Business context and reporting period
Liquidity Services, Inc. operates online marketplaces and services for resale of surplus and used assets, through GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. This Form 10-Q covers the fiscal third quarter and first nine months ended June 30, 2021; amounts below are unaudited and in U.S. dollars.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Change vs. 2020 | Nine months ended June 30, 2021 | Change vs. 2020 |
|---|---|---|---|---|
| Total revenue | $69.7 million | +46.0% | $187.2 million | +24.8% |
| Fee revenue | $31.8 million | +84.1% | $82.3 million | +52.3% |
| Gross profit / margin | $41.1 million / 59.0% | Up from $25.2 million / 52.9% | $109.7 million / 58.6% | Up from $76.8 million / 51.2% |
| Operating income (loss) | $8.6 million | Up from $0.2 million | $18.9 million | Up from loss of $9.2 million |
| Net income (loss) | $8.4 million; diluted EPS $0.24 | Up from $0.2 million; diluted EPS $0.01 | $18.2 million; diluted EPS $0.52 | Up from loss of $9.2 million; diluted loss per share $0.27 |
Cash and cash equivalents were $112.7 million at June 30, 2021, versus $76.0 million at September 30, 2020. Operating cash flow was $54.3 million for the nine months, compared with $9.2 million in 2020; cash flow benefited from higher earnings and increases in accounts payable and seller payables, partly offset by inventory growth. Capital expenditures were $3.5 million. The company reported no debt and held $40.0 million in money market funds. Current liabilities were $110.0 million and total liabilities $121.8 million.
Material changes and segment trends
- GMV rose 88.1% to $244.7 million in the quarter and 51.9% to $642.4 million for the nine-month period. Auction participants and completed transactions also increased year over year.
- GovDeals posted the strongest quarterly revenue growth (+143.4%), driven by higher volumes, new and expanded sellers, and improved recovery rates. RSCG revenue rose 31.4%; higher consignment mix and recovery rates supported its margin improvement. CAG revenue rose 32.9%, while its quarterly gross margin declined to 83.8% from 92.5%, partly due to transaction mix. Machinio revenue rose 37.7% on subscription activity.
- Fee revenue grew faster than purchase-model revenue, reflecting a higher consignment mix. The purchase model accounted for 54.3% of quarterly total revenue, versus 63.8% a year earlier.
- The company repurchased $16.1 million of shares during the nine months. No repurchases occurred in the June quarter; a new plan authorized up to $15 million through June 2023.
Outlook, risks and unusual items
No specific revenue or earnings guidance was provided. Management said liquidity and working capital were more than sufficient for projected needs and expects continued investment in e-commerce technology, marketplace capabilities, analytics, and RSCG services. Management cited long-term opportunities from e-commerce growth, returns volumes, sustainability requirements, and greater demand for online asset sales.
- COVID-19 and continuing cross-border restrictions create uncertainty for volumes, operations, and macroeconomic conditions; management cautioned that recent trends may not predict future results.
- A $1.1 million loss was recorded after the company accepted $3.5 million to discharge a promissory note with an outstanding principal and accrued-interest balance of $4.6 million.
- Amazon-sourced merchandise represented 63.5% of consolidated cost of goods sold in the quarter and 61.7% for the nine months, creating supplier concentration exposure.
- A potential pension settlement could have a significant impact, but was not reflected in the statements because the response period extended into the next quarter. The company guarantees certain U.K. pension obligations up to £10 million.
- A former employee’s discrimination and wrongful-termination claim remained pending; the company said it believes the claim is without merit and could not estimate potential liability. Related wage-and-hour claims were settled for an immaterial amount.
- Management identified currency movements, competition, technology changes, seller contract termination or disposition changes, and pandemic-related uncertainty as risks. A $28 million valuation allowance remains against U.S. net deferred tax assets.
Important facts for investors to verify
- Whether strong GMV, fee revenue, and margin trends persist, particularly as comparisons normalize from COVID-affected 2020 periods.
- How much operating cash flow reflects sustainable earnings versus timing and growth in seller and vendor payables, and the working-capital demands of rising inventory.
- The continuing availability and terms of Amazon merchandise agreements and the impact of that supplier concentration.
- The outcome and accounting impact of the U.K. pension settlement process and the former employee litigation.
- Future share repurchases, investment needs, and any updates to management’s outlook or assessment of pandemic and cross-border risks.