Liquidity Services, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Fiscal second quarter and first six months ended March 31, 2021; comparisons are with the same periods in 2020. The company operates online marketplaces for resale and disposition of surplus assets through GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio.
Financial performance
| Metric | Three months ended March 31, 2021 | Prior-year quarter | Six months ended March 31, 2021 | Prior-year six months |
|---|---|---|---|---|
| Total revenue | $61.8 million | $52.8 million | $117.5 million | $102.3 million |
| Gross profit / margin | $35.4 million / 57.3% | $26.2 million / 49.6% | $68.6 million / 58.3% | $51.5 million / 50.4% |
| Operating income (loss) | $5.6 million | $(4.5) million | $10.3 million | $(9.4) million |
| Net income (loss) | $5.3 million | $(4.2) million | $9.8 million | $(9.4) million |
| Diluted earnings (loss) per share | $0.15 | $(0.13) | $0.28 | $(0.28) |
| GMV | $207.3 million | $144.3 million | $397.7 million | $292.9 million |
- Quarterly total revenue rose 17.0%; fee revenue increased 46.5% to $25.8 million, while purchase-model revenue grew 2.2% to $36.0 million. For the six-month period, total revenue increased 14.9% and fee revenue rose 37.3% to $50.5 million.
- Quarterly segment growth was broad-based: GovDeals revenue increased 40.3%, RSCG 7.8%, CAG 34.8%, and Machinio 31.3%. Gross margin improved in RSCG and CAG, while GovDeals’ margin was relatively steady.
- For the six months, operating cash flow was $31.3 million, versus cash used of $12.1 million in the prior year. Cash and cash equivalents were $87.6 million at March 31, up from $76.0 million at September 30, 2020. Investing activities used $1.6 million and financing activities used $19.0 million, including $16.1 million of share repurchases.
- The company reported no debt at March 31. It had $13.5 million of operating lease liabilities, including current and long-term portions. Current assets were $114.9 million and current liabilities were $98.4 million.
Material changes and management commentary
- Management attributed higher activity to increased GMV, new sellers and programs, greater volumes from existing sellers, improved recovery rates in certain categories, and increased consignment mix. Registered buyers grew 5.8% year over year to approximately 3.9 million; quarterly completed transactions rose to approximately 174,000 from 150,000.
- Fee-based consignment accounted for 81.8% of quarterly GMV, compared with 75.3% a year earlier. Management said the shift toward consignment contributed to higher gross margins.
- Operating cost reductions implemented during the pandemic supported profitability; management cautioned that their impact on expense levels is expected to lessen as business conditions recover. The company expects to continue investing in its e-commerce platform, marketplace tools, analytics, and retail supply-chain services.
- No quantified financial guidance was provided. Management said pandemic-related conditions and their effects on segment performance remain difficult to predict and may make prior trends less applicable.
Risks, contingencies, and unusual items
- COVID-19 continues to create uncertainty around economic conditions, transaction activity, and working capital. Management cited temporary extensions of vendor payment terms and increased seller payables during the pandemic.
- Amazon-sourced merchandise represented 61.2% of consolidated cost of goods sold in the quarter and 60.6% for the six months. The filing also notes that agreements with other sellers are generally terminable at will.
- The company recorded a $0.2 million long-lived asset impairment charge in the quarter. Six-month adjusted EBITDA was $18.2 million, a non-GAAP measure that excludes specified items, including stock compensation and impairment; it should not be treated as a substitute for GAAP results or cash flow.
- A former executive’s EEOC wrongful-termination claim is disputed; the company could not estimate potential liability, and its insurer accepted the claim. Related wage-and-hour claims had a settlement in principle expected to be immaterial.
- The company guarantees certain UK pension-plan obligations up to £10 million. Repayment of the JTC promissory note depends on the borrower’s performance; $4.6 million remained outstanding, including $1.7 million classified as current.
Important facts for investors to verify
- Whether growth in GMV and fee revenue, and the improved gross margin, persist as transaction mix and recovery rates change.
- The sustainability of cash generation, given working-capital movements and the pandemic-related timing of seller and vendor payments.
- Exposure to Amazon as a major merchandise source and the terms, renewal prospects, and concentration of seller relationships.
- Capital allocation: the company exhausted its prior repurchase authorization by March 31; on May 3, 2021, the board authorized up to $15 million in additional repurchases through June 30, 2023.
- Future COVID-19 effects, JTC note collections, the legal claim, and the UK pension guarantee.