Liquidity Services(LQDT) - 2024 Q4 - Annual Report

Part I Business Liquidity Services is a global e-commerce company operating online marketplaces for surplus assets, powering the circular economy Key Business Metrics | Metric | FY 2024 | Change from FY 2023 | | :--- | :--- | :--- | | Gross Merchandise Volume (GMV) | $1.4 billion | - | | Revenue | $363.3 million | - | | Registered Buyers | 5.5 million | +7% | - The company's strategic plan, RISE, is built on four pillars: Recovery Maximization, Increased Volume, Service Expansion, and Expense Leverage[26] - On January 1, 2024, the company acquired Sierra Auction Management, Inc. (Sierra), a full-service auction company specializing in vehicles, equipment, and surplus assets for government and commercial clients[10] Overview Liquidity Services is a global commerce company that operates online marketplaces for surplus assets, facilitating the circular economy Key Financial and Operational Metrics | Metric | Value | | :--- | :--- | | FY2024 GMV | $1.4 billion | | FY2024 Revenue | $363.3 million | | Registered Buyers (as of Sep 30, 2024) | 5.5 million | | 5-Year GMV CAGR | 16.4% | - The company's business model creates a self-reinforcing cycle where a continuous flow of goods from sellers attracts more buyers, enhancing the value of the platforms for all participants[10] Reportable Segments The company operates through four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio - The company's four reportable segments are: - GovDeals: Serves government entities selling surplus property and real estate - RSCG: Enables corporations to sell excess, returned, and overstocked consumer goods - CAG: Facilitates the sale of surplus capital assets for commercial businesses in verticals like industrial manufacturing, oil and gas, and biopharma - Machinio: Operates a global search engine and provides software-as-a-service tools for equipment sellers[11][13] Industry Overview The global reverse logistics market is substantial and growing, driven by e-commerce, product innovation, and sustainability, creating opportunities for centralized online marketplaces - The global reverse logistics market is projected to grow at a 4.3% CAGR, reaching $948 billion by 2032[14] - The retail industry sees approximately $743 billion in merchandise returns annually, representing over 14% of total sales, with an estimated $100 billion moving through secondary markets[14] - Key factors driving the supply of surplus assets include e-commerce growth, product innovation, flexible retailer return policies, and a focus on sustainable, green solutions[14] Our Solutions and Competitive Factors Liquidity Services offers comprehensive e-commerce solutions and value-added services, leveraging its large global buyer and seller base, integrated platform, and technology to optimize recovery and promote sustainability - The company has over 5.5 million registered buyers and saw over 4.0 million auction participants in fiscal year 2024[19] - Offers two primary transaction models: a consignment model (earning commission revenue) and a purchase model (buying and reselling inventory)[22] - The AllSurplus marketplace platform aggregates assets from government and commercial sectors and uses AI and machine learning to improve search and recommendations for buyers[24] Our Strategy The company's RISE strategy focuses on Recovery Maximization, Increased Volume, Service Expansion, and Expense Leverage to enhance seller returns, grow transactions, expand recurring services, and improve operating margins - The company's strategy is based on the acronym RISE: - Recovery Maximization: Attracting sellers by maximizing their returns - Increased Volume: Growing transactions via flexible service models and category focus - Service Expansion: Expanding recurring revenue services like asset management tools - Expense Leverage: Improving margins through cost control and technology-driven productivity[26][27][29][30] Human Capital Management The company prioritizes attracting, developing, and retaining talent through a remote-first, diverse work environment, comprehensive benefits, and a culture built on integrity, customer focus, and sustainability - The company operates a remote-first work environment to promote flexibility, high performance, and retention[64] - Employee benefits are designed to enhance wellness across health, financial security, life, and learning, including medical plans, a 401(k) with a discretionary match, and tuition support[60][62] - The company's sustainability efforts are core to its business model of enabling the reuse of surplus assets and are extended to its operations through a remote work structure that reduces energy and emissions[65] Risk Factors The company faces several business, operational, legal, and general risks, including dependence on asset supply, technological upgrades, major vendor contracts, intense competition, cybersecurity threats, and evolving e-commerce and data privacy regulations Business and Operating Risks Operational success depends on attracting sufficient asset supply, continuous technological investment, and managing risks from reliance on major