years to come.
    Our Machinio classi  eds marketplace segment grew
revenue by 14 over the prior year, increasing to
$13.8 million, with continued increases in customer

and recurring revenue growth. Machinio   s digital
advertising and storefront solutions deliver
equipment dealers substantial return on investment,
cost savings, and convenience, aligning well with the
current economic landscape. Machinio has invested
in additional capacity to expand its offerings in Asia
which we expect will be a key growth opportunity in
the near future.
    We also generated strong free cash   ow of $41.6
million in FY23, ending the year with approximately
$118 million in cash and zero   nancial debt. We
continue to allocate capital in a prudent manner and
expended approximately $21.2 million in share
repurchases (1.6 million shares repurchased at an
average price of $13.19). We continue to have an
undrawn $25 million line of credit with Wells Fargo.
    Re  ecting our core value of    Doing Well and Doing
Good   , we made a positive impact in the communities
we serve by supporting a number of impactful
charitable organizations, including Big Brothers Big
Sisters mentoring programs for at risk children and
the Arizona Children   s Association and Chicanos Por
La Causa which provide housing and   nancial
support for low-income families and seniors in the
Phoenix area.
Our Strategy
Our mission to build the world   s leading marketplace for
surplus assets to bene  t buyers, sellers and the planet
continues to deliver    win-win    outcomes for all
constituents. As the most trusted, reliable platform in
our industry, we enable our corporate and government
clients to achieve their   nancial, operational and
sustainability goals by helping them to monetize and
extend the life of assets; prevent unnecessary waste
and carbon emissions; and reduce the number of
products headed to land  lls. Notably, we align our
success with customers who sell on our marketplace as
87 of our GMV is transacted on a consignment basis
whereby clients reap the bene  t of our continuous
efforts to increase the recovery realized for assets sold
on our platform.1
Our use of a technology based, asset light marketplace
model generates a high return on invested capital for
shareholders2 and we have nominal working capital
requirements enabling us to continuously invest in
enhancing our services and growing our customer base.
We generate strong free cash   ow and allocate capital
prudently using a combination of organic investment
projects, acquisitions and share repurchases to create
long term shareholder value.
Our strategic priority remains investing in pro  table
market share expansion in our current segments and
scalable technologies that drive both customer value
and operating e  ciencies as we grow. Our expertise in
diverse sectors, strong buyer base and global reach are
continuing to provide advantages for our clients as they
navigate the current volatile macro environment. With
our strong business pipeline, trusted marketplace
solutions and   nancial strength, we are well positioned
to gain additional market share across our segments
and create long term value for our shareholders.
In closing, we are proud of the achievements and
progress made in   scal year 2023. Our commitment to
innovation, sustainability, and excellence has positioned
Liquidity Services as a leader in the circular economy,
and we are immensely grateful for the support of our
dedicated team members, customers, and shareholders
who have played a pivotal role in our success. As we look
forward to the opportunities and challenges of the
coming year, we remain hungry for growth, ready for
challenges, and committed to building a better future for
all our stakeholders.
Thank you for your continued trust and support.
Sincerely,
William P. Angrick, III
Chairman, CEO & Co-Founder
Consignment data for three months ended September 30, 2023. Similarly, for non-consignment clients we drive maximum recovery through regular business
reviews with customers to reduce supply chain costs and unlock improved operational and buyer performance.
1
We generated a pre-tax return on invested capital of 26 during FY23 which is calculated as (Non-GAAP Adjusted Net Income   Provision for Income Taxes  
Income Tax Impact of the Non-GAAP Adjustments)/Equity Book value.
2

GovDeals Case Study: Switching from Live Auctions Resulted in
Increased Pro  ts for the State of Colorado
Facing the challenge of e  ciently selling large volumes of surplus items, including more
than 300 vehicles annually, the State of Colorado sought out GovDeals to modernize and
simplify its surplus management process while enhancing pro  ts. Having previously
struggled with time-consuming listing processes and meager pro  ts with a general
e-commerce website, the State sought out a solution speci  cally tailored to its needs.
GovDeals provided the State with a customized sales and marketing plan, access to a
niche market, and a templatized auction listing system. The   exibility offered by GovDeals
allowed the State to streamline its sales processes, resulting in a 33 increase in vehicle
sales pro  ts in the   rst year, successfully selling over 900 vehicles and generating more
than $6 million in sales since the partnership began.
Retail Supply Chain Group Case Study: Oliver Space Frees Up Space,
Liquidates $12 Million in Two Months
When furniture provider Oliver Space began experiencing warehouse capacity issues
due to its    circular furnishing experience    model, the company turned to Liquidity
Services for a solution. We implemented a multi-channel liquidation strategy which
included conducting a 30-day market analysis on Liquidation.com to determine optimal
prices, utilizing Automated Sell-in-Place technology to streamline the auction process,
and leveraging a private direct sales network and our AllSurplus Deals marketplace to
liquidate higher-value items and boost total recovery. In total, 120 truckloads of product
were e  ciently disposed of in 60-90 days, with a total retail value exceeding $12 million.
The approach not only freed up warehouse space and reduced opportunity costs for the
client, but also achieved an attractive recovery rate.
Capital Assets Group Case Study: Accelerated Expansion Schedule
Requires Immediate Removal of Construction Surplus
Venture Global LNG, a leader in the lique  ed natural gas (LNG) industry, faced
challenges with its Louisiana plant   s expansion, necessitating rapid clearance of
its lay-down yard and e  cient surplus management. The company partnered with
Liquidity Services to expedite asset disposition and maximize capital recovery.
Liquidity Services    comprehensive strategy included pre-sale   eld services, dedicated
resource allocation, a specialized management team, regular communication, and
detailed asset valuation for internal transfers. The project   s success was marked by
over $5.7 million in gross merchandise value, 3,954 bids from 202 bidders, and a 99
lot sale rate, signi  cantly boosting Venture Global   s growth in the LNG sector.
Machinio Case Study: How Can-Am Machinery Overhauled Their
Outdated Operations to Maximize Revenue with Machinio System
Can-Am Machinery Inc., one of the largest paper/pulp machinery dealers in the world,
sought to modernize its operations to enhance e  ciency and revenue. Challenges
included time-consuming manual SEO management, data inaccuracies, and
disconnected work  ows. Machinio System consolidated Can-Am   s internal business
processes by implementing a comprehensive and automated SEO strategy, integrating
its website and CRM, centralizing work  ows, and converting the organization to modern,
cloud-based software. As a result, Can-Am Machinery Inc. experienced a signi  cant
increase in organic website tra  c and leads, streamlined operations, and eliminated
the need for unnecessary manual data entry. The adoption of Machinio System led to
increased inbound leads and decreased time-to-sell, empowering business growth.


shareholder letter icon 1/19/2024 Letter Continued (Full PDF)
 

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