Business context and reporting period
Liquidity Services, Inc. operates online marketplaces and related services for surplus assets, through GovDeals, Retail Supply Chain Group (RSCG), Capital Asset Group (CAG) and Machinio. This unaudited Form 10-Q covers the quarter and six months ended March 31, 2022, the company’s fiscal second quarter. Results are in U.S. dollars; amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Quarter ended Mar. 31, 2022 | Year-over-year change | Six months ended Mar. 31, 2022 | Year-over-year change |
|---|---|---|---|---|
| Total revenue | $68.3 | +10.5% | $135.0 | +14.8% |
| Gross profit / margin | $39.3 / 57.6% | $35.4 / 57.3% | $78.3 / 58.0% | $68.6 / 58.3% |
| Operating income | $13.0 | +$7.3 | $17.5 | +$7.2 |
| Net income | $12.0 | +$6.7 | $15.6 | +$5.8 |
| Diluted EPS | $0.35 | vs. $0.15 | $0.45 | vs. $0.28 |
| Non-GAAP Adjusted EBITDA | $9.2 | vs. $9.4 | $18.6 | vs. $18.2 |
| Operating cash flow | Not separately reported for the quarter | $14.6 | vs. $31.3 |
- Quarterly revenue growth came mainly from fee revenue, which rose 19.6%; reported revenue from purchase transactions increased 3.9%. Six-month fee revenue rose 21.6%.
- Quarterly segment revenue: GovDeals $14.6 million (+32.7%), RSCG $41.8 million (+7.0%), CAG $9.0 million (-5.3%) and Machinio $2.9 million (+29.4%). GovDeals growth included increased marketplace volume; Bid4Assets was acquired November 1, 2021.
- Quarterly operating income and net income include an $8.5 million non-cash gain from reducing the estimated Bid4Assets earn-out liability. Excluding that gain, operating income would have been about $4.5 million. Adjusted EBITDA, which also excludes the gain, was slightly lower year over year for the quarter.
- Cash and cash equivalents were $84.3 million at March 31, 2022, down from $106.3 million at September 30, 2021. Six-month operating cash flow was $14.6 million; investing used $14.7 million, including $11.2 million net cash paid for Bid4Assets; financing used $21.9 million, including $20.0 million of share repurchases.
- No borrowings were outstanding on the $25 million revolving credit facility; the full amount was available. The facility matures March 31, 2024, has variable SOFR-based pricing and financial covenants; the company reported compliance. Total assets were $276.8 million and total liabilities $143.8 million. Operating lease liabilities totaled $15.1 million.
- Current assets were $112.2 million and current liabilities $132.6 million. Current liabilities include seller payables and the acquisition earn-out, so the balance-sheet comparison should be viewed in light of the marketplace settlement model.
Changes, outlook, risks and unusual items
- Bid4Assets acquisition consideration was preliminarily valued at $42.7 million: $14.7 million cash and earn-out consideration. The earn-out may total up to $37.5 million; its recorded fair value was $19.5 million at quarter-end. A $3.5 million payout was expected in fiscal Q3 after certain EBITDA targets were achieved. Purchase accounting remained preliminary.
- Management said cash and working capital were sufficient for projected needs for at least one year from issuance of the financial statements. It expects continued investment in e-commerce technology, marketplace tools, analytics, marketing and distribution capacity. No specific financial guidance was provided.
- Management cited continued uncertainty from COVID-19, supply-chain constraints, and lockdowns in parts of China. The Ukraine conflict and related economic disruption could delay client projects and asset sales, particularly in Europe and energy-related markets; direct Russia and Ukraine revenue was not material.
- Amazon-sourced inventory represented 56.0% of consolidated cost of goods sold for the six months, down from 60.6% a year earlier. This remains a significant supplier concentration.
- The company completed its $20 million share-repurchase authorization during the six months and had no authorization remaining at March 31. Repurchases totaled 1.16 million shares for $20.0 million.
- Two former employees have asserted employment-related claims. The company said it believes the claims are without merit, cannot estimate potential liability, and its insurer accepted tender of the claims. The company reported no other pending or threatened claims expected by management to have a material adverse effect.
Important facts for investors to verify
- How much reported earnings growth reflects the non-cash $8.5 million earn-out fair-value gain versus underlying operating performance.
- Whether Bid4Assets meets remaining earn-out targets, the cash timing and amount of any payouts, and the final purchase-price allocation.
- Whether operating cash flow recovers from the year-over-year decline, given working-capital movements in seller payables and accounts payable.
- Whether Amazon sourcing concentration, RSCG margin pressure, and the lower expected GovDeals take rate as real-estate sales expand affect future margins.
- How COVID-related disruptions, the Ukraine conflict, supply-chain volatility and the reported legal claims develop.