SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
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| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended MarchDecember 31, 2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period fromto
LIQUIDITY SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 52-2209244 | |||||||
(State or Other Jurisdiction of | (I.R.S. Employer | |||||||
Incorporation or Organization) | Identification No.) | |||||||
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| |||||||
6931 Arlington Road, Suite 200, Bethesda, MD | 20814 | |||||||
(Address of Principal Executive Offices) | (Zip Code) | |||||||
(202) 467-6868
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
Common Stock, $0.001 par value | LQDT | Nasdaq | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Large accelerated filer ☐ |
| Accelerated filer ☒ | ||||||
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Non-accelerated filer ☐ |
| Smaller reporting company ☐ | ||||||
Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
The number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of May 2, 2022January 30, 2023, was 35,576,022.31,573,219
2
Item 1. Financial Statements (Unaudited)
Liquidity Services, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)March 31, 2022 September 30, 2021 (Unaudited) Assets Current assets: Cash and cash equivalents $ 84,264 $ 106,335 Accounts receivable, net of allowance for doubtful accounts of $336 and $490 6,606 5,866 Inventory, net 13,079 12,468 Prepaid taxes and tax refund receivable 1,715 1,713 Prepaid expenses and other current assets 6,508 5,460 Total current assets 112,172 131,842 Property and equipment, net of accumulated depreciation of $21,656 and $18,558 18,243 17,634 Operating lease assets 14,085 13,478 Intangible assets, net 18,209 3,453 Goodwill 89,691 59,872 Deferred tax assets 18,508 23,822 Other assets 5,911 5,475 Total assets $ 276,819 $ 255,576 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 41,029 $ 40,611 Accrued expenses and other current liabilities 37,946 25,975 Current portion of operating lease liabilities 4,306 4,250 Deferred revenue 5,067 4,624 Payables to sellers 44,238 33,713 Total current liabilities 132,586 109,173 Operating lease liabilities 10,831 10,098 Other long-term liabilities 413 1,290 Total liabilities 143,830 120,561 Commitments and contingencies (Note 13) 0 0 Stockholders’ equity: Common stock, $0.001 par value; 120,000,000 shares authorized; 35,563,988 shares issued and outstanding at March 31, 2022; 35,457,095 shares issued and outstanding at September 30, 2021 36 35 Additional paid-in capital 254,680 252,017 Treasury stock, at cost; 3,385,827 shares at March 31, 2022 and 2,222,083 shares at September 30, 2021 (56,726) (36,628) Accumulated other comprehensive loss (9,311) (9,011) Accumulated deficit (55,690) (71,398) Total stockholders’ equity 132,989 135,015 Total liabilities and stockholders’ equity $ 276,819 $ 255,576
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| December 31, 2022 |
|
| September 30, 2022 |
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|
| (Unaudited) |
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Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 76,166 |
|
| $ | 96,122 |
|
Short-term investments |
|
| 3,716 |
|
|
| 1,819 |
|
Accounts receivable, net of allowance for doubtful accounts of $328 and $449 |
|
| 7,969 |
|
|
| 11,792 |
|
Inventory, net |
|
| 16,369 |
|
|
| 11,679 |
|
Prepaid taxes and tax refund receivable |
|
| 1,833 |
|
|
| 1,631 |
|
Prepaid expenses and other current assets |
|
| 7,585 |
|
|
| 6,551 |
|
Total current assets |
|
| 113,638 |
|
|
| 129,594 |
|
Property and equipment, net |
|
| 18,548 |
|
|
| 19,094 |
|
Operating lease assets |
|
| 12,177 |
|
|
| 13,207 |
|
Intangible assets, net |
|
| 15,252 |
|
|
| 16,234 |
|
Goodwill |
|
| 89,345 |
|
|
| 88,910 |
|
Deferred tax assets |
|
| 12,447 |
|
|
| 13,628 |
|
Other assets |
|
| 7,794 |
|
|
| 7,437 |
|
Total assets |
| $ | 269,201 |
|
| $ | 288,104 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
| ||
Current liabilities: |
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|
|
|
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Accounts payable |
| $ | 31,592 |
|
| $ | 41,982 |
|
Accrued expenses and other current liabilities |
|
| 21,630 |
|
|
| 23,304 |
|
Current portion of operating lease liabilities |
|
| 4,559 |
|
|
| 4,540 |
|
Deferred revenue |
|
| 4,022 |
|
|
| 4,439 |
|
Payables to sellers |
|
| 43,635 |
|
|
| 49,238 |
|
Total current liabilities |
|
| 105,437 |
|
|
| 123,503 |
|
Operating lease liabilities |
|
| 8,576 |
|
|
| 9,687 |
|
Other long-term liabilities |
|
| 235 |
|
|
| 378 |
|
Total liabilities |
|
| 114,248 |
|
|
| 133,568 |
|
Commitments and contingencies (Note 13) |
|
|
|
|
|
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Stockholders’ equity: |
|
|
|
|
|
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Common stock, $0.001 par value; 120,000,000 shares authorized; 35,899,641 shares issued and outstanding at December 31, 2022; 35,724,057 shares issued and outstanding at September 30, 2022 |
|
| 36 |
|
|
| 36 |
|
Additional paid-in capital |
|
| 260,653 |
|
|
| 258,275 |
|
Treasury stock, at cost; 4,345,018 shares at December 31, 2022, and 3,813,199 shares at September 30, 2022 |
|
| (69,754 | ) |
|
| (62,554 | ) |
Accumulated other comprehensive loss |
|
| (9,012 | ) |
|
| (10,285 | ) |
Accumulated deficit |
|
| (26,970 | ) |
|
| (30,936 | ) |
Total stockholders’ equity |
|
| 154,953 |
|
|
| 154,536 |
|
Total liabilities and stockholders’ equity |
| $ | 269,201 |
|
| $ | 288,104 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
3
Condensed Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
|
| Three Months Ended December 31, |
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|
| 2022 |
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| 2021 |
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Purchase revenues |
| $ | 38,634 |
|
| $ | 36,217 |
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Consignment and other fee revenues |
|
| 33,648 |
|
|
| 30,490 |
|
Total revenue |
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| 72,282 |
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|
| 66,707 |
|
Costs and expenses from operations: |
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|
|
|
|
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Cost of goods sold (excludes depreciation and amortization) |
|
| 31,773 |
|
|
| 27,762 |
|
Technology and operations |
|
| 14,704 |
|
|
| 13,918 |
|
Sales and marketing |
|
| 10,790 |
|
|
| 10,044 |
|
General and administrative |
|
| 7,385 |
|
|
| 8,230 |
|
Depreciation and amortization |
|
| 2,764 |
|
|
| 2,302 |
|
Other operating expenses (income), net |
|
| 139 |
|
|
| (32 | ) |
Total costs and expenses |
|
| 67,555 |
|
|
| 62,224 |
|
Income from operations |
|
| 4,727 |
|
|
| 4,483 |
|
Interest and other income, net |
|
| (389 | ) |
|
| (131 | ) |
Income before provision for income taxes |
|
| 5,116 |
|
|
| 4,614 |
|
Provision for income taxes |
|
| 1,149 |
|
|
| 1,012 |
|
Net income |
| $ | 3,967 |
|
| $ | 3,602 |
|
Basic income per common share |
| $ | 0.12 |
|
| $ | 0.11 |
|
Diluted income per common share |
| $ | 0.12 |
|
| $ | 0.10 |
|
Basic weighted average shares outstanding |
|
| 31,815,160 |
|
|
| 32,971,709 |
|
Diluted weighted average shares outstanding |
|
| 32,937,600 |
|
|
| 34,868,869 |
|
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Revenue | $ | 37,384 | $ | 35,968 | $ | 73,602 | $ | 67,040 | |||||||||||||||
| Fee revenue | 30,891 | 25,818 | 61,381 | 50,498 | |||||||||||||||||||
| Total revenue | 68,275 | 61,786 | 134,983 | 117,538 | |||||||||||||||||||
| Costs and expenses from operations: | |||||||||||||||||||||||
| Cost of goods sold (excludes depreciation and amortization) | 28,968 | 26,385 | 56,730 | 48,958 | |||||||||||||||||||
| Technology and operations | 13,872 | 12,085 | 27,790 | 22,644 | |||||||||||||||||||
| Sales and marketing | 11,273 | 8,910 | 21,317 | 18,018 | |||||||||||||||||||
| General and administrative | 7,053 | 6,892 | 15,284 | 13,902 | |||||||||||||||||||
| Depreciation and amortization | 2,603 | 1,670 | 4,906 | 3,541 | |||||||||||||||||||
| Fair value adjustments of acquisition earn-outs | (8,500) | — | (8,500) | — | |||||||||||||||||||
| Other operating expenses (income) | 23 | 206 | (10) | 210 | |||||||||||||||||||
| Total costs and expenses | 55,292 | 56,148 | 117,517 | 107,273 | |||||||||||||||||||
| Income from operations | 12,983 | 5,638 | 17,466 | 10,265 | |||||||||||||||||||
| Interest and other income, net | (46) | (29) | (177) | (214) | |||||||||||||||||||
| Income before provision for income taxes | 13,029 | 5,667 | 17,643 | 10,479 | |||||||||||||||||||
| Provision for income taxes | 1,059 | 407 | 2,071 | 704 | |||||||||||||||||||
| Net income | $ | 11,970 | $ | 5,260 | $ | 15,572 | $ | 9,775 | |||||||||||||||
| Basic income per common share | $ | 0.37 | $ | 0.16 | $ | 0.48 | $ | 0.29 | |||||||||||||||
| Diluted income per common share | $ | 0.35 | $ | 0.15 | $ | 0.45 | $ | 0.28 | |||||||||||||||
| Basic weighted average shares outstanding | 32,561,903 | 33,491,395 | 32,769,057 | 33,332,417 | |||||||||||||||||||
| Diluted weighted average shares outstanding | 34,004,568 | 35,559,747 | 34,382,149 | 34,914,549 | |||||||||||||||||||
4
Condensed Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
|
| Three Months Ended December 31, |
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|
| 2022 |
|
| 2021 |
| ||
Net income |
| $ | 3,967 |
|
| $ | 3,602 |
|
Other comprehensive income (loss): |
|
|
|
|
|
| ||
Foreign currency translation |
|
| 1,273 |
|
|
| (131 | ) |
Other comprehensive income (loss), net of taxes |
|
| 1,273 |
|
|
| (131 | ) |
Comprehensive income |
| $ | 5,240 |
|
| $ | 3,471 |
|
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net income | $ | 11,970 | $ | 5,260 | $ | 15,572 | $ | 9,775 | |||||||||||||||
| Other comprehensive (loss) income: | |||||||||||||||||||||||
| Foreign currency translation | (169) | 123 | (300) | 1,019 | |||||||||||||||||||
| Other comprehensive (loss) income | (169) | 123 | (300) | 1,019 | |||||||||||||||||||
