Liquidity Services, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2020, three months ended December 31, 2019. The company operates online marketplaces for surplus and salvage assets and reports four segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. Unless otherwise stated, financial amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Total revenue | $49.5 million | $54.1 million |
| Net loss | $5.2 million | $5.0 million |
| Loss from operations | $5.0 million | $5.1 million |
| Gross profit / margin | $25.3 million / 51.2% | $26.5 million / 49.0% |
| Adjusted EBITDA (non-GAAP) | $(2.1) million | $(1.7) million |
| Net cash used in operating activities | $18.6 million | $8.1 million |
Revenue comprised $30.3 million of purchase-model revenue and $19.2 million of fee revenue. Basic and diluted loss per share was $0.15 in both periods. Interest and other income, net, was $0.3 million; income tax expense was $0.5 million despite the pretax loss.
Balance sheet and liquidity at December 31, 2019
- Cash and cash equivalents were $24.2 million and short-term investments were $25.0 million, together $49.2 million. Cash plus investments were $66.5 million at September 30, 2019.
- Total assets were $179.2 million; total liabilities were $66.8 million; stockholders’ equity was $112.4 million.
- The company reported no debt. It had $12.5 million of operating lease liabilities and $0.3 million of finance lease liabilities.
- Operating cash use reflected, among other items, year-end compensation payments, final seller distributions related to the completed Scrap Contract, settlement of a California sales-tax audit, and working-capital movements. Investing activities provided $6.2 million, including a $2.5 million promissory-note payment and net short-term-investment activity. Capital expenditures were $1.3 million.
Changes versus the prior comparable quarter
- Total revenue declined 8.4%, while fee revenue increased 4.6%; purchase-model revenue fell 15.1%. GMV was $148.6 million, down from $158.5 million.
- The largest segment decline was CAG: revenue decreased 48.7% to $7.9 million, reflecting the end of the DoD Scrap Contract and weakness in energy and industrial markets, as well as a strong prior-year comparison in Asia-Pacific. Excluding the Scrap Contract, CAG revenue declined 31.2%.
- GovDeals revenue increased 4.7% to $8.0 million, and RSCG increased 7.5% to $31.7 million. Machinio revenue rose 86.7% to $1.9 million, supported by subscription activity and recognition of deferred revenue without prior purchase-accounting effects.
- Gross margin improved to 51.2% from 49.0%, partly because the completed Scrap Contract had lower margins and the revenue mix shifted toward consignment. Net loss widened by $0.2 million. Adjusted EBITDA loss widened from $1.7 million to $2.1 million.
- Operating cash use increased by $10.5 million year over year. Management attributed the change chiefly to payment timing and working-capital items, not to a stated material increase in underlying working-capital requirements.
Outlook, commentary, and risks
- No specific revenue or earnings guidance was provided. Management said existing cash and cash equivalents should cover anticipated cash needs for at least the next 12 months, and expects to fund capital expenditures primarily from operating cash flows.
- The company planned continued investment in its e-commerce platform, a consolidated marketplace, and data-driven recommendation, marketing, and analytics capabilities. It reported no significant outstanding capital-expenditure commitments.
- A $5.0 million Machinio earn-out was expected to settle before the end of fiscal Q2 2020. The liability increased by $0.2 million after Machinio achieved its calendar-year 2019 adjusted EBITDA target.
- The company relies on Amazon vendor agreements: merchandise acquired under these contracts represented 48.3% of consolidated cost of goods sold, versus 40.5% a year earlier. The DoD Scrap Contract had concluded on September 30, 2019.
- The filing identified the coronavirus outbreak in China as a potential risk to transactions, marketplace activity, and CAG performance, including transactions involving Chinese buyers or sellers. Other cited risks include adverse global events, seller concentration and contract renewals, competition, technology changes, and currency movements.
- Management said no pending or threatened legal matters were expected to have a material adverse effect. The company paid a $0.6 million liability from a California sales-tax audit during the quarter.
Most important facts for investors to verify
- Whether CAG’s declines persist after the Scrap Contract’s completion, particularly given reported softness in energy and industrial verticals.
- Whether RSCG and GovDeals growth can offset CAG weakness, and whether Amazon-related sourcing concentration changes.
- How operating cash flow and working capital trend after the quarter’s payment timing effects, and whether cash plus short-term investments remain adequate.
- Whether the JTC promissory note remains collectible under its amended repayment schedule; $5.7 million remained outstanding at quarter-end.
- The actual timing and amount of the Machinio earn-out settlement, and any effects of the coronavirus outbreak or other global disruptions on marketplace activity.