Liquidity Services(LQDT) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements (Unaudited) For the quarter ended December 31, 2022, Liquidity Services reported total revenues of $72.3 million, an 8.4% increase year-over-year, and a net income of $4.0 million, up from $3.6 million in the prior-year period Condensed Consolidated Balance Sheets As of December 31, 2022, the company's total assets were $269.2 million, a decrease from $288.1 million on September 30, 2022, primarily driven by a decrease in cash and cash equivalents Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Sep 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $76,166 | $96,122 | | Total current assets | $113,638 | $129,594 | | Total assets | $269,201 | $288,104 | | Liabilities & Equity | | | | Total current liabilities | $105,437 | $123,503 | | Total liabilities | $114,248 | $133,568 | | Total stockholders' equity | $154,953 | $154,536 | Condensed Consolidated Statements of Operations For the three months ended December 31, 2022, total revenue increased by 8.4% to $72.3 million compared to $66.7 million in the prior-year period, with net income rising to $4.0 million from $3.6 million Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total revenue | $72,282 | $66,707 | | Income from operations | $4,727 | $4,483 | | Net income | $3,967 | $3,602 | | Diluted income per common share | $0.12 | $0.10 | Condensed Consolidated Statements of Cash Flows For the three months ended December 31, 2022, net cash used in operating activities was $10.7 million, a significant decrease from the $1.9 million provided in the same period last year, while net cash used in investing activities decreased to $3.0 million Cash Flow Summary (in thousands) | Activity | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(10,659) | $1,871 | | Net cash used in investing activities | $(3,015) | $(13,021) | | Net cash used in financing activities | $(6,972) | $(3,841) | | Net decrease in cash and cash equivalents | $(19,956) | $(15,014) | Notes to the Unaudited Condensed Consolidated Financial Statements The notes detail the company's four reportable segments, significant Cost of Goods Sold attribution to Amazon.com, Inc., goodwill from the Bid4Assets acquisition, and the status of its $25.0 million credit facility and $7.2 million common stock repurchases - The company operates through four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio[31][105] - Property purchased under contracts with Amazon.com, Inc. represented 57.3% of consolidated Cost of Goods Sold for the three months ended December 31, 2022[41] - The acquisition of Bid4Assets on November 1, 2021, resulted in goodwill of approximately $30.1 million, which is included in the GovDeals reportable segment[43][47] - As of December 31, 2022, the company had a $25.0 million credit facility with no outstanding borrowings[70][72] - During the quarter, the company repurchased 531,819 shares for $7.2 million, and a new stock repurchase plan of up to $8.4 million was authorized on December 6, 2022[89][90] Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports an 8.4% increase in total revenue for the quarter, driven by strong performance in the RSCG segment, which offset declines in the CAG segment and modest decreases in GovDeals, with Gross Merchandise Volume (GMV) reaching $270.8 million Key Business Metrics | Metric | Q1 FY23 (ended Dec 31, 2022) | Q1 FY22 (ended Dec 31, 2021) | | :--- | :--- | :--- | | Gross Merchandise Volume (GMV) | $270.8 million | $260.2 million | | Registered Buyers (at period end) | 5.0 million | 4.7 million | | Auction Participants | 744,000 | 642,000 | | Completed Transactions | 214,000 | 211,000 | - Macroeconomic challenges, including supply chain constraints in new vehicle production, are limiting the supply of used vehicles for sale and creating volatility in used car prices[117] - The company identifies several positive long-term industry trends, including the growth of online retail returns, increased need for corporate sustainability solutions, and rising demand for low-touch online transaction solutions[123] Non-GAAP Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net income | $3,967 | $3,602 | | EBITDA | $7,577 | $6,883 | | Non-GAAP Adjusted EBITDA | $9,842 | $9,374 | Segment Results The RSCG segment was the primary growth driver, with revenue increasing 18.9% due to client program diversification, while the Machinio segment also grew by 15.3% from higher subscriptions Segment Performance Summary (in thousands) | Segment | Revenue Q1 FY23 | Revenue Q1 FY22 | % Change | | :--- | :--- | :--- | :--- | | GovDeals | $13,607 | $13,984 | (2.7%) | | RSCG | $46,015 | $38,684 | 18.9% | | CAG | $9,393 | $11,207 | (16.2%) | | Machinio | $3,267 | $2,832 | 15.3% | - GovDeals revenue decreased due to macroeconomic challenges slowing the supply of used vehicles, despite a GMV increase from real estate category expansion[152] - RSCG revenue and GMV grew due to continued diversification in client programs and expanded buyer channels[153] - CAG revenue and GMV decreased primarily due to project timing and the availability of international spot purchase transactions[154] Liquidity and Capital Resources The company ended the quarter with $76.2 million in cash and cash equivalents and an undrawn $25.0 million credit facility, repurchasing $7.2 million of its stock while experiencing negative cash flow from operations of $10.7 million - As of December 31, 2022, the company had $76.2 million in cash and cash equivalents[167] - The company maintains a $25.0 million Credit Agreement, which was undrawn during the quarter and had full availability as of December 31, 2022[170] - The company repurchased 531,819 shares for $7.2 million during the quarter and had $7.8 million of remaining share repurchase authorization[176] - The $12.6 million decrease in cash from operating activities was mainly due to a net decrease of $18.7 million in cash flows associated with accounts payable and payables to sellers[176] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from interest rates and foreign currency exchange rates, with a hypothetical 100 basis point decline in interest rates impacting pre-tax earnings by less than $1.0 million annually and a 10% adverse movement in foreign exchange rates reducing 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[179] - A hypothetical 10% decrease in foreign exchange rates would reduce total expected revenues by approximately 1%[181] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of December 31, 2022, concluding they were effective at a reasonable assurance level, with no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[183] - No material changes occurred in the company's internal controls over financial reporting during the three months ended December 31, 2022[184] PART II. OTHER INFORMATION Legal Proceedings The company is involved in two separate legal matters with former employees alleging wrongful termination based on gender, race, and age, with the company believing the claims are without merit and unable to estimate potential liability - A former VP of Human Resources has filed a lawsuit alleging wrongful termination based on gender and race, which is proceeding after a partial denial of the company's motion for summary judgment[101] - A former Chief Marketing Officer has filed a lawsuit alleging wrongful termination based on race and age, with the company believing these claims are without merit[103] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022 - No material changes to risk factors have occurred since the last Annual Report on Form 10-K[187] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities, repurchased 531,819 shares for $7.2 million during the quarter, and authorized a new stock repurchase plan of up to $8.4 million on December 6, 2022 Issuer Purchases of Equity Securities (Q1 FY23) | Period | Total Shares Purchased | Average Price Paid Per Share | Approx. Dollar Value Remaining (in millions) | | :--- | :--- | :--- | :--- | | Oct 2022 | — | N/A | $6.6 | | Nov 2022 | — | N/A | $6.6 | | Dec 2022 | 531,819 | $13.53 | $7.8 | | Total | 531,819 | | | - On December 6, 2022, the Board of Directors authorized a new stock repurchase plan of up to $8.4 million[192] Exhibits The report includes several exhibits, such as the company's amended bylaws, forms of executive employment and indemnification agreements, and certifications by the CEO and CFO as required by the Sarbanes-Oxley Act - Key exhibits filed include the Amended and Restated Bylaws, forms of executive employment and change in control agreements, and CEO/CFO certifications[195][196][197][199][200]