Liquidity Services, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. The filing also reports fourth-quarter results for the three months ended September 30, 2021. Unless noted, amounts below are U.S. dollars.
Business context
Liquidity Services operates online marketplaces and related services for remarketing surplus, returned and idle assets from corporate and government sellers. Its four reportable segments are Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals and Machinio. FY2021 GMV was $886.8 million, and registered buyers increased 6.9% to 4.031 million.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| GMV | $886.8 million | $619.9 million |
| Revenue | $257.5 million | $205.9 million |
| Gross profit | $149.9 million | $109.9 million |
| Gross margin | 58.2% | 53.4% |
| Operating income (loss) | $27.2 million | $(3.9) million |
| Net income (loss) | $50.9 million | $(3.8) million |
| Cash from operating activities | $65.4 million | $16.5 million |
FY2021 diluted EPS was $1.45. Net income included a $27.9 million release of U.S. deferred-tax valuation allowance; the company reported a $23.4 million income tax benefit. Adjusted EBITDA, a non-GAAP measure, was $42.9 million, versus $9.0 million in FY2020.
At September 30, 2021, cash and cash equivalents were $106.3 million, current assets were $131.8 million and current liabilities were $109.2 million. The company reported no debt and held $40.0 million in money-market funds within cash equivalents. FY2021 capital expenditures were $5.4 million. It repurchased 1.592 million shares for $31.1 million during the year.
In Q4 FY2021, revenue was $70.3 million, gross profit was $40.1 million, pretax income was $8.3 million and net income was $32.8 million. The large difference between quarterly pretax and net income reflects the full-year tax benefit; the filing does not separately detail the tax benefit attributable to Q4 in the quarterly table.
Material changes versus prior year
- Revenue increased 25.1% and GMV increased 43.1% year over year. Fee revenue grew 42.1%, faster than principal-model revenue, as consignment activity represented a greater mix.
- GovDeals revenue rose 51.1%, supported by higher transaction volume, new and expanded seller relationships, stronger recovery rates and favorable conditions in some asset categories.
- RSCG revenue increased 16.3%; gross margin improved to 40.7% from 36.4%, attributed to a higher consignment mix and improved recovery rates.
- CAG revenue increased 34.5% from a depressed FY2020 comparison, while gross margin declined to 74.0% from 77.0%. The prior-year period was affected by pandemic restrictions and the earlier end of the DoD Scrap Contract.
- Machinio revenue rose 32.5%, driven by subscription activity.
- Operating cash flow increased to $65.4 million. The increase reflected higher earnings and working-capital movements, including higher payables to sellers and accounts payable; inventory also increased by $7.0 million.
Outlook, commentary and risks
Management’s strategy emphasizes maximizing seller recovery, increasing marketplace volume, expanding services with recurring-revenue characteristics and improving expense leverage. The company expects to continue investing in its e-commerce platform, analytics, marketing and payment capabilities. The filing provides no specific quantified earnings or revenue guidance.
Management said pandemic-related restrictions and cross-border travel constraints continued to affect business conditions, and that the duration and economic effects remained uncertain. Key risks include reliance on Amazon-sourced inventory, which represented 60.7% of consolidated cost of goods sold in FY2021; intense competition; buyer and seller adoption of platform changes; cyber and privacy threats; and the potential for inventory losses under the purchase model.
After year-end, the company acquired Bid4Assets on November 1, 2021, for $15 million in cash, with potential earn-out consideration of up to $37.5 million tied to EBITDA targets. Purchase accounting was still being evaluated and could materially change FY2022 balance sheet and earnings. On December 6, 2021, the board authorized a further $20 million share repurchase program through December 31, 2023.
Other notable items: a $1.1 million loss was recorded on settlement of the JTC promissory note; a former employee’s discrimination claim remained unresolved, with potential liability not estimable by the company, while its insurer accepted the claim; and management and the auditor concluded internal control over financial reporting was effective. The auditor issued unqualified opinions on the financial statements and internal controls, and identified valuation of deferred tax assets as a critical audit matter.
Important facts for investors to verify
- How much of FY2021 earnings and EPS is attributable to the non-cash valuation-allowance release, and how should earnings be assessed excluding it?
- Whether revenue growth, recovery rates and consignment mix remain sustainable, particularly in GovDeals and RSCG.
- Whether Amazon inventory supply and contract terms remain stable, given the concentration in cost of goods sold.
- Bid4Assets’ realized performance, earn-out likelihood and final purchase-price accounting impact on FY2022 results and balance sheet.
- Cash-flow sustainability as seller payables and other working-capital balances normalize, alongside repurchases and acquisition-related cash needs.
- Developments in pandemic-related operating constraints, cross-border commerce, cybersecurity exposure and the pending former-employee claim.