Business context and reporting period
Liquidity Services, Inc. (Nasdaq: LQDT) filed this unaudited Form 10-Q for its fiscal first quarter ended December 31, 2021, compared with the quarter ended December 31, 2020. The company operates online surplus-asset marketplaces and related services through GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. It acquired Bid4Assets on November 1, 2021; its results are included in GovDeals.
Financial and operating performance
| Metric | Q1 FY22 | Q1 FY21 | Change |
|---|---|---|---|
| Total revenue | $66.7 million | $55.8 million | +19.7% |
| Operating income | $4.5 million | $4.6 million | -3.1% |
| Net income | $3.6 million | $4.5 million | -20.2% |
| Diluted EPS | $0.10 | $0.13 | Down $0.03 |
| Operating cash flow | $1.9 million | $6.0 million | Down $4.2 million |
| Cash and cash equivalents at quarter-end | $91.3 million | $77.8 million | Up year over year; down $15.0 million from September 30, 2021 |
Revenue comprised $36.2 million of purchase-model revenue (+16.6%) and $30.5 million of fee revenue (+23.5%). Gross profit was $38.9 million versus $33.2 million; consolidated gross margin eased to 58.4% from 59.5%. Operating margin was approximately 6.7%, versus 8.3%. The effective tax rate rose to 21.3% from 6.2%, primarily reflecting state and foreign taxes and the prior-year comparison following release of a U.S. deferred-tax valuation allowance in Q4 FY21.
Consolidated GMV increased 36.6% to $260.2 million. Segment revenue and key developments: GovDeals +29.3% to $14.0 million, with GMV up 45.8%; RSCG +10.8% to $38.7 million, while gross profit fell 2.5% and gross margin declined to 36.9% from 41.9%; CAG +41.6% to $11.2 million; and Machinio +34.0% to $2.8 million. Non-GAAP adjusted EBITDA was $9.4 million, compared with $8.8 million; the company cautions that this non-GAAP measure is not a substitute for GAAP results or cash flow.
Liquidity, debt, and capital resources
Cash was $91.3 million at December 31, 2021, including $40.0 million in money market funds. The company reported no debt. Current assets were $120.5 million and current liabilities $125.0 million. Current liabilities included $48.3 million payable to sellers. Operating lease liabilities totaled $16.2 million; finance lease balances were not significant. Management said liquidity and working capital were sufficient for anticipated needs at least one year from issuance.
Operating cash flow declined year over year, mainly due to working-capital movements, including lower accounts payable and accrued expenses; higher payables to sellers partly offset these uses. Investing cash outflow was $13.0 million, including $11.1 million paid at Bid4Assets closing, net of acquired cash, and $2.0 million of capital expenditures. Financing cash outflow was $3.8 million, including $3.0 million of share repurchases.
Material changes, outlook, and risks
Bid4Assets consideration was preliminarily valued at $41.6 million: $14.7 million cash and a $26.9 million contingent earn-out liability. Earn-out payments may reach $37.5 million and depend on EBITDA targets through the quarter ended December 31, 2022. The purchase-price allocation remains preliminary; acquired intangibles were valued at $16.5 million and goodwill at $28.8 million. Changes in earn-out fair value will affect earnings.
The company gave no quantified financial guidance. Management expects to continue investing in e-commerce technology, marketplace capabilities, analytics, marketing, and operations. It cited ongoing uncertainty from COVID-19 and cross-border restrictions, potential currency effects, competition, technology changes, and the possibility that commercial sellers change or end their agreements. Amazon-related vendor contracts accounted for 60.5% of consolidated cost of goods sold, compared with 60.0% a year earlier. The company also disclosed two former-employee discrimination/retaliation matters; it considers the claims without merit, insurance carriers accepted tender, and potential liability could not be estimated.
A new share repurchase authorization permits up to $20 million through December 31, 2023; $3.0 million was repurchased in the quarter, leaving approximately $17.0 million authorized. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth translates into improved earnings, given lower operating income and net income despite higher GMV and revenue.
- Whether RSCG’s weaker gross profit and margin persist, and how inventory mix and purchase-model activity affect consolidated margins.
- How operating cash flow and working capital evolve, particularly seller payables and the quarter-end cash balance.
- Final Bid4Assets purchase accounting and subsequent earn-out fair-value changes or cash payments.
- Exposure to Amazon vendor agreements, COVID-19 and cross-border disruption, foreign exchange, and the disclosed legal claims.