vendor contracts, intense competition, system failures, and cybersecurity threats - The business depends on its ability to source a sufficient supply of assets from sellers to attract and retain active buyers, creating a network effect[72] - The company has multiple vendor contracts with Amazon.com, Inc., which is a significant source of purchased inventory for the RSCG segment; as of September 30, 2024, $12.2 million of inventory was from Amazon[80][81] - The company faces risks from cybersecurity threats, including phishing and ransomware attacks, and must comply with increasing regulations like new SEC disclosure rules[102][104][105] Legal and Regulatory Risks The company navigates a complex and evolving legal landscape, including e-commerce, data privacy (e.g., GDPR), auction, export control, and anti-corruption laws, which can increase compliance costs and operational restrictions - The company is subject to evolving federal, state, and international laws regarding data privacy and security, which could increase compliance costs and restrict marketing efforts[138][143] - Certain assets sold on the marketplaces, such as scientific instruments and aircraft parts, are subject to U.S. and other governments' export control and economic sanctions laws[146] - Due to its international operations, the company is subject to anti-corruption laws such as the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act 2010[151] Cybersecurity The company maintains a comprehensive cybersecurity and data privacy program with a "defense in depth" approach, achieving SOC2 Type 1 and TX-Ramp certifications in 2024, and overseen by the Board of Directors - In 2024, the company achieved both SOC2 Type 1 and TX-Ramp certifications, demonstrating its commitment to aligning controls with established compliance frameworks[168] - The cybersecurity strategy employs a "defense in depth" approach, using AI-powered threat detection and 24/7 monitoring by a dedicated security team[168][170] - The Board of Directors oversees the cyber risk management program, with the Audit Committee responsible for reviewing financial reporting of cybersecurity risks and incidents[171] Properties As a remote-first organization, Liquidity Services primarily utilizes leased warehouses in key logistics hubs across the U.S. and Canada to support its segments, in addition to owning one large warehouse in North Carolina Key Warehouse Properties | Type | Location | Segment | Square Feet | | :--- | :--- | :--- | :--- | | Warehouse | Brownsburg, IN | RSCG | 204,206 | | Warehouse | Garland, TX | RSCG | 127,144 | | Warehouse | Pittston, PA | RSCG | 108,536 | | Warehouse | North Las Vegas, NV | RSCG | 102,400 | | Warehouse | Hebron, KY | RSCG | 101,614 | - The company owns a 420,000 square foot warehouse located in North Wilkesboro, North Carolina[174] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under LQDT, has never paid cash dividends, and maintains a stock repurchase program with $7.6 million remaining as of September 30, 2024, and an additional $10.0 million authorized in December 2024 - The company's common stock is traded on the Nasdaq Stock Market under the symbol LQDT[177] - The company has not paid any cash dividends and has no present intention to do so[179] - As of September 30, 2024, $7.6 million remained under the stock repurchase authorization; an additional $10.0 million was authorized on December 9, 2024, for repurchases through December 31, 2026[183] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal year 2024, GMV grew to $1.4 billion and revenue increased 15.5% to $363.3 million, driven by growth in the GovDeals and RSCG segments, though consolidated income from operations decreased 10.3% to $23.4 million due to lower gross margin in RSCG and increased operating expenses, while the company maintains a strong liquidity position with $153.2 million in cash and cash equivalents Key Financial Performance (FY 2024 vs. FY 2023) | Metric | FY 2024 | FY 2023 | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $363.3M | $314.5M | 15.5% | | Income from Operations | $23.4M | $26.1M | (10.3)% | | Net Income | $20.0M | $21.0M | (4.7)% | | GMV | $1,366.6M | $1,203.0M | 13.6% | - The company's transaction mix is primarily consignment-based, which accounted for 85.1% of GMV in FY2024 but only 34.9% of total revenues, as only the commission fee is recognized[194] - Net cash provided by operating activities increased to $70.2 million in FY2024 from $47.0 million in FY2023, primarily due to favorable changes in working capital, including accounts payable and payables to sellers[230] Results of Operations For fiscal year 2024, consolidated revenue increased 15.5% to $363.3 million driven by GovDeals and RSCG, but consolidated income from operations declined 10.3% to $23.4 million due to faster growth in cost of goods sold and increased operating expenses Segment Performance (FY 2024 vs. FY 2023) | Segment | Revenue FY24 ($M) | Revenue FY23 ($M) | % Change | Segment Direct Profit FY24 ($M) | Segment Direct Profit FY23 ($M) | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | GovDeals | 76.6 | 62.0 | 23.5% | 71.7 | 58.8 | 22.0% | | RSCG | 233.0 | 200.2 | 16.4% | 66.9 | 68.1 | (1.8)% | | CAG | 37.7 | 38.5 | (2.1)% | 31.3 | 32.2 | (2.9)% | | Machinio | 16.2 | 13.8 | 16.9% | 15.4 | 13.1 | 17.2% | - Consolidated cost of goods sold increased 25.2% in FY2024, outpacing the 15.5% revenue growth, primarily due to increased volumes from expanded, lower-margin purchase programs at the RSCG segment[207] - General and administrative expenses increased 13.8% in FY2024, driven by a $1.8 million increase in stock compensation and a $0.5 million litigation settlement expense[207] Liquidity and Capital Resources The company maintains a strong liquidity position with $153.2 million in cash and cash equivalents, funding operations through cash on hand and a $25.0 million revolving credit facility, while deploying capital for investments, acquisitions, and share repurchases - As of September 30, 2024, the company had $153.2 million in cash and cash equivalents and $2.3 million in short-term investments[221] - The company maintains a $25.0 million credit agreement, with $17.5 million of borrowing capacity available as of September 30, 2024[224] - During fiscal year 2024, the company repurchased 564,887 shares for $9.4 million; an additional $10.0 million was authorized for repurchase on December 9, 2024[229] Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rate fluctuations, where a 100 basis point decline would impact pre-tax earnings by less than $1.0 million annually, and foreign currency exchange rate fluctuations, where a 10% decrease would reduce total expected revenues by approximately 1% - A hypothetical 100 basis point decline in interest rates would impact pre-tax earnings by less than $1.0 million on an annualized basis[236] - The company has foreign exchange exposure, primarily to the British Pound, Canadian Dollar, Chinese Yuan, Euro, and Hong Kong Dollar; a hypothetical 10% decrease in foreign exchange rates would reduce total expected revenues by approximately 1%[236] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of September 30, 2024, with the latter's assessment excluding the Sierra acquisition, and the independent auditor issued an unqualified opinion - Management concluded that as of September 30, 2024, the company's disclosure controls and procedures were effective[241] - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2024; the assessment excluded the newly acquired Sierra business[242] - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of September 30, 2024[249] Part III Directors, Executive Officers, Corporate Governance, Compensation, and Principal Accountant Fees Information for Items 10 through 14, covering directors, executive officers, corporate governance, compensation, security ownership, related transactions, director independence, and principal accountant fees, is incorporated by reference from the company's 2025 Annual Meeting Proxy Statement - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's Proxy Statement for its 2025 Annual Meeting of Stockholders[260][263][264] Part IV Exhibits and Financial Statement Schedules This section includes the company's consolidated financial statements for fiscal years 2024, 2023, and 2022, the independent auditor's report, notes to financial statements, and a list of exhibits Consolidated Financial Statements The consolidated financial statements for fiscal year 2024 report total revenues of $363.3 million, net income of $20.0 million, total assets of $346.9 million, and net cash provided by operating activities of $70.2 million Consolidated Statement of Operations Highlights (FY 2024) | Metric | Amount (in thousands) | | :--- | :--- | | Total Revenue | $363,318 | | Income from Operations | $23,404 | | Net Income | $19,991 | | Diluted EPS | $0.63 | Consolidated Balance Sheet Highlights (as of Sep 30, 2024) | Metric | Amount (in thousands) | | :--- | :--- | | Cash and cash equivalents | $153,226 | | Total Assets | $346,888 | | Total Liabilities | $164,328 | | Total Stockholders' Equity | $182,560 | Consolidated Statement of Cash Flows Highlights (FY 2024) | Metric | Amount (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $70,221 | | Net cash used in investing activities | $(16,113) | | Net cash used in financing activities | $(11,171) | Notes to Consolidated Financial Statements The notes provide detailed accounting policies and financial results, including information on the Sierra acquisition, segment performance, goodwill, income taxes, equity incentive plans, share repurchases, and a $3.5 million wrongful termination lawsuit settlement - On January 1, 2024, the company acquired Sierra Auction Management for approximately $13.7 million in cash, resulting in $7.9 million of goodwill and $5.4 million of intangible assets, primarily supplier relationships[355] - A wrongful termination lawsuit was settled for $3.5 million, with the company's insurance carrier funding $3.0 million; the company recorded a net litigation settlement expense of $0.5 million in FY2024[422] Goodwill by Segment (as of Sep 30, 2024) | Segment | Goodwill ($ in thousands) | | :--- | :--- | | GovDeals | $61,683 | | CAG | $21,551 | | Machinio | $14,558 | | Total | $97,792 |