Liquidity Services(US:LQDT)2022-12-08 21:19Part I Business Liquidity Services operates as a global commerce company with marketplace platforms for surplus assets, positioning itself within the circular economy FY 2022 Performance Overview | Metric | FY 2022 | Growth | | :--- | :--- | :--- | | Gross Merchandise Volume (GMV) | $1,145 million | - | | Revenue | $280.1 million | - | | Registered Buyers | 4.9 million | 22% YoY | - The company's business is organized into four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio13 - On November 1, 2021, the company acquired Bid4Assets, Inc., an online marketplace for real property auctions for government entities, to bolster its GovDeals segment14 - The company's growth strategy, RISE, is built on four pillars: Recovery Maximization, Increase Volume, Service Expansion, and Expense Leverage35 - The RSCG segment has multiple vendor contracts with Amazon.com, Inc., which accounted for 55% of the company's consolidated cost of goods sold in fiscal year 202270 - As of September 30, 2022, the company had 735 employees worldwide, with the majority (91%) located in North America73 Risk Factors The company faces various business, operational, legal, regulatory, and general financial risks, including dependency on key vendors and asset sourcing, intense competition, and potential goodwill impairment - A significant portion of purchased inventory is acquired through vendor contracts with Amazon.com, Inc., with these purchases representing 55% of cost of goods sold in FY2022, and disruption to this relationship could materially harm revenues and operating results94 - The business faces intense competition from other e-commerce platforms, auction websites, traditional liquidators, and government agencies' own sales websites6896 - The company is exposed to risks from its international operations, including local economic and political conditions, government regulations, foreign currency exchange fluctuations, and compliance with laws like the U.S. Foreign Corrupt Practices Act123124126 - The company must maintain the privacy and security of personal and business information against increasing cybersecurity threats, such as phishing and ransomware attacks, to avoid reputational damage, litigation, and regulatory action107108 - Under the purchase transaction model, the company assumes inventory and credit risk, which is significant for assets subject to rapid technological change, obsolescence, and price erosion112 - As of September 30, 2022, the company carried $88.9 million in goodwill on its balance sheet, which is subject to impairment risk from adverse changes in the business climate or other factors160 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None161 Properties The company leases numerous properties for its operations, including its corporate headquarters and various warehouses, and owns a significant warehouse in North Carolina Leased Properties | Type | Location | Segment | Square Feet | Lease Expiration | | :--- | :--- | :--- | :--- | :--- | | Corp. HQ | Bethesda, MD | Corporate | 7,774 | Apr 2023 | | Warehouse | Plainfield, IN | RSCG | 187,704 | Apr 2024 | | Warehouse | Garland, TX | RSCG | 127,144 | Jan 2026 | | Warehouse | Pittston, PA | RSCG | 108,536 | Jan 2027 | | Warehouse | North Las Vegas, NV | RSCG | 102,400 | Jun 2026 | - The company owns a 420,000 square foot warehouse located in North Wilkesboro, North Carolina161 Legal Proceedings The company may be involved in litigation from time to time in the ordinary course of business, with specific details available in Note 15 of the financial statements - Information regarding the Company's legal proceedings can be found in Note 15 - Legal Proceedings, of the accompanying Notes to the Consolidated Financial Statements162 Mine Safety Disclosures This section is not applicable to the company - Not applicable162 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 not paid cash dividends, and has an active stock repurchase program - The company's common stock has traded on the Nasdaq Stock Market under the symbol LQDT since February 23, 2006163 - The company has not paid any cash dividends on its common stock and has no present intention to do so166 - On May 13, 2022, the Board authorized a new stock repurchase plan of up to $12 million, with $6.6 million remaining available under this plan as of September 30, 2022171 - On December 6, 2022, the Board authorized the repurchase of up to an additional $8.4 million of common stock through December 31, 2024171278 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, macroeconomic impacts, industry trends, revenue models, segment-level operating results, liquidity, capital resources, and non-GAAP financial measures Results of Operations For fiscal year 2022, consolidated revenue increased to $280.1 million and GMV to $1.15 billion, while net income decreased due to a prior-year tax benefit, despite a non-cash gain from an acquisition earn-out adjustment Consolidated Financial Performance (in millions, except EPS) | Metric | FY 2022 | FY 2021 | % Change | | :--- | :--- | :--- | :--- | | Total Revenues | $280.1M | $257.5M | 8.7% | | Gross Profit | $160.6M | $149.9M | 7.2% | | Income from Operations | $47.4M | $27.2M | 74.5% | | Net Income | $40.3M | $50.9M | (20.9)% | | Diluted EPS | $1.20 | $1.45 | (17.2)% | Segment Revenue Performance (in millions) | Segment | FY 2022 Revenue | FY 2021 Revenue | % Change | | :--- | :--- | :--- | :--- | | GovDeals | $59.4M | $49.6M | 19.7% | | RSCG | $166.1M | $158.8M | 4.6% | | CAG | $42.6M | $39.6M | 7.4% | | Machinio | $12.1M | $9.6M | 26.4% | - GovDeals revenue grew 19.7% due to a 44.4% increase in GMV, driven by new sellers and higher volumes in transportation and real estate, including contributions from the Bid4Assets acquisition209 - FY2022 results include a $24.5 million non-cash gain from a reduction in the fair value of the Bid4Assets earn-out liability217 - The decrease in net income from FY2021 to FY2022 was primarily due to a $27.9 million release of the valuation allowance on U.S. deferred tax assets in FY2021, which created a large tax benefit in that year218 Non-GAAP Financial Measures The company uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental performance measures, with Non-GAAP Adjusted EBITDA at $42.7 million for FY2022, adjusted for various non-cash and acquisition-related items Non-GAAP Financial Performance (in thousands) | (in thousands) | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | Net income (loss) | $40,324 | $50,949 | $(3,774) | | Non-GAAP EBITDA | $58,101 | $34,472 | $2,740 | | Non-GAAP Adjusted EBITDA | $42,747 | $42,888 | $9,013 | - Non-GAAP Adjusted EBITDA is calculated by adjusting Non-GAAP EBITDA for stock-based compensation, acquisition costs, business realignment expenses, and fair value adjustments to acquisition earn-outs227232 Liquidity and Capital Resources As of September 30, 2022, the company had $96.1 million in cash, $44.8 million in operating cash flow, an undrawn $25.0 million credit facility, and utilized capital for the Bid4Assets acquisition and share repurchases - The company held $96.1 million in cash and cash equivalents as of September 30, 2022233 Cash Flow Summary (in millions) | (in millions) | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $44.8 | $65.4 | | Net cash used in investing activities | $(21.1) | $(1.0) | | Net cash used in financing activities | $(31.9) | $(34.7) | - On November 1, 2021, the company acquired Bid4Assets for approximately $14.7 million in cash (net) and potential earn-out consideration up to $37.5 million241242 - The company repurchased a total of 1,567,277 shares for $25.4 million during fiscal year 2022463464 - The company maintains a $25.0 million Credit Agreement due March 31, 2024, with no outstanding indebtedness as of September 30, 2022236 Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from interest rate sensitivity and foreign currency exchange rate fluctuations, with a hypothetical 10% decrease in foreign exchange rates estimated to reduce total revenues by approximately 1% - The company's primary market risks are interest rate sensitivity on its cash and investments and foreign currency exchange rate sensitivity from its international operations254255 - A hypothetical 10% decrease in foreign exchange rates is estimated to reduce total revenues by approximately 1%256 Financial Statements and Supplementary Data This section indicates that the consolidated financial statements and accompanying notes are included in Part IV, Item 15(a)(1) of the Annual Report - The consolidated financial statements and accompanying notes are included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K257 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None257 Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of September 30, 2022, excluding the recently acquired Bid4Assets from the internal control assessment scope - Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective261 - Management concluded that the company's internal control over financial reporting was effective as of September 30, 2022266 - The assessment of internal control over financial reporting excluded the newly acquired Bid4Assets, which was acquired on November 1, 2021264272 Other Information On December 6, 2022, the Board of Directors authorized an additional $8.4 million for the stock repurchase program through December 31, 2024 - On December 6, 2022, the Board authorized an additional $8.4 million for the stock repurchase program, running through December 31, 2024278 Part III Directors, Executive Compensation, and Corporate Governance Information for Items 10 through 14 is incorporated by reference from the company's Proxy Statement for its 2023 Annual Meeting of Stockholders - Items 10, 11, 12, 13, and 14 are incorporated by reference from the Company's Proxy Statement for its 2023 Annual Meeting of Stockholders280282283 Part IV Exhibits and Financial Statement Schedules This section contains the company's consolidated financial statements, the reports of the independent registered public accounting firms (Deloitte & Touche LLP and Ernst & Young LLP), and a list of all exhibits filed as part of the Form 10-K report Financial Statements The consolidated financial statements for the fiscal year ended September 30, 2022, include various financial statements and notes, with an unqualified opinion from Deloitte & Touche LLP on both the financial statements and internal control effectiveness Consolidated Balance Sheet Highlights (in thousands) | (in thousands) | Sept 30, 2022 | Sept 30, 2021 | | :--- | :--- | :--- | | Total Assets | $288,104 | $255,576 | | Total Current Assets | $129,594 | $131,842 | | Goodwill | $88,910 | $59,872 | | Total Liabilities | $133,568 | $120,561 | | Total Current Liabilities | $123,503 | $109,173 | | Total Stockholders' Equity | $154,536 | $135,015 | - The independent auditor, Deloitte & Touche LLP, identified the valuation of the Bid4Assets earn-out obligation and the complexity of revenue recognition as critical audit matters293297 Form 10-K Summary The company has not provided a summary of the Form 10-K report - None516