Liquidity Services(US:LQDT)2024-05-09 18:03PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (Dollars in Thousands): | Metric | March 31, 2024 | September 30, 2023 | | :-------------------------------- | :------------- | :----------------- | | Cash and cash equivalents | $108,634 | $110,281 | | Total current assets | $151,438 | $146,268 | | Goodwill | $97,555 | $89,388 | | Total assets | $303,651 | $288,970 | | Total current liabilities | $133,166 | $120,718 | | Total liabilities | $139,726 | $127,436 | | Total stockholders' equity | $163,925 | $161,533 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations Highlights (Dollars in Thousands, Except Per Share Data): | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :------------------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Purchase revenues | $53,105 | $47,273 | $89,330 | $85,907 | | Consignment and other fee revenues | $38,348 | $34,180 | $73,448 | $67,829 | | Total revenue | $91,453 | $81,453 | $162,778 | $153,736 | | Income from operations | $6,595 | $5,246 | $8,243 | $9,973 | | Net income | $5,709 | $4,245 | $7,617 | $8,211 | | Basic income per common share | $0.19 | $0.14 | $0.25 | $0.26 | | Diluted income per common share | $0.18 | $0.13 | $0.24 | $0.25 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income Highlights (Dollars in Thousands): | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :------------------------------ | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income | $5,709 | $4,245 | $7,617 | $8,211 | | Foreign currency translation | $(457) | $243 | $501 | $1,516 | | Comprehensive income | $5,252 | $4,488 | $8,118 | $9,727 | Condensed Consolidated Statement of Stockholders' Equity Changes in Stockholders' Equity (Six Months Ended March 31, 2024, Dollars in Thousands): | Item | Amount | | :--------------------------------- | :----- | | Balance at September 30, 2023 | $161,533 | | Net Income | $7,617 | | Stock compensation expense | $4,592 | | Common stock repurchase | $(9,047) | | Foreign currency translation | $501 | | Balance at March 31, 2024 | $163,925 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows Highlights (Six Months Ended March 31, Dollars in Thousands): | Activity | 2024 | 2023 | | :------------------------------------------ | :-------- | :-------- | | Net cash provided by operating activities | $25,973 | $22,335 | | Net cash used in investing activities | $(17,591) | $(6,356) | | Net cash used in financing activities | $(10,342) | $(17,253) | | Net decrease in cash and cash equivalents | $(1,647) | $(539) | | Cash and cash equivalents at end of period | $108,634 | $95,583 | - Cash paid for business acquisitions, net of cash acquired, was $13,265k for the six months ended March 31, 2024, compared to $0 in the prior year, primarily due to the Sierra acquisition20 Notes to the Unaudited Condensed Consolidated Financial Statements - Liquidity Services, Inc. operates as a global commerce company providing online marketplace platforms for surplus assets, with four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio2325 - On January 1, 2024, the Company acquired Sierra Auction Management, Inc. for approximately $13.8 million in cash, resulting in $8.0 million of goodwill allocated to the GovDeals segment and an increase of $5.4 million in gross intangible assets41425557 - The effective income tax rate for the six months ended March 31, 2024, was 23.7%, primarily due to state and foreign taxes and the utilization of net operating losses62 - The Company's $25.0 million Credit Agreement with Wells Fargo Bank was amended to extend its maturity date to March 31, 2026, with no outstanding borrowings as of March 31, 20246567 - The Company repurchased 542,645 shares for $9.0 million during the six months ended March 31, 2024, under its share repurchase program, with $8.0 million remaining authorization through December 31, 202582 - The Company is involved in ongoing legal proceedings related to former employee matters, including a wrongful termination lawsuit with a retrial scheduled for December 2, 20249091 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of financial condition and results of operations, including performance, outlook, and key business metrics Overview - Liquidity Services is a global commerce company providing online marketplace platforms that power the circular economy by connecting millions of buyers and thousands of sellers to recover value from surplus assets101 Reportable Segments - The Company operates four reportable segments: GovDeals (government surplus), Retail Supply Chain Group (RSCG) (excess consumer goods), Capital Assets Group (CAG) (commercial surplus assets across various verticals), and Machinio (global search engine for used equipment)103 Macroeconomic Conditions - Supply chain constraints in new vehicles and heavy equipment continue to impact the supply of used assets, while consumer behavior remains turbulent with a focus on essential goods104 - Sustained inflation and heightened interest rates have increased prices for energy, shipping, and labor, and raised borrowing costs, impacting buyer qualification and transaction timelines105 - Ongoing international armed and geopolitical conflicts (e.g., Russia-Ukraine, Israel) have heightened global supply chain disruptions and impacted international trade markets, though direct revenues from these regions were immaterial106 Industry Trends - Positive industry trends include increased volume of returned merchandise, growing demand for sustainability solutions, increased outsourcing of surplus disposition, rising buyer demand for value, and a preference for low-touch online solutions107 Our Marketplace Transactions - As of March 31, 2024, the Company had 5.3 million registered buyers, an approximate 6% increase over the past twelve months, contributing to a self-reinforcing cycle of value creation on its platforms108 Revenues - Revenue is primarily generated through two transaction models: the purchase model (resale of inventory, full sale price recognized) and the consignment model (commission fee recognized for facilitating sales)110111 - For the three months ended March 31, 2024, consignment transactions represented 82.9% of consolidated GMV but only 34.7% of total revenues, while purchase model transactions accounted for 17.1% of GMV and 58.1% of total revenues113114 Key Business Metrics Key Business Metrics Highlights: | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Gross Merchandise Volume (GMV) | $319.4 million | $282.7 million | $625.2 million | $553.5 million | | Total Registered Buyers (as of Mar 31) | 5.3 million | 5.0 million | N/A | N/A | | Total Auction Participants | 1,139,000 | 797,000 | 1,987,000 | 1,541,000 | | Completed Transactions | 300,000 | 209,000 | 539,000 | 423,000 | Critical Accounting Policies and Estimates - The Company's critical accounting policies and estimates are detailed in its Annual Report on Form 10-K and Note 2, covering areas such as revenue recognition, cost of goods sold, technology and operations, sales and marketing, general and administrative, depreciation and amortization, other operating expenses, interest and other income, and income taxes121122124125126127 Results of Operations Consolidated Financial Performance (Dollars in Thousands): | Metric | Three Months Ended Mar 31, 2024 | Change (%) | Six Months Ended Mar 31, 2024 | Change (%) | | :------------------------------------------ | :------------------------------ | :--------- | :---------------------------- | :--------- | | Total revenue | $91,453 | 12.3% | $162,778 | 5.9% | | Income from operations | $6,595 | 25.7% | $8,243 | (17.3)% | | Net income | $5,709 | 34.5% | $7,617 | (7.2)% | | Cost of goods sold | $44,222 | 9.6% | $75,748 | 5.0% | | Sales and marketing expenses | $14,195 | 19.7% | $27,176 | 20.0% | | General and administrative expenses | $7,658 | 19.6% | $15,242 | 10.5% | | Depreciation and amortization | $3,195 | 14.0% | $6,098 | 9.5% | Segment Performance (Total Revenue, Dollars in Thousands): | Segment | Three Months Ended Mar 31, 2024 | Change (%) | Six Months Ended Mar 31, 2024 | Change (%) | | :---------------- | :------------------------------ | :--------- | :---------------------------- | :--------- | | GovDeals | $18,374 | 21.8% | $34,274 | 19.5% | | RSCG | $56,813 | 5.9% | $100,535 | 0.9% | | CAG | $12,280 | 30.4% | $20,114 | 6.9% | | Machinio | $4,002 | 21.2% | $7,888 | 19.8% | Non-GAAP Financial Measures - Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are supplemental measures used to evaluate operating performance by excluding non-cash charges (depreciation, amortization, stock-based compensation) and non-recurring items (acquisition costs, business realignment expense)148150151152 Non-GAAP Adjusted EBITDA (Dollars in Thousands): | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :----------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income | $5,709 | $4,245 | $7,617 | $8,211 | | Non-GAAP Adjusted EBITDA | $12,088 | $9,926 | $19,341 | $19,768 | Liquidity and Capital Resources - As of March 31, 2024, the Company had $108.6 million in cash and cash equivalents and $8.4 million in short-term investments, which management believes are sufficient to meet anticipated cash needs for at least one year155 - Capital expenditures for the three months ended March 31, 2024, increased to $4.1 million from $2.7 million in the prior year, primarily driven by enhancements to platforms and marketplaces156 - The $25.0 million Credit Agreement was extended to March 31, 2026, with no outstanding borrowings and full availability as of March 31, 2024158160 - Net cash provided by operating activities increased by $3.7 million to $26.0 million for the six months ended March 31, 2024, while net cash used in investing activities increased by $11.2 million to $17.6 million, mainly due to the Sierra acquisition165167 Item 3. Quantitative and Qualitative Disclosures About Market Risk Discusses the company's exposure to market risks, specifically interest rate and exchange rate sensitivity, and their potential impact on financial results - A hypothetical 100 basis point decline in interest rates would impact the Company's pre-tax earnings by less than $1.0 million on an annualized basis169 - A hypothetical 10% decrease in foreign exchange rates (primarily British Pounds, Canadian Dollars, Chinese Yuan, Euros, and Hong Kong Dollars) would reduce total expected revenues by approximately 1%171 Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of March 31, 2024, concluding they were effective with no material changes - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2024173 - No change occurred in the Company's internal controls over financial reporting during the three months ended March 31, 2024, that materially affected, or is reasonably likely to materially affect, these controls174 PART II. OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 13 of the accompanying Notes to the condensed consolidated financial statements for detailed information regarding the Company's legal proceedings - Information regarding the Company's legal proceedings is provided in Note 13 - Legal Proceedings and Other Contingencies, of the accompanying Notes to the condensed consolidated financial statements175 Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023 - There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023176 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section confirms no unregistered sales of equity securities and details the Company's common stock repurchases during the three months ended March 31, 2024, under its authorized program - No unregistered sales of equity securities occurred during the period176 Issuer Purchases of Equity Securities (Three Months Ended March 31, 2024): | Period | Total Number of Shares Purchased (in thousands) | Average Price Per Share | | :------------------------------------ | :-------------------------------------------- | :---------------------- | | January 1, 2024 to January 31, 2024 | 259 | $16.95 | | February 1, 2024 to February 29, 2024 | 215 | $16.24 | | March 1, 2024 to March 31, 2024 | — | — | | Total | 474 | N/A | - As of March 31, 2024, the Company had $8.0 million of remaining authorization to repurchase shares through December 31, 2025180 Item 5. Other Information This section indicates that there is no other information to report under this item Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including financial statements in XBRL format, corporate governance documents, and certifications from executive officers - The report includes financial statements formatted in Extensible Business Reporting Language (XBRL) as Exhibit 101181 - Key corporate documents, such as the Fourth Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and the 2024 Amendment to the Long-Term Incentive Plan, are filed as exhibits182 - Certifications from the Chief Executive Officer and Chief Financial Officer, as required by Rule 13a-14(a) of the Securities Exchange Act of 1934 and Section 906 of the Sarbanes-Oxley Act of 2002, are included182 SIGNATURES This section contains the official signatures of the Company's Chairman of the Board and Chief Executive Officer, William P. Angrick, III, and Chief Financial Officer, Jorge A. Celaya, certifying the filing of the report - The report was signed by William P. Angrick, III (Chairman of the Board and Chief Executive Officer) and Jorge A. Celaya (Chief Financial Officer) on May 9, 2024184