| Comprehensive income | $ | 11,801 | $ | 5,383 | $ | 15,272 | $ | 10,794 | |||||||||||||||
Condensed Consolidated Statement of Stockholders’ Equity
(Dollars In Thousands)
|
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| Additional |
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|
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| Accumulated |
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|
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| ||||||||
| Common Stock |
| Paid-in |
| Treasury Stock |
| Comprehensive |
| Retained |
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| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Loss |
| Earnings |
| Total |
| ||||||||
Balance at September 30, 2022 |
| 35,724,057 |
| $ | 36 |
| $ | 258,275 |
|
| (3,813,199 | ) | $ | (62,554 | ) | $ | (10,285 | ) | $ | (30,936 | ) | $ | 154,536 |
|
Net Income |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
|
|
| 3,967 |
| $ | 3,967 |
| |
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units |
| 190,119 |
|
| — |
|
| 495 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 495 |
|
Taxes paid associated with net settlement of stock compensation awards |
| (14,536 | ) |
| — |
|
| (244 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (244 | ) |
Common stock repurchase |
| — |
|
| — |
|
| — |
|
| (531,819 | ) |
| (7,199 | ) |
| — |
|
| — |
|
| (7,199 | ) |
Stock compensation expense |
| — |
|
| — |
|
| 2,126 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,126 |
|
Foreign currency translation |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,273 |
|
| — |
|
| 1,273 |
|
Balance at December 31, 2022 |
| 35,899,640 |
| $ | 36 |
| $ | 260,653 |
|
| (4,345,018 | ) | $ | (69,754 | ) | $ | (9,012 | ) | $ | (26,970 | ) | $ | 154,953 |
|
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Shares | Amount | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2021 | 35,457,095 | $ | 35 | $ | 252,017 | (2,222,083) | $ | (36,628) | $ | (9,011) | $ | (71,398) | $ | 135,015 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 3,602 | 3,602 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | 131,070 | 1 | — | — | — | — | — | 1 | |||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | (40,239) | — | (851) | — | — | — | — | (851) | |||||||||||||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards | (14,855) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | (147,185) | (2,963) | — | — | (2,963) | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | 100 | (4,678) | (100) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | 2,270 | — | — | — | — | 2,270 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation and other | — | — | — | — | — | (131) | 136 | 5 | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 35,533,071 | $ | 36 | $ | 253,536 | (2,373,946) | $ | (39,691) | $ | (9,142) | $ | (67,660) | $ | 137,079 | |||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 11,970 | 11,970 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | 320,943 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | (47,124) | — | (958) | — | — | — | — | (958) | |||||||||||||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards | (242,902) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | (1,011,881) | (17,035) | — | — | (17,035) | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | 2,102 | — | — | — | — | 2,102 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | (169) | — | (169) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | 35,563,988 | $ | 36 | $ | 254,680 | (3,385,827) | $ | (56,726) | $ | (9,311) | $ | (55,690) | $ | 132,989 | |||||||||||||||||||||||||||||||||
6
Condensed Consolidated Statements of Cash Flows
(Dollars In Thousands)
| Six Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (Unaudited) | |||||||||||
| Operating activities | |||||||||||
| Net income | $ | 15,572 | $ | 9,775 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 4,906 | 3,541 | |||||||||
| Stock compensation expense | 4,272 | 3,990 | |||||||||
| Inventory adjustment to net realizable value | 98 | — | |||||||||
| Provision for doubtful accounts | 11 | 175 | |||||||||
| Deferred tax provision | 1,590 | 64 | |||||||||
| Gain on disposal of property and equipment | (13) | 44 | |||||||||
| Gain on termination of lease | (240) | — | |||||||||
| Impairment of long-lived and other assets | 31 | 203 | |||||||||
| Change in fair value of earn-out liability | (8,500) | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (637) | (594) | |||||||||
| Inventory | (709) | (7,517) | |||||||||
| Prepaid and deferred taxes | (3) | 57 | |||||||||
| Prepaid expenses and other assets | (1,230) | (1,358) | |||||||||
| Operating lease assets and liabilities | 422 | (52) | |||||||||
| Accounts payable | 393 | 14,947 | |||||||||
| Accrued expenses and other current liabilities | (8,121) | 2,003 | |||||||||
| Deferred revenue | 442 | 916 | |||||||||
| Payables to sellers | 7,149 | 5,383 | |||||||||
| Other liabilities | (806) | (262) | |||||||||
| Net cash provided by operating activities | 14,627 | 31,315 | |||||||||
| Investing activities | |||||||||||
| Cash paid for business acquisition, net of cash acquired | (11,164) | — | |||||||||
| Purchases of property and equipment, including capitalized software | (3,572) | (2,418) | |||||||||
| Increase in intangibles | (8) | (21) | |||||||||
| Proceeds from sales of property and equipment | 17 | 35 | |||||||||
| Proceeds from promissory note | — | 824 | |||||||||
| Net cash used by investing activities | (14,727) | (1,580) | |||||||||
| Financing activities | |||||||||||
| Payments of the principal portion of finance lease liabilities | (51) | (17) | |||||||||
| Payment of debt issuance costs | (91) | — | |||||||||
| Taxes paid associated with net settlement of stock compensation awards | (1,809) | (3,202) | |||||||||
| Proceeds from exercise of stock options | — | 351 | |||||||||
| Common stock repurchased | (19,998) | (16,143) | |||||||||
| Net cash used by financing activities | (21,949) | (19,011) | |||||||||
| Effect of exchange rate differences on cash and cash equivalents | (22) | 853 | |||||||||
| Net (decrease) increase in cash and cash equivalents | (22,071) | 11,577 | |||||||||
| Cash and cash equivalents at beginning of period | 106,335 | 76,036 | |||||||||
| Cash and cash equivalents at end of period | $ | 84,264 | $ | 87,613 | |||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for income taxes, net | $ | 350 | $ | 508 | |||||||
| Non-cash: Earnout liability for acquisition activity | $ | 19,500 | $ | — | |||||||
| Non-cash: Common stock surrendered in the exercise of stock options | $ | 100 | $ | 1,502 | |||||||
|
| Three Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 3,967 |
|
| $ | 3,602 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 2,764 |
|
|
| 2,302 |
|
Stock compensation expense |
|
| 2,081 |
|
|
| 2,280 |
|
Inventory adjustment to net realizable value |
|
| — |
|
|
| 98 |
|
Provision for doubtful accounts |
|
| 15 |
|
|
| 11 |
|
Deferred tax expense |
|
| 1,181 |
|
|
| 881 |
|
Gain on disposal of property and equipment |
|
| (45 | ) |
|
| (6 | ) |
Gain on disposal of lease assets |
|
| — |
|
|
| (205 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| 3,954 |
|
|
| (1,795 | ) |
Inventory |
|
| (4,680 | ) |
|
| (855 | ) |
Prepaid taxes and tax refund receivable |
|
| (202 | ) |
|
| 35 |
|
Prepaid expenses and other assets |
|
| (999 | ) |
|
| (1,137 | ) |
Operating lease assets and liabilities |
|
| (65 | ) |
|
| 214 |
|
Accounts payable |
|
| (10,416 | ) |
|
| (8,815 | ) |
Accrued expenses and other current liabilities |
|
| (1,744 | ) |
|
| (5,193 | ) |
Deferred revenue |
|
| (417 | ) |
|
| 60 |
|
Payables to sellers |
|
| (5,935 | ) |
|
| 11,199 |
|
Other liabilities |
|
| (120 | ) |
|
| (805 | ) |
Net cash (used in) provided by operating activities |
|
| (10,659 | ) |
|
| 1,871 |
|
Investing activities |
|
|
|
|
|
| ||
Purchases of property and equipment, including capitalized software |
|
| (1,212 | ) |
|
| (1,964 | ) |
Cash paid for business acquisitions, net of cash acquired |
|
| — |
|
|
| (11,063 | ) |
Purchase of short-term investments |
|
| (1,847 | ) |
|
| — |
|
Other investing activities, net |
|
| 44 |
|
|
| 6 |
|
Net cash used in investing activities |
|
| (3,015 | ) |
|
| (13,021 | ) |
Financing activities |
|
|
|
|
|
| ||
Payments of the principal portion of finance lease liabilities |
|
| (25 | ) |
|
| (27 | ) |
Taxes paid associated with net settlement of stock compensation awards |
|
| (244 | ) |
|
| (851 | ) |
Proceeds from exercise of stock options, net of tax |
|
| 496 |
|
|
| — |
|
Common stock repurchases |
|
| (7,199 | ) |
|
| (2,963 | ) |
Net cash used in financing activities |
|
| (6,972 | ) |
|
| (3,841 | ) |
Effect of exchange rate differences on cash and cash equivalents |
|
| 690 |
|
|
| (23 | ) |
Net decrease in cash and cash equivalents |
|
| (19,956 | ) |
|
| (15,014 | ) |
Cash and cash equivalents at beginning of period |
|
| 96,122 |
|
|
| 106,335 |
|
Cash and cash equivalents at end of period |
| $ | 76,166 |
|
| $ | 91,321 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
| ||
Cash paid (received) for income taxes, net |
| $ | 159 |
|
| $ | (28 | ) |
Non-cash: Common stock surrendered in the exercise of stock options |
|
| — |
|
| $ | 100 |
|
Non-cash: Earnout liability for acquisition activity |
|
| — |
|
| $ | 26,900 |
|
See accompanying notes to the unaudited condensed consolidated financial statements.
7
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements
Organization
Results from our operations are organized into 4four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. See Note 14 - Segment Informationfor more information.information regarding our segments.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been included, and intercompany transactions and accounts have been eliminated in consolidation. The information disclosed in the notes to the condensed consolidated financial statements for these periods is unaudited. Operating results for the three and six months ended MarchDecember 31, 2022, are not necessarily indicative of the results that may be expected for the year ending September 30, 2022,2023, or for any future period.
Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a seller. The contract asset balance was $$0.80.9 million as of MarchDecember 31, 2022, and $0.6$0.9 million as of September 30, 2021,2022, and is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.
Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability balance was $5.1$4.0 million as of MarchDecember 31, 2022, and $4.6$4.4 million as of September 30, 2021,2022, and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets. Of the September 30, 2021,2022, contract liability balance, $3.4$2.2 million was earned as Feeother fee revenue during the sixthree months ended MarchDecember 31, 2022.
8
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
Contract Costs
Contract costs relate to sales commissions paid on subscription contracts that are capitalized.capitalized within our Machinio segment. Contract costs are amortized over the expected life of the customer contract. The contract cost balance wwas $1.8 million as $1.8 million as of MarchDecember 31, 2022, and $1.6$1.8 million as of September 30, 2021,2022, and is included in the line itemsitem Prepaid expenses and other current assets, and Other assets on the Condensed Consolidated Balance Sheets. Amortization expense was $$0.3 million and $0.5 million during the three and six months ended March 31, 2022, and $0.2 million and $0.3 million $during the three and six months ended March 31, 2021.
For consignment sales transactions, funds are typically collected from buyers and are held by the Company on the sellers' behalf. The funds are included in Cash and cash equivalents on the Condensed Consolidated Balance Sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business.
Financial instruments that potentially subjectsubje5ct the Company to significant concentrations of credit risk consist principally of cash in banks within interest bearing and earnings allowance checking accounts, as well as cash equivalent money market funds, all of which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable. The Company deposits its cash in interest bearing checking accounts, acquires cash equivalent money market funds, and holds short-term investments designated as held-to-maturity investment securities, each with financial institutions that the Company considers to be of high credit quality.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or Accounting Standards Codification (ASC) 326. ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASC 326 will require estimation of expected credit losses using a methodology that takes into consideration a broad range of reasonable and supportable information. The guidance will be effective for the Company beginning on October 1, 2023 and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its condensed consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable.accounts receivable, cash equivalent money market funds, and short-term investments. While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.
On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland corporation. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. The results of Bid4Assets' operations are included within our GovDeals reportable segment and reporting unit.
The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, and the residual goodwill. The preliminary amounts assigned to intangible assets by type for this acquisition were based upon our valuation model and historical experiences with entities with similar business characteristics. During the three months ended March 31, 2022, we recorded a measurement period adjustment of $1.1 million for the earn-out consideration fair value with a corresponding increase to goodwill, based on facts and circumstances in existence as of the effective date of the acquisition related to the discount rates associated with the expected earn-out payments. This resulted in a change to the total consideration transferred and goodwill balance seen below as compared to our previously reported preliminary purchase accounting results as of December 31, 2021.
9
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
(in thousands) |
| Fair Value |
| |
Cash and cash equivalents |
| $ | 3,576 |
|
Intangible assets |
|
| 16,500 |
|
Other assets |
|
| 346 |
|
Total assets acquired |
|
| 20,422 |
|
Payable to sellers |
|
| 3,715 |
|
Operating lease liabilities |
|
| 204 |
|
Deferred tax liability |
|
| 3,847 |
|
Total liabilities assumed |
|
| 7,766 |
|
Net identifiable assets acquired |
| $ | 12,656 |
|
Goodwill |
|
| 30,084 |
|
Total consideration transferred |
| $ | 42,739 |
|
(in thousands) |
| Useful Life (in years) |
| Fair Value |
| |
Contract intangibles |
| 8 |
| $ | 13,900 |
|
Developed software |
| 3 |
|
| 2,200 |
|
Trade name |
| 3 |
| 400 |
| |
Total identifiable intangible assets |
| |
| $ | 16,500 |
|
During the six monthsyear ended March 31,September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary contingent consideration in the amount of $28.0$28.0 million on its Condensed Consolidated Balance Sheets. Through December 31, 2022, $3.5 million in earn-out payments have been made. As of December 31, 2022, the remaining earn-out fair value is $0 based upon actual performance through the final earn-out measurement period ending December 31, 2022. See further discussion of this matter within Note 11 - Fair Value Measurement.
Other Information
Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the condensed consolidated financial statements and its related notes for the three and six months ended December 31, 2022, and 2021.March 31, 2022.
Basic net income per share is computed by dividing netNet income for the period by the weighted average number of shares outstanding during the period. Diluted net income per share is computed by dividing netNet income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The calculation of dilutedDiluted net income per share excludes all anti-dilutive common shares.
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income | $ | 11,970 | $ | 5,260 | $ | 15,572 | $ | 9,775 | ||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Basic weighted average shares outstanding | 32,561,903 | 33,491,395 | 32,769,057 | 33,332,417 | ||||||||||||||||||||||
| Dilutive impact of stock options, RSUs and RSAs | 1,442,665 | 2,068,352 | 1,613,092 | 1,582,132 | ||||||||||||||||||||||
| Diluted weighted average shares outstanding | 34,004,568 | 35,559,747 | 34,382,149 | 34,914,549 | ||||||||||||||||||||||
| Basic income per common share | $ | 0.37 | $ | 0.16 | $ | 0.48 | $ | 0.29 | ||||||||||||||||||
| Diluted income per common share | $ | 0.35 | $ | 0.15 | $ | 0.45 | $ | 0.28 | ||||||||||||||||||
Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive | 1,327,292 | 367,539 | 1,246,493 | 969,089 | ||||||||||||||||||||||
|
| Three months ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Numerator: |
|
|
|
|
|
| ||
Net Income |
| $ | 3,967 |
|
| $ | 3,602 |
|
Denominator: |
|
|
|
|
|
| ||
Basic weighted average shares outstanding |
|
| 31,815,160 |
|
|
| 32,971,709 |
|
Dilutive impact of stock options, RSUs and RSAs |
|
| 1,122,440 |
|
|
| 1,897,160 |
|
Diluted weighted average shares outstanding |
|
| 32,937,600 |
|
|
| 34,868,869 |
|
Basic income per common share |
|
| 0.12 |
|
| $ | 0.11 |
|
Diluted income per common share |
|
| 0.12 |
|
| $ | 0.10 |
|
Stock options, RSUs and RSAs excluded from income per diluted share because their effect would have been anti-dilutive |
|
| 1,906,513 |
|
|
| 786,593 |
|
10
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to up t4.1o 4.8 years. years. Some of the leases have options to extend or terminate the leases. The exercise of such options is generally at the Company’s discretion. The lease agreements do not contain any significant residual value guarantees or restrictive covenants. The Company also subleases excess corporate office space. The Company's finance leases and related balances are not significant.
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Finance lease – lease asset amortization | $ | 21 | $ | 16 | $ | 42 | $ | 32 | |||||||||||||||
| Finance lease – interest on lease liabilities | 5 | 5 | 10 | 10 | |||||||||||||||||||
| Operating lease cost | 1,434 | 1,249 | 2,912 | 2,655 | |||||||||||||||||||
| Operating lease impairment expense | — | 172 | 0 | 172 | |||||||||||||||||||
| Short-term lease cost | 64 | 47 | 117 | 121 | |||||||||||||||||||
Variable lease cost (1) | 169 | 455 | 553 | 818 | |||||||||||||||||||
| Sublease income | (30) | (30) | (67) | (106) | |||||||||||||||||||
| Total net lease cost | $ | 1,663 | $ | 1,914 | $ | 3,567 | $ | 3,702 | |||||||||||||||
| Three Months Ended December 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Finance lease – lease asset amortization | $ | 20 |
|
| $ | 21 |
|
Finance lease – interest on lease liabilities |
| 4 |
|
|
| 5 |
|
Operating lease cost |
| 1,358 |
|
|
| 1,478 |
|
Operating lease impairment expense |
| — |
|
|
| — |
|
Short-term lease cost |
| 137 |
|
|
| 53 |
|
Variable lease cost (1) |
| 375 |
|
|
| 384 |
|
Sublease income |
| (25 | ) |
|
| (36 | ) |
Total net lease cost | $ | 1,868 |
|
| $ | 1,905 |
|
Maturities of lease liabilities are:
| March 31, 2022 | |||||||||||
| (in thousands) | Operating Leases | Finance Leases | |||||||||
| 2022 | $ | 2,641 | $ | 58 | |||||||
| 2023 | 4,782 | 117 | |||||||||
| 2024 | 3,882 | 98 | |||||||||
| 2025 | 3,176 | 69 | |||||||||
| 2026 | 2,139 | 66 | |||||||||
| Thereafter | 396 | 12 | |||||||||
Total lease payments (1) | $ | 17,016 | $ | 420 | |||||||
Less: imputed interest (2) | (1,879) | (44) | |||||||||
| Total lease liabilities | $ | 15,137 | $ | 376 | |||||||
| December 31, 2022 |
| |||||
| Operating Leases |
|
| Finance Leases |
| ||
2023 | $ | 4,023 |
|
| $ | 87 |
|
2024 |
| 4,461 |
|
|
| 97 |
|
2025 |
| 3,674 |
|
|
| 68 |
|
2026 |
| 2,235 |
|
|
| 65 |
|
2027 |
| 420 |
|
|
| 12 |
|
Thereafter |
| — |
|
|
| — |
|
Total lease payments (1) | $ | 14,814 |
|
| $ | 329 |
|
Less: imputed interest (2) |
| (1,347 | ) |
|
| (29 | ) |
Total lease liabilities | $ | 13,467 |
|
| $ | 301 |
|
Supplemental disclosures of cash flow information related to leases are:
| Six Months Ended March 31, | |||||||||||
| (in thousands) | 2022 | 2021 | |||||||||
| Cash paid for amounts included in operating lease liabilities | $ | 2,060 | $ | 2,251 | |||||||
| Cash paid for amounts included in finance lease liabilities | 51 | 17 | |||||||||
| Non-cash: lease liabilities arising from new operating lease assets obtained | 3,158 | 885 | |||||||||
| Non-cash: lease liabilities arising from new finance lease assets obtained | 179 | — | |||||||||
Non-cash: adjustments to lease assets and liabilities1 | (198) | 3,286 | |||||||||
| Three Months Ended December 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Cash paid for amounts included in operating lease liabilities | $ | 1,205 |
|
| $ | 1,060 |
|
Cash paid for amounts included in finance lease liabilities | $ | 25 |
|
| $ | 27 |
|
Non-cash: lease liabilities arising from new operating lease assets obtained |
| — |
|
| $ | 3,224 |
|
Non-cash: lease liabilities arising from new finance lease assets obtained |
| — |
|
| $ | 179 |
|
Non-cash: adjustments to lease assets and liabilities |
| — |
|
| $ | (205 | ) |
The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:
| (in thousands) | CAG | GovDeals | Machinio | Total | ||||||||||||||||||||||
| Balance at September 30, 2020 | $ | 21,550 | $ | 23,731 | $ | 14,558 | $ | 59,839 | ||||||||||||||||||
| Translation adjustments | 33 | — | — | 33 | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | 21,583 | $ | 23,731 | $ | 14,558 | $ | 59,872 | ||||||||||||||||||
| Bid4Assets acquisition (see Note 3) | — | 29,960 | — | 29,960 | ||||||||||||||||||||||
| Translation adjustments | (141) | — | — | (141) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 21,442 | $ | 53,691 | $ | 14,558 | $ | 89,691 | ||||||||||||||||||
The increase in the goodwill balance of approximately $30.0 million at the GovDeals reportable segment
(in thousands) | GovDeals |
| CAG |
| Machinio |
| Total |
| ||||
September 30, 2021 | $ | 23,731 |
| $ | 21,583 |
| $ | 14,558 |
| $ | 59,872 |
|
Addition: Bid4Assets acquisition |
| 30,083 |
|
| — |
|
| — |
|
| 30,083 |
|
Translation adjustments |
|
|
| (1,045 | ) |
|
|
| (1,045 | ) | ||
September 30, 2022 |
| 53,814 |
|
| 20,538 |
|
| 14,558 |
|
| 88,910 |
|
Translation adjustments |
| — |
|
| 435 |
|
| — |
|
| 435 |
|
December 31, 2022 | $ | 53,814 |
| $ | 20,973 |
| $ | 14,558 |
| $ | 89,345 |
|
11
Liquidity Services, Inc. and reporting unit Subsidiaries
during the six months ended March 31, 2022, is dueNotes to the Bid4Assets acquisition. See Note 3Unaudited Condensed Consolidated Financial Statements - (Continued)Bid4Assets Acquisition
for further information.
