Liquidity Services, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020, with quarterly results through Q4. This is an annual filing, not a standalone quarterly filing.
Business context
Liquidity Services operates online marketplaces and related services for corporate and government sellers of surplus and idle assets, across four reportable segments: Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. FY2020 GMV was $619.9 million; registered buyers rose 5.4% to 3.772 million. Machinio revenue grew 28.8%.
Key financial metrics
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue | $205.9 million | $226.5 million |
| Gross profit / margin | $109.9 million / 53.4% | $113.3 million / 50.0% |
| Operating loss | $3.9 million | $19.5 million |
| Net loss | $3.8 million; $0.11 per diluted share | $19.3 million; $0.58 per diluted share |
| Adjusted EBITDA | $9.0 million | $(1.2) million |
| Operating cash flow | $16.5 million | $(6.2) million |
| Cash and cash equivalents at year-end | $76.0 million | $36.5 million, plus $30.0 million short-term investments |
| Working capital | $20.3 million | $21.1 million |
| Debt | No debt outstanding | No short-term debt outstanding |
FY2020 investing cash flow was $28.6 million, substantially reflecting short-term investment activity and note repayments; financing cash flow was $(5.7) million, including $4.0 million of share repurchases. The company reported no material off-balance-sheet arrangements.
Q4 FY2020: Revenue was $55.9 million versus $58.8 million in Q4 FY2019. Net income was $5.4 million versus a $5.2 million net loss; gross profit was $33.2 million. Management reported positive net income in both Q3 and Q4 FY2020.
Changes versus prior year
- Revenue declined 9.1%, while net loss narrowed by $15.5 million. Cost reductions and improved gross margin helped offset lower revenue.
- RSCG revenue increased 7.2% to $136.5 million, supported by higher GMV and new retail programs. GovDeals revenue was nearly flat at $32.8 million.
- CAG revenue fell 51.1% to $29.5 million. The ended DoD Scrap Contract accounted for $16.8 million of the revenue decline; COVID-related operating and travel restrictions also reduced activity.
- GMV declined 3.1% to $619.9 million; completed transactions fell to 553,000 from 607,000, and auction participants to 1.899 million from 2.085 million.
- Technology and operations expense fell 18.3%, and general and administrative expense fell 14.8%, reflecting prior restructuring and pandemic-related cost controls. The company cautioned that some temporary savings may diminish as business conditions recover.
Outlook, risks, and unusual items
- No numerical revenue or earnings guidance is provided. Management said existing cash should cover anticipated needs for at least the next 12 months and is focused on a more asset-light, technology-enabled marketplace and cost efficiency.
- COVID-19 restrictions adversely affected revenue and activity in certain periods and segments. Management described recovery after reopening, but emphasized uncertainty about the pandemic’s duration and future effects.
- Amazon-sourced merchandise represented 55.1% of consolidated cost of goods sold, up from 43.6% in FY2019. A disruption or unfavorable change in this vendor relationship could materially affect the business.
- The DoD Scrap Contract ended September 30, 2019; its completion reduced FY2020 CAG activity and eliminated seller distributions. The separate DoD Surplus Contract had ended in 2018.
- No goodwill or long-lived asset impairment was recorded. COVID-sensitive valuations were tested; at the March 2020 interim test, CAG and Machinio fair values exceeded carrying values by 21% and 12%, respectively, and subsequent annual testing showed at least 20% headroom for each goodwill reporting unit.
- The company paid the $5.0 million Machinio earn-out in FY2020. It repurchased 547,508 shares for approximately $4.0 million; $6.1 million remained authorized at year-end.
- Other notable risks include competition, marketplace and cloud-system reliability, cybersecurity and privacy, international and currency exposure, and dependence on attracting both sellers and active buyers. Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether revenue, GMV, and segment activity recover as pandemic-related restrictions ease, particularly in CAG.
- The durability of cost reductions and gross-margin improvement as temporary pandemic controls unwind.
- Amazon contract terms, inventory availability, and the company’s ability to diversify sourcing.
- Cash-flow normalization: FY2020 operating cash flow benefited from timing-related increases in accounts payable and seller payables; management expected working capital to be used as these effects unwind.
- Assumptions underlying goodwill valuations and the recoverability and collection schedule of the remaining $5.4 million Jacobs Trading promissory note principal.