Goodwill is tested for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable. As discussed in Note 11 – Fair Value Measurements, the fair value of the Bid4Assets earn-out liability declined by $8.5 million during the three months ended March 31, 2022, due to timing changes impacting the level of auction events and transactions that are expected to occur during the earn-out period ending December 31, 2022. These timing changes have not reflected substantive changes to the long-term outlook for real estate sales within the GovDeals segment and were not considered a triggering event for testing goodwill or long-lived assets for impairment as of March 31, 2022. The Company has also continued to evaluate the impact of the COVID-19 pandemic, interest rate changes, elevated inflationary levels, and other ongoing macroeconomic disruptions on the recoverability of its goodwill. The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the sixthree months ended MarchDecember 31, 2022.
Intangible assets consist of the following: March 31, 2022 September 30, 2021 (in thousands) Useful
Life
(in years)Gross
Carrying
AmountAccumulated
AmortizationNet
Carrying
AmountGross
Carrying
AmountAccumulated
AmortizationNet
Carrying
AmountContract intangibles 6 - 8 17,000 (2,661) 14,339 3,100 (1,679) 1,421 Technology 3 - 5 5,300 (2,387) 2,913 2,700 (1,755) 945 Patent and trademarks 3 - 10 2,368 (1,411) 957 2,360 (1,273) 1,087 Total intangible assets $ 24,668 $ (6,459) $ 18,209 $ 8,160 $ (4,707) $ 3,453
for further information.
|
|
|
| December 31, 2022 |
|
| September 30, 2022 |
| ||||||||||||||||||
(in thousands) |
| Useful |
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| ||||||
Contract intangibles |
| 6 - 8 |
| $ | 17,000 |
|
| $ | (4,352 | ) |
| $ | 12,648 |
|
| $ | 17,000 |
|
| $ | (3,789 | ) |
| $ | 13,211 |
|
Technology |
| 3 - 5 |
|
| 5,300 |
|
|
| (3,441 | ) |
|
| 1,859 |
|
|
| 5,300 |
|
|
| (3,089 | ) |
|
| 2,211 |
|
Patent and trademarks |
| 7 - 10 |
|
| 2,381 |
|
|
| (1,636 | ) |
|
| 745 |
|
|
| 2,381 |
|
|
| (1,569 | ) |
|
| 812 |
|
Total intangible assets, net |
|
|
| $ | 24,681 |
|
| $ | (9,429 | ) |
| $ | 15,252 |
|
| $ | 24,681 |
|
| $ | (8,447 | ) |
| $ | 16,234 |
|
(in thousands) |
|
|
| |
Years ending September 30, |
| Expected Future Amortization |
| |
Remainder of 2023 |
| $ | 2,808 |
|
2024 |
|
| 3,252 |
|
2025 |
|
| 2,012 |
|
2026 |
|
| 1,767 |
|
2027 and thereafter |
|
| 5,413 |
|
Total |
| $ | 15,252 |
|
| (in thousands) | Expected Amortization Expense | |||||||
| Years ending September 30, | ||||||||
| Remainder of 2022 | $ | 1,967 | ||||||
| 2023 | 3,791 | |||||||
| 2024 | 3,253 | |||||||
| 2025 | 2,013 | |||||||
| 2026 and thereafter | 7,185 | |||||||
| Total | $ | 18,209 | ||||||
Intangible asset amortization expense was $1.0$1.0 million and $0.3$0.8 million for the three months ended MarchDecember 31, 2022, and 2021, respectively, and $1.8 million and $0.7 million for the six months ended March 31, 2022 and 2021, respectively.
12
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740,Income Taxes, states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of technical merits. The Company identified no new uncertain tax positions duringDuring the sixthree months ended MarchDecember 31, 2022.2022, the Company recorded a benefit of $0.1 million due to the reduction of unrecognized tax benefits related to foreign operations. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom. As of MarchDecember 31, 2022, the Company has no open income tax examinations in the U.S. and the statute of limitations for years prior to 20182019 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 20182019 may be adjusted upon examination by tax authorities if they are utilized.
During the three and six months ended MarchDecember 31, 2022, interest expense incurred by the Company under the Credit Agreement was immaterial to the condensedcondensed consolidated financial statements.
The changes in stockholders’ equity for the prior year comparable period isare as follows:
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Shares | Amount | Additional Paid-in Capital | Shares | Amount | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | 34,082,406 | $ | 34 | $ | 247,892 | $ | (547,508) | $ | (3,983) | $ | (9,782) | $ | (122,346) | $ | 111,815 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 4,514 | 4,514 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | 151,845 | — | 197 | — | — | — | — | 197 | |||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | (7,703) | — | (57) | — | — | — | — | (57) | |||||||||||||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards | (13,733) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | (309,496) | (4,103) | — | — | (4,103) | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | 169 | (9,384) | (169) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | 1,801 | — | — | — | — | 1,801 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 896 | — | 896 | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 34,212,815 | $ | 34 | $ | 250,002 | $ | (866,388) | $ | (8,255) | $ | (8,886) | $ | (117,832) | $ | 115,063 | ||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 5,260 | 5,260 | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | 1,079,955 | 1 | 154 | — | — | — | — | 155 | |||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | (177,463) | — | (3,145) | — | — | — | — | (3,145) | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | (647,583) | (12,040) | — | — | (12,040) | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | 1,333 | (73,228) | (1,333) | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | 1,522 | — | — | — | — | 1,522 | |||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | 123 | — | 123 | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | 35,115,307 | $ | 35 | $ | 249,866 | $ | (1,587,199) | $ | (21,628) | $ | (8,763) | $ | (112,572) | $ | 106,938 | ||||||||||||||||||||||||||||||||
|
|
|
|
| Additional |
|
|
|
|
| Accumulated |
|
|
|
|
| ||||||||
| Common Stock |
| Paid-in |
| Treasury Stock |
| Comprehensive |
| Retained |
|
|
| ||||||||||||
| Shares |
| Amount |
| Capital |
| Shares |
| Amount |
| Loss |
| Earnings |
| Total |
| ||||||||
Balance at September 30, 2021 |
| 35,457,095 |
| $ | 35 |
| $ | 252,017 |
|
| (2,222,083 | ) | $ | (36,628 | ) | $ | (9,011 | ) | $ | (71,398 | ) | $ | 135,015 |
|
Net income |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 3,602 |
|
| 3,602 |
|
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units |
| 131,070 |
|
| 1 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1 |
|
Taxes paid associated with net settlement of stock compensation awards |
| (40,239 | ) |
| — |
|
| (851 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| (851 | ) |
Forfeitures of restricted stock awards |
| (14,855 | ) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Common stock repurchased |
| — |
|
| — |
|
| — |
|
| (147,185 | ) |
| (2,963 | ) |
| — |
|
| — |
|
| (2,963 | ) |
Common stock surrendered in the exercise of stock options |
| — |
|
| — |
|
| 100 |
|
| (4,678 | ) |
| (100 | ) |
| — |
|
| — |
|
| — |
|
Stock compensation expense |
| — |
|
| — |
|
| 2,270 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,270 |
|
Foreign currency translation and other |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (131 | ) |
| 136 |
|
| 5 |
|
Balance at December 31, 2021 |
| 35,533,071 |
| $ | 36 |
| $ | 253,536 |
|
| (2,373,946 | ) | $ | (39,691 | ) | $ | (9,142 | ) | $ | (67,660 | ) | $ | 137,079 |
|
13
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended (LTIP), and a plan and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets. During the three months ended March 31, 2022, the Company's shareholders approved an amendment to the LTIP to increase the numberAs of shares of common stock reserved for issuance from 19,100,000 to 20,300,000. Accordingly, as of MarchDecember 31, 2022, the Company has reserved a total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5x1.5x shares against the plan reserves. As of MarchDecember 31, 2022,, 2,350,615 sh968,585ares shares of common stock remained available for use under the LTIP.
Stock Compensation Expense
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Equity-classified awards: | |||||||||||||||||||||||
| Stock options | $ | 534 | $ | 844 | $ | 1,591 | $ | 1,729 | |||||||||||||||
| RSUs & RSAs | 1,569 | 678 | 2,782 | 1,594 | |||||||||||||||||||
| Total equity-classified awards | $ | 2,103 | $ | 1,522 | $ | 4,373 | $ | 3,323 | |||||||||||||||
| Liability-classified awards: | |||||||||||||||||||||||
| SARs | (111) | 239 | (101) | 667 | |||||||||||||||||||
| Total stock compensation expense: | $ | 1,992 | $ | 1,761 | $ | 4,272 | $ | 3,990 | |||||||||||||||
|
| Three Months Ended December 31, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Equity-classified awards: |
|
|
|
|
|
| ||
Stock options |
| $ | 475 |
|
| $ | 1,077 |
|
RSUs & RSAs |
|
| 1,651 |
|
|
| 1,193 |
|
Total Equity-classified award |
|
| 2,126 |
|
|
| 2,270 |
|
Liability-classified awards: |
|
|
|
|
|
| ||
SARs |
|
| (44 | ) |
|
| 10 |
|
Total stock compensation expense: |
| $ | 2,081 |
|
| $ | 2,280 |
|
|
| Three Months Ended December 31, 2022 |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Stock-compensation expense by function |
|
|
|
|
|
| ||
Technology and operations |
| $ | 256 |
|
| $ | 303 |
|
Sales and marketing |
|
| 508 |
|
|
| 490 |
|
General and administrative |
|
| 1,317 |
|
|
| 1,487 |
|
Total stock compensation expense: |
| $ | 2,081 |
|
| $ | 2,280 |
|
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Stock Compensation Expense by Line Item | |||||||||||||||||||||||
| Technology and operations | $ | 282 | $ | 257 | $ | 585 | $ | 624 | |||||||||||||||
| Sales and marketing | 542 | 454 | 1,032 | 1,034 | |||||||||||||||||||
| General and administrative | 1,168 | 1,050 | 2,655 | 2,332 | |||||||||||||||||||
| Total stock compensation expense: | $ | 1,992 | $ | 1,761 | $ | 4,272 | $ | 3,990 | |||||||||||||||
|
| Three Months Ended December 31, 2022 |
| |
Stock Options granted: |
| |
| |
Options containing only service conditions: |
|
| 175,910 |
|
Weighted average exercise price |
| $ | 14.42 |
|
Weighted average grant date fair value |
| $ | 7.48 |
|
|
| |
| |
Options containing performance conditions: |
|
| 175,910 |
|
Weighted average exercise price |
| $ | 14.42 |
|
Weighted average grant date fair value |
| $ | 7.48 |
|
|
| |
| |
RSUs & RSAs granted: |
| |
| |
RSUs & RSAs containing only service conditions: |
|
| 425,430 |
|
Weighted average grant date fair value |
| $ | 15.15 |
|
|
| |
| |
RSUs & RSAs containing performance conditions: |
|
| 288,420 |
|
Weighted average grant date fair value |
| $ | 15.15 |
|
The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-ScholesBlack-Scholes option-pricing model during the sixthree months ended MarchDecember 31, 2022, were as follows:
14
| ||||||||
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
Three Months Ended | ||||
December 31, 2022 | ||||
Dividend yield | — | |||
Expected volatility | 62.05% - 62.16% | |||
Risk-free interest rate | 3.82% - 3.88% | |||
Expected term | 4.48 - 5 years | |||
During the sixthree months ended MarchDecember 31, 2022, the Company did notnot issue any SARs, 6,725SARs. 8,900 SARs were exercised requiring the Company to make cash payments of less than $0.1 million, and 3,250 SARs were canceled.$0.1 million. As of MarchDecember 31, 2022,, 32,07015,250 SARs were outstanding.
On December 6, 2021,2022, the Company's Board of Directors authorized a new stock repurchase plan of up to $20$8.4 million of the Company's outstandingoutstanding shares of common stock through December 31, 2023. 2024.
The Company repurchased 1,011,881531,819 shares for $17.0 million, and 1,159,066 shares for $20.0$7.2 million during the three and six months ended MarchDecember 31, 2022, respectively.2022. As of MarchDecember 31, 2022, the Company had no$7.8 million of remaining authorization to repurchase shares.
Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due.
During the three months ended December 31, 2022, no shares of common stock were surrendered by participants in the exercise of stock options.
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3: Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.
Cash and cash equivalents. The Company held no money market funds considered cash equivalents at March 31, 2022, while it held $40.0had $15.2 million and $22.0 million of money market funds considered cash equivalents at December 31, 2022, and September 30, 2021. The decrease in money market funds held during the period was a result of the Company's movement of excess cash balances to higher yield product offerings in interest bearing and earnings allowance checking accounts.
15
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
Contingent | ||||||||
Balance at September 30, | $ | — | ||||||
|
| — | ||||||
Balance at December 31, | $ |
| ||||||
| ||||||||
As of December 31, 2022, the November 1, 2021, acquisition date and therefore were not known nor knowable at that time. These events include extended timelines to advance legislation that allows for online auctions of foreclosed real estate in certain target markets, and other client specific delays in bringing foreclosed real estate to auction.
As of MarchDecember 31, 2022, the Company had no non-financial instruments measured at fair value on a non-recurring basis other than fair value measurements associated with the preliminary purchase accounting for Bid4Assets. See Note 3 - Bid4Assets Acquisition for more information. As of December 31, 2022, and September 30, 2021,2022, the Company did notnot have any material assets or liabilities measured at fair value on a non-recurring basis.
|
| Three Months Ended December 31, |
| |||||
(in thousands) |
| 2022 |
|
| 2021 |
| ||
Service cost |
| $ | — |
|
| $ | — |
|
Interest cost |
|
| 196 |
|
| $ | 132 |
|
Expected return on plan assets |
|
| (216 | ) |
|
| (235 | ) |
Amortization of prior service cost |
|
| 6 |
|
|
| 5 |
|
Settlement loss |
|
| — |
|
|
| — |
|
Total net periodic benefit |
| $ | (14 | ) |
| $ | (98 | ) |
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Interest cost | $ | 130 | $ | 94 | $ | 262 | $ | 201 | ||||||||||||||||||
| Expected return on plan assets | (232) | (198) | (467) | (392) | ||||||||||||||||||||||
| Amortization of prior service cost | 5 | 6 | 10 | 11 | ||||||||||||||||||||||
| Total net periodic (benefit) | $ | (97) | $ | (98) | $ | (195) | $ | (180) | ||||||||||||||||||
The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that a liability is probable and reasonably estimable.
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. However, unless otherwise noted, there are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company's management's judgment have a material adverse effect on the Company.
16
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
In October 2021, the Company’s former Chief Marketing Officer (the “Former CMO”) filed a claim with the Equal Employment Opportunity Commission (the “EEOC”), alleging wrongful termination on the basis of race and age and that the Company retaliated against him. The Company submitted its position statement to the EEOC on February 8, 2022. To date, the EEOC has not taken any action in connection with the Former CMO’s claim. On December 28, 2022, the Former CMO filed a complaint in federal court in Montgomery County, Maryland, which contains the same allegations made in his EEOC claim. The Company believes these claims are without merit and cannot estimate a range of potential liability, if any, at this time. CNA has accepted tender of these claims as well.
Unless otherwise noted, based on the information currently available, there are no claims or actions pending or threatened against the Company that, if adversely determined, would have, in Company’s management’s judgement based on the information known to management, a material adverse effect on the Company.
17
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)
|
|
| Three Months Ended December 31, |
| |||||
(in thousands) | 2022 |
|
| 2021 |
| ||||
GovDeals: |
|
|
|
|
|
|
| ||
| Purchase revenue |
| $ | — |
|
| $ | — |
|
| Consignment and other fee revenues |
|
| 13,607 |
|
|
| 13,984 |
|
| Total revenue |
|
| 13,607 |
|
|
| 13,984 |
|
| Segment direct profit |
| $ | 12,892 |
|
| $ | 13,295 |
|
|
|
|
|
|
|
| |||
RSCG: |
|
|
|
|
| ||||
| Purchase revenue | $ | 35,870 |
|
| $ | 32,083 |
| |
| Consignment and other fee revenues |
| 10,145 |
|
|
| 6,601 |
| |
| Total revenue |
| 46,015 |
|
|
| 38,684 |
| |
| Segment direct profit | $ | 16,011 |
|
| $ | 14,257 |
| |
|
|
|
|
|
|
| |||
CAG: |
|
|
|
|
| ||||
| Purchase revenue | $ | 2,763 |
|
| $ | 4,134 |
| |
| Consignment and other fee revenues |
| 6,629 |
|
|
| 7,073 |
| |
| Total revenue |
| 9,393 |
|
|
| 11,207 |
| |
| Segment direct profit | $ | 8,502 |
|
| $ | 8,719 |
| |
|
|
|
|
|
|
| |||
Machinio: |
|
|
|
|
| ||||
| Purchase revenue | $ | — |
|
| $ | — |
| |
| Consignment and other fee revenues |
| 3,267 |
|
|
| 2,832 |
| |
| Total revenue |
| 3,267 |
|
|
| 2,832 |
| |
| Segment direct profit | $ | 3,105 |
|
| $ | 2,674 |
| |
|
|
|
|
|
|
| |||
Corporate & Other, including elimination adjustments: |
|
|
|
|
| ||||
| Purchase revenue | $ | — |
|
| $ | — |
| |
| Consignment and other fee revenues |
| — |
|
|
| — |
| |
| Total revenue |
| — |
|
|
| — |
| |
| Segment direct profit | $ | — |
|
| $ | — |
| |
|
|
|
|
|
|
| |||
Consolidated: |
|
|
|
|
| ||||
| Purchase revenue | $ | 38,634 |
|
| $ | 36,217 |
| |
| Consignment and other fee revenues |
| 33,648 |
|
|
| 30,490 |
| |
| Total revenue |
| 72,282 |
|
|
| 66,707 |
| |
| Total Segment direct profit | $ | 40,509 |
|
| $ | 38,945 |
| |
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| GovDeals: | ||||||||||||||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Fee revenue | 14,559 | 10,972 | 28,543 | 21,790 | ||||||||||||||||||||||
| Total revenue | 14,559 | 10,972 | 28,543 | 21,790 | ||||||||||||||||||||||
| Gross profit | $ | 13,853 | $ | 10,376 | $ | 27,148 | $ | 20,579 | ||||||||||||||||||
| RSCG: | ||||||||||||||||||||||||||
| Revenue | $ | 33,967 | $ | 31,912 | $ | 66,050 | $ | 60,074 | ||||||||||||||||||
| Fee revenue | 7,858 | 7,170 | 14,459 | 13,915 | ||||||||||||||||||||||
| Total revenue | 41,825 | 39,082 | 80,509 | 73,989 | ||||||||||||||||||||||
| Gross profit | $ | 16,619 | $ | 15,933 | $ | 30,876 | $ | 30,560 | ||||||||||||||||||
| CAG: | ||||||||||||||||||||||||||
| Revenue | $ | 3,417 | $ | 4,056 | $ | 7,552 | $ | 6,966 | ||||||||||||||||||
| Fee revenue | 5,575 | 5,436 | 12,648 | 10,439 | ||||||||||||||||||||||
| Total revenue | 8,992 | 9,492 | 20,200 | 17,405 | ||||||||||||||||||||||
| Gross profit | $ | 6,085 | $ | 6,988 | $ | 14,805 | $ | 13,346 | ||||||||||||||||||
| Machinio: | ||||||||||||||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Fee revenue | 2,899 | 2,240 | 5,731 | 4,354 | ||||||||||||||||||||||
| Total revenue | 2,899 | 2,240 | 5,731 | 4,354 | ||||||||||||||||||||||
| Gross Profit | $ | 2,750 | $ | 2,104 | $ | 5,424 | $ | 4,095 | ||||||||||||||||||
| Corporate & Other, including elimination adjustments: | ||||||||||||||||||||||||||
| Revenue | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Fee revenue | — | — | — | — | ||||||||||||||||||||||
| Total revenue | — | — | — | — | ||||||||||||||||||||||
| Gross profit | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||
| Consolidated: | ||||||||||||||||||||||||||
| Revenue | $ | 37,384 | $ | 35,968 | $ | 73,602 | $ | 67,040 | ||||||||||||||||||
| Fee revenue | 30,891 | 25,818 | 61,381 | 50,498 | ||||||||||||||||||||||
| Total revenue | 68,275 | 61,786 | 134,983 | 117,538 | ||||||||||||||||||||||
| Gross profit | $ | 39,307 | $ | 35,401 | $ | 78,253 | $ | 68,580 | ||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||
| Reconciliation: | ||||||||||||||||||||||||||
| Gross profit | $ | 39,307 | $ | 35,401 | $ | 78,253 | $ | 68,580 | ||||||||||||||||||
| Total operating expenses | 34,824 | 29,763 | 69,287 | 58,315 | ||||||||||||||||||||||
| Fair value adjustment of acquisition earn-outs | (8,500) | — | (8,500) | — | ||||||||||||||||||||||
| Interest and other income, net | (46) | (29) | (177) | (214) | ||||||||||||||||||||||
| Income before provision for income taxes | $ | 13,029 | $ | 5,667 | $ | 17,643 | $ | 10,479 | ||||||||||||||||||
| Three Months Ended December 31, |
| |||||
(in thousands) | 2022 |
|
| 2021 |
| ||
Reconciliation: | |
|
| |
| ||
Total segment direct profit | $ | 40,509 |
|
| $ | 38,945 |
|
Other costs and expenses from operations (1) |
| 35,643 |
|
|
| 34,494 |
|
Interest and other income, net |
| (249 | ) |
|
| (163 | ) |
Income before provision for income taxes | $ | 5,116 |
|
| $ | 4,614 |
|
The percent of our revenues that came from transactions conducted outside of the United States for the three months ended March 31, 2022, and 2021 was 15.4% and 18.4%, respectively, and the percent of our revenues that came from transactions conducted outside of the United States for the six months ended MarchDecember 31, 2022, and 2021 was 14.5%13.5% and 17.2%13.5%, respectively.
18
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021,2022, and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our unaudited condensedconsolidated financial statements and related notes and the information contained elsewhere in this document.
Overview
About us. Liquidity Services is a leading global commerce company providing trusted marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.
Results from our operations are organized into four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. See Note 14 - Segment Informationto the condensed consolidated financial statements for more information regarding our reportable segments.
On November 1,
Supply chain challenges and shifting consumer sentiment.Constraints in the production of new vehicles, particularly as it relates to new fleet sales, are currently limiting the supply of used vehicles available for sale on our marketplaces, while used car market price indices are simultaneously experiencing heightened volatility. In addition, general consumer behavior appears to be more cautious, focused more on essential goods with limited discretionary high-value purchases. These conditions are slowing our GMV, Revenues, Segment direct profit and Segment direct profit margins, and may continue to do so while these conditions persist, or if similar challenges emerge in other key asset categories.
Effects of Inflation. Rising inflation in both the U.S. and internationally has weighed on the global economy, increasing prices for energy, shipping, and labor, among other areas of the macroeconomic environment. These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation. Currently, the Company is unable to predict the likelihood, magnitude and timing of inflationary risk to our business, if any. As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, whose impacts may vary across each of our individual asset classes.
Russia-Ukraine Conflict. The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing. In response to the invasion, numerous countries, including the United States, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals. The conflict has further heightened global supply chain disruptions and impacted the international trade and energy markets. For the three months ended December 31, 2022, and 2021, the Company purchased all ofCompany's total revenues directly associated with Russia and Ukraine were not material to our consolidated financial results. We will continue monitoring the issuedevents in Ukraine and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets auctions distressed real estate for the federal government, sheriffs, county tax-collectors, financial institutions and real estate funds. See Note 3 - any potential future impacts on our business.Bid4Assets Acquisition
for more information regarding this transaction.
COVID-19 Pandemic
At this time, the likelihood, magnitude and timing of business developments across our reportable segments are difficult to predict given the current economic uncertainty, unknown duration and overall impact of the global pandemic. As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.
Industry Trends
We believe there are several industry trends positively impacting the long-term growth of our business including:
The Company repurchased 1,011,881 shares for $17.0 million, and 1,159,066 shares for $20.0 million, during the three and six months ended March 31, 2022, respectively.As of March 31, 2022, the Company had no remaining authorization to repurchase shares.
We believe our abilitymarketplaces benefit over time from greater scale and adoption by our constituents creating a continuous flow of goods benefiting our buyers and sellers. As of December 31, 2022, we had 5.0 million registered buyers in our marketplaces. We had access to create liquid marketplaces for surplusmillions of additional end-users through a range of external consumer marketplaces. Aggregating this level of buyer demand and salvage assets generatesmarket data enables us to generate a continuous flow of goods from our corporate and government sellers. This flow of goodssellers, which in turn attracts an increasing number of professional buyers to our marketplaces.buyers. During the twelve months ended MarchDecember 31, 2022, the approximate number of registered buyers increased from 3,888,0004,713,000 to 4,785,000,4,958,000, or 23%5%. OfAs buyers continue to discover and use our e-commerce marketplaces as an effective method to source assets, we believe our solutions become an increasingly attractive sales channel for corporate and government agency sellers. We believe this self-reinforcing cycle results in greater transaction volume and enhances the increase, approximately 16% is attributable to the Bid4Assets registered buyer base acquired during the three months ended December 31, 2021.value of our marketplaces.
Our revenue.Substantially all of our revenue is earned through the following transaction models:
Purchase model.Under our purchase transaction model, we recognize revenue within the RevenuePurchase revenues line item on the Condensed Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the principal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. The proceeds paid by buyers also include transaction fees, referred to as buyer premiums. For the three and six months ended March 31, 2022,Revenue from our purchase transaction model accounted for 13.5%53.4% and 14.0%54.3% of our Total revenue for the three months ended December 31, 2022, and 2021, respectively, and 14.3% and 14.5% of our Gross Merchandise Volume (GMV), respectively, and 54.8% and 54.5% of our total revenues, respectively. For for the three and six months ended MarchDecember 31, 2021, our purchase transaction model accounted for 18.2%2022, and 17.2% of our Gross Merchandise Volume (GMV), respectively, and 58.2% and 57.0% of our total revenues,2021, respectively. These amounts included sales of commercial merchandise sourced from multiple vendor contracts with Amazon.com, Inc. by our RSCG reportable segment. See further discussion regarding our Amazon.com, Inc.The commercial merchandise we purchased under these contracts at Note 2 - represented 57.3% and 60.5% of Cost of goods sold for the three months ended December 31, 2022, and 2021, respectively.Summary of Significant Accounting Policies
.
Consignment model — fee revenue.model. Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces, and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized upon auction close or upon collection of auction proceeds, depending upon the settlement service level selected by the seller. Revenue under the consignment model is recorded within the Fee revenueConsignment and other fee revenues line item on the Condensed Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to seller commissions, we also collect buyer premiums. For the three and six months ended March 31, 2022,Revenue from our consignment transaction model accounted for 86.5%38.9% and 86.0%38.4% of our Total revenue for the three months ended December 31, 2022, and 2021, respectively, and 85.7% and 85.5% of our GMV respectively, and 37.7% and 38.0% of our total revenues, respectively. Forfor the three and six months ended December 31, 2022, and 2021, respectively.March 31, 2021, our consignment model accounted for 81.8% and 82.8% of our GMV, respectively, and 34.4% and 35.5% of our total revenues, respectively.
Other — fee revenuerevenues. We also earn non-consignment fee revenue from Machinio's Advertising and System subscription services, as well as other services including returns management, refurbishmentasset valuation. Non-consignment fee revenue is recorded within the Consignment and other fee revenues line item on the Condensed Consolidated Statements of assets, and asset valuation services.Operations. Other fee revenues accounted for 7.6%7.7% and 7.4%7.3% of our totalTotal revenues for the three and six months ended MarchDecember 31, 2022, respectively, and 7.4% and 7.5% of our total revenues for the three and six months ended 2021, respectively.March 31, 2021
, respectively
Our commercialCommercial agreements.We have multiple vendor contracts with Amazon.com, Inc. under which the Company acquireswe acquire and sellssell commercial merchandise. While purchase model transactions account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated Costs of goods sold. The property we purchased under these contracts with Amazon.com, Inc. represented 51.7%57.3% and 61.2% of consolidated60.5% Cost of goods sold for the three months ended March 31, 2022 and 2021, respectively, and 56.0% and 60.6% of consolidated Cost of goods sold for the six months ended MarchDecember 31, 2022, and 2021, respectively. These contracts areThis contract is included within our RSCG reportable segment. Our agreements with our other sellers are generally terminable at will by either party.
Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources, and our capacity to fund capital expenditures and expand our business. These key business metrics include:
Gross merchandise volume (GMV). GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time. We review GMV because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have made and continue to make, including in the areas of buyer and seller support, value-added services, product development, sales and marketing, and operations. Our GMV for the three months ended December 31, 2022, was $270.8 million.
Total registered buyers. We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list.
Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of MarchDecember 31, 2022, and 2021, we had approximately 4,785,0005.0 million and 3,888,0004.7 million, registered buyers, respectively. Of the increase, approximately 16% is attributable to the Bid4Assets registered buyer base acquiredNone of our buyers represented more than 10% of our revenue during the three months ended December 31, 2021.
Total auction participants.For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended MarchDecember 31, 2022, and 2021, approximately 829,000744,000 and 561,000, respectively, total auction642,000 participants participated in auctions on our marketplaces. During the six months ended March 31, 2022, and 2021, approximately 1,471,000 and 1,078,000, respectively, total auction participants participated in auctions on our marketplaces.marketplaces, respectively.
Completed transactions.Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended MarchDecember 31, 2022, and 2021, we completed approximately 245,000214,000 and 174,000211,000 transactions, respectively.
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Critical Accounting Policies and Estimates
The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, 2022, and in Note 2 — Summary of Significant Accounting Policies to the condensed consolidated financial statements. The following discussion is a supplement to the disclosures referenced in connection with accounting estimates made in preparing the purchase accounting for the Bid4Assets acquisition completed during the year ended September 30, 2022.
Earn-out liability. Following the acquisition of Bid4Assets during the year ended September 30, 2022, shareholders of Bid4Assets were eligible to receive up to $37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022. The earn-out consideration was preliminarily fair valued at approximately $28.0 million as of the acquisition date on November 1, 2021. As of December 31, 2022, $3.5 million in earn out payments have been made, and the remaining earn-out fair value is $0 based upon actual performance through the final earn-out measurement period ending December 31, 2022. During the sixyear ended September 30, 2022, the significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out period, a high level of volatility of operating results given the nature of the business model and its economic environment create a wider range of potential outcomes over the earn-out period, and the discount rate.
Goodwill. Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. Pursuant to our purchase price allocation, goodwill arising from the Bid4Assets acquisition was determined to be $30.1 million. As discussed in Note 11 – Fair Value Measurement, the fair value of the Bid4Assets earn-out liability declined by $24.5 million during the fiscal year ended September 30, 2022. As of December 31, 2022, there was determined to be no remaining earn-out liability. The decline in earn-out liability since the acquisition date was due to timing changes, which were not known nor knowable as of the acquisition date, impacting the level of auction events and transactions that were expected to occur during the earn-out period ending December 31, 2022. These timing changes have not reflected substantive changes to the long-term outlook for real estate sales within the GovDeals segment and were not considered a triggering event for testing goodwill or long-lived assets for impairment as of December 31, 2022. The Company will continue to monitor for changes that could impact the recoverability of its goodwill.
Components of Revenue and Expenses
Revenue. Refer to the discussion in the Our revenue section above, and to Note 2 — Summary of Significant Accounting Policies in our Annual Report onForm 10-K for discussion of the Company's related accounting policies.
Cost of goods sold. Refer to the discussion in Note 2 — Summary of Significant Accounting Policies in our Annual Report on Form 10-K for discussion ofthe Company's Costs of goods sold and related accounting policies.
Technology and operations. Technology expenses primarily consist of the cost of technical staff (including stock compensation), third party services, licenses, and infrastructure, all as required to develop, configure, deploy, maintain, and secure our marketplace platforms, business operational systems, and facilities. Technology expenses are net of the required capitalization of costs associated with enhancing our marketplace platforms and other software development activities. Depreciation and amortization of capitalized software development costs, purchased software, acquired developed software intangible assets, and computer hardware are included within Depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. Technology expenses are presented separately from Costs of goods sold (excluding depreciation and amortization) in the Condensed Consolidated Statements of Operations, as these expenses provide for the general availability of our marketplace platforms and other business operational systems and are not attributable to specific revenue generating transaction activity occurring on our marketplaces.
Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our e-commerce platform, as well as other software development activities.
Operations expenses consist primarily of costs to operate our distribution centers, including shipping logistics, inventory management, refurbishment, and administrative functions; costs to enhance our online auctions listings and provide customer support; and costs associated with field support and preparation and transfer of goods from sellers to buyers. Operations expenses include both internal and external labor costs, as well as other third-party charges. These costs are expensed as incurred.
Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional activities, including buyer and seller acquisition, as well as general brand marketing. These activities include online marketing campaigns such as paid search advertising, as well as offline marketing efforts, trade shows, and marketing analytics.
General and administrative. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces.
Depreciation and amortization. Depreciation and amortization consist of depreciation of property and equipment, amortization of internally developed software, and amortization of intangible assets.
22
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs consists of the change in fair value of earn-out consideration following a business combination.
Other operating expenses (income). Other operating expenses, net includes impairment of long-lived and other assets, impacts of lease terminations, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.
Interest and other income, net. Interest and other income, net consists of interest income on interest bearing checking accounts, money market funds, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.
Income taxes. For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-taxincome (loss). Our effective income tax rate after discrete items was 22.5% for the three months ended MarchDecember 31, 2022. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments.
Results of Operations
The following table sets forth, for the periods indicated, our operating results:
| Three Months Ended December 31, |
|
| Change |
| ||||||||||
| 2022 |
|
| 2021 |
|
| $ |
|
| % |
| ||||
Purchase revenues | $ | 38,634 |
|
| $ | 36,217 |
|
| $ | 2,417 |
|
|
| 6.7 | % |
Consignment and other fee revenues |
| 33,648 |
|
|
| 30,490 |
|
|
| 3,158 |
|
|
| 10.4 | % |
Total revenue |
| 72,282 |
|
|
| 66,707 |
|
|
| 5,575 |
|
|
| 8.4 | % |
Costs and expenses from operations: |
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold (excludes depreciation and amortization) |
| 31,773 |
|
|
| 27,762 |
|
|
| 4,011 |
|
|
| 14.4 | % |
Technology and operations |
| 14,704 |
|
|
| 13,918 |
|
|
| 786 |
|
|
| 5.6 | % |
Sales and marketing |
| 10,790 |
|
|
| 10,044 |
|
|
| 746 |
|
|
| 7.4 | % |
General and administrative |
| 7,385 |
|
|
| 8,230 |
|
|
| (845 | ) |
|
| (10.3 | )% |
Depreciation and amortization |
| 2,764 |
|
|
| 2,302 |
|
|
| 462 |
|
|
| 20.1 | % |
Other operating expenses (income), net |
| 139 |
|
|
| (32 | ) |
|
| 171 |
|
| NM |
| |
Total costs and expenses |
| 67,555 |
|
|
| 62,224 |
|
|
| 5,331 |
|
|
| 8.6 | % |
Income from operations |
| 4,727 |
|
|
| 4,483 |
|
|
| 244 |
|
|
| 5.4 | % |
Interest and other income, net |
| (389 | ) |
|
| (131 | ) |
|
| (258 | ) |
|
| (196.7 | )% |
Income before provision for income taxes |
| 5,116 |
|
|
| 4,614 |
|
|
| 502 |
|
|
| 10.9 | % |
Provision for income taxes |
| 1,149 |
|
|
| 1,012 |
|
|
| 137 |
|
|
| 13.5 | % |
Net income | $ | 3,967 |
|
| $ | 3,602 |
|
| $ | 365 |
|
|
| 10.1 | % |
NM = not meaningful
The following table presents reportable segment GMV, revenue, segment direct profit (previously referred to as segment gross profit which continues to be calculated as total revenue less cost of goods sold (excluding depreciation and amortization)), and segment direct profit as a percentage of total revenue for the periods indicated:
|
| Three Months Ended December 31, |
| |||||
(dollars in thousands) |
| 2022 |
|
| 2021 |
| ||
GovDeals: |
|
|
|
|
|
| ||
GMV |
| $ | 161,122 |
|
| $ | 156,935 |
|
Total revenue |
| $ | 13,607 |
|
| $ | 13,984 |
|
Segment direct profit |
| $ | 12,892 |
|
| $ | 13,295 |
|
Segment direct profit as a percentage of total revenue |
|
| 94.7 | % |
|
| 95.1 | % |
RSCG: |
|
|
|
|
|
| ||
GMV |
| $ | 64,897 |
|
| $ | 53,369 |
|
Total revenue |
| $ | 46,015 |
|
| $ | 38,684 |
|
Segment direct profit |
| $ | 16,011 |
|
| $ | 14,257 |
|
Segment direct profit as a percentage of total revenue |
|
| 34.8 | % |
|
| 36.9 | % |
CAG: |
|
|
|
|
|
| ||
GMV |
| $ | 44,756 |
|
| $ | 49,862 |
|
Total revenue |
| $ | 9,393 |
|
| $ | 11,207 |
|
Segment direct profit |
| $ | 8,502 |
|
| $ | 8,719 |
|
Segment direct profit as a percentage of total revenue |
|
| 90.5 | % |
|
| 77.8 | % |
Machinio: |
|
|
|
|
|
| ||
GMV |
| — |
|
| — |
| ||
Total revenue |
| $ | 3,267 |
|
| $ | 2,832 |
|
Segment direct profit |
| $ | 3,105 |
|
| $ | 2,674 |
|
Segment direct profit as a percentage of total revenue |
|
| 95.0 | % |
|
| 94.4 | % |
Consolidated: |
|
|
|
|
|
| ||
GMV |
| $ | 270,775 |
|
| $ | 260,166 |
|
Total revenue |
| $ | 72,282 |
|
| $ | 66,707 |
|
23
Three Months Ended December 31, 2022, Compared to the Three Months Ended December 31, 2021
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment decreased 2.7%, or $0.4 million, as macroeconomic challenges have slowed the supply of used vehicles. While GMV increased 2.7%, or $4.2 million, which also reflects an increase in market share and expansion of our real estate category, the used vehicles headwinds increased the relative mix of real estate sales, which are generally conducted at a lower take-rate (i.e., revenue as a percentage of GMV) than our traditional GovDeals asset categories, and caused revenue as a percentage of GMV to decrease to 8.4% from 8.9% last year. As a result of the decrease in revenues, segment direct profit decreased 3.0%, or $0.4 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased $7.3 million, or 18.9%, due to an $11.5 million, or 21.6%, rise in GMV through continued diversification in its client programs, primarily under the consignment model, as well as expanded buyer channels and distribution networks. Segment direct profit increased by $1.8 million, or 12.3%, while segment direct profit as a percentage of total revenue declined from 36.8% to 34.8%, as changes in consumer sentiment have affected our product mix, which has a higher proportion of lower value products than the prior year.
CAG. Revenue from the CAG reportable segment decreased by $1.8 million, or 16.2%, due to a $5.1 million, or 10.2%, decrease in GMV primarily due to project timing and the availability of international spot purchase transactions. As a result of the decrease in revenues, segment direct profit decreased $0.2 million, or 2.5%. Segment direct profit as a percentage of total revenue increased 12.7% due to favorable margins for international transactions as compared to the prior year. Challenged global supply chains are experiencing heightened disruptions from the Russian invasion of Ukraine and its impacts on international trade and energy markets, COVID-19 and other disruptions, which could limit the volume of assets made available for sale in any period.
Machinio. Revenue from our Machinio reportable segment increased 15.3%, or $0.4 million, due to continued increases in subscriptions. As a result of the increase in revenues, segment direct profit increased 16.0%, or $0.4 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.
Consolidated Results
Total revenues - Total consolidated revenue increased $5.6 million, or 8.4%. Refer to the discussion of Segment Results above for discussion of the increasein revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $4.0 million, or 14.4%, which changed at a higher rate than Total revenues primarily due to an increase in purchase transactions at the RSCG segment.
Technology and operations expenses. Technology and operations expenses increased $0.8 million, or 5.6%, from the impact of the growth in our distribution network facilities, market share expansion, and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases.
Sales and marketing expenses. Sales and marketing expenses increased $0.7 million, or 7.4%, from the impact of our market share expansion and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases, and partially offset by a $0.9 million non-recurring benefit from a concluded client program.
General and administrative expenses. General and administrative expenses decreased $0.8 million, or 10.3%, as variable costs were incurred in the past year to support the expansion of our sales, marketing, technology and operations functions.
Depreciation and amortization. Depreciation and amortization expense increased $0.5 million, or 20.0%, primarily due to the increase in intangible assetsfollowing our acquisition of Bid4Assets on November 1, 2021.
Other operating expenses (income). Other operating expenses (income) was consistent between the three months ended December 31, 2022 and 2021, we completed approximately 456,0002021.
Interest and 326,000 transactions,other (income), net. respectively.Interest and other expenses (income), net increased $0.3 million, due to the effect of rising interest rates on our cash equivalent and short-term investment holdings.
Provision for income taxes. Provision for income taxes increased $0.1 million due to the impact of foreign, state, and local taxes and permanent tax adjustments.
Non-GAAP Financial Measures
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA.Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to netNet income (loss) plus interestInterest and other income,expense (income), net excluding the non-service components of net periodic pension (benefit); provisionProvision (benefit) for income taxes; and depreciationDepreciation and amortization. Interest and other income,expense (income), net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill, and long-lived asset and other non-current asset impairment.
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We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
We prepare Non-GAAP Adjusted EBITDA by adjustingeliminating from Non-GAAP EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
The table below reconciles netNet income (loss) to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||
| (in thousands) | (Unaudited) | |||||||||||||||||||||||||
| Net income | $ | 11,970 | $ | 5,260 | $ | 15,572 | $ | 9,775 | ||||||||||||||||||
Interest and other income, net1 | 51 | 69 | 18 | (34) | ||||||||||||||||||||||
| Provision for income taxes | 1,059 | 407 | 2,071 | 704 | ||||||||||||||||||||||
| Depreciation and amortization | 2,603 | 1,670 | 4,906 | 3,541 | ||||||||||||||||||||||
| Non-GAAP EBITDA | $ | 15,683 | $ | 7,406 | $ | 22,567 | $ | 13,986 | ||||||||||||||||||
| Stock compensation expense | 1,992 | 1,761 | 4,272 | 3,990 | ||||||||||||||||||||||
Acquisition costs and impairment of long-lived and other assets2 | 40 | 203 | 252 | 203 | ||||||||||||||||||||||
Business realignment expenses2, 3 | — | — | — | 5 | ||||||||||||||||||||||
| Fair value adjustments to acquisition earn-outs | (8,500) | — | (8,500) | — | ||||||||||||||||||||||
| Non-GAAP Adjusted EBITDA | $ | 9,215 | $ | 9,370 | $ | 18,591 | $ | 18,184 | ||||||||||||||||||
| Three Months Ended December 31, |
| |||||
| 2022 |
|
| 2021 |
| ||
Net income | $ | 3,967 |
|
| $ | 3,602 |
|
Interest and other income, net1 |
| (303 | ) |
|
| (33 | ) |
Provision for income taxes |
| 1,149 |
|
|
| 1,012 |
|
Depreciation and amortization |
| 2,764 |
|
|
| 2,302 |
|
EBITDA | $ | 7,577 |
|
| $ | 6,883 |
|
Stock compensation expense |
| 2,081 |
|
|
| 2,280 |
|
Acquisition costs and impairment of long-lived and other non-current assets2 |
| 184 |
|
|
| 211 |
|
Non-GAAP Adjusted EBITDA | $ | 9,842 |
|
| $ | 9,374 |
|
1 Represents Interest and other income,expenses (income), net per the Statement of Operations, excluding the non-service components of net periodicexcludes non-services pension (benefit).and other postretirement benefit expenses.
25
2Acquisition costs and impairment of long-lived assets and other non-current assets, and business realignment expenses are components of Other operating expenses (income), net on the Condensed Consolidated Statements of Operations.
| Three Months Ended March 31, | Six Months Ended March 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2022 | 2021 | $ Change | % Change | 2022 | 2021 | $ Change | % Change | |||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 37,384 | $ | 35,968 | $ | 1,416 | 3.9 | % | $ | 73,602 | $ | 67,040 | $ | 6,562 | 9.8 | % | |||||||||||||||||||||||||||||||
| Fee revenue | 30,891 | 25,818 | 5,073 | 19.6 | 61,381 | 50,498 | 10,883 | 21.6 | |||||||||||||||||||||||||||||||||||||||
| Total revenue | 68,275 | 61,786 | 6,489 | 10.5 | 134,983 | 117,538 | 17,445 | 14.8 | |||||||||||||||||||||||||||||||||||||||
| Costs and expenses from operations: | |||||||||||||||||||||||||||||||||||||||||||||||
| Cost of goods sold (excludes depreciation and amortization) | 28,968 | 26,385 | 2,583 | 9.8 | 56,730 | 48,958 | 7,772 | 15.9 | |||||||||||||||||||||||||||||||||||||||
| Technology and operations | 13,872 | 12,085 | 1,787 | 14.8 | 27,790 | 22,644 | 5,146 | 22.7 | |||||||||||||||||||||||||||||||||||||||
| Sales and marketing | 11,273 | 8,910 | 2,363 | 26.5 | 21,317 | 18,018 | 3,299 | 18.3 | |||||||||||||||||||||||||||||||||||||||
| General and administrative | 7,053 | 6,892 | 161 | 2.3 | 15,284 | 13,902 | 1,382 | 9.9 | |||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,603 | 1,670 | 933 | 55.9 | 4,906 | 3,541 | 1,365 | 38.5 | |||||||||||||||||||||||||||||||||||||||
| Fair value adjustment of acquisition earn-outs | (8,500) | — | (8,500) | NM | (8,500) | — | (8,500) | NM | |||||||||||||||||||||||||||||||||||||||
| Other operating expenses (income) | 23 | 206 | (183) | (88.8) | (10) | 210 | (220) | NM | |||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 55,292 | 56,148 | (856) | (1.5) | 117,517 | 107,273 | 10,244 | 9.5 | |||||||||||||||||||||||||||||||||||||||
| Income from operations | 12,983 | 5,638 | 7,345 | 130.3 | 17,466 | 10,265 | 7,201 | 70.2 | |||||||||||||||||||||||||||||||||||||||
| Interest and other income, net | (46) | (29) | (17) | (58.6) | (177) | (214) | 37 | 17.3 | |||||||||||||||||||||||||||||||||||||||
| Income before provision for income taxes | 13,029 | 5,667 | 7,362 | 129.9 | 17,643 | 10,479 | 7,164 | 68.4 | |||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 1,059 | 407 | 652 | 160.2 | 2,071 | 704 | 1,367 | 194.2 | |||||||||||||||||||||||||||||||||||||||
| Net income | $ | 11,970 | $ | 5,260 | $ | 6,710 | 127.6% | $ | 15,572 | $ | 9,775 | $ | 5,797 | 59.3% | |||||||||||||||||||||||||||||||||
| Three Months Ended March 31, | Six Months Ended March 31, | |||||||||||||||||||||||||||||||
| (dollars in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||||||||||
| GovDeals: | ||||||||||||||||||||||||||||||||
| GMV | $ | 180,256 | $ | 110,939 | $ | 337,191 | $ | 218,543 | ||||||||||||||||||||||||
| Total revenue | $ | 14,559 | $ | 10,972 | $ | 28,543 | $ | 21,790 | ||||||||||||||||||||||||
| Gross profit | $ | 13,853 | $ | 10,376 | $ | 27,148 | $ | 20,579 | ||||||||||||||||||||||||
| Gross profit margin | 95.2 | % | 94.6 | % | 95.1 | % | 94.4 | % | ||||||||||||||||||||||||
| RSCG: | ||||||||||||||||||||||||||||||||
| GMV | $ | 59,085 | $ | 58,609 | $ | 112,454 | $ | 110,326 | ||||||||||||||||||||||||
| Total revenue | $ | 41,825 | $ | 39,082 | $ | 80,509 | $ | 73,989 | ||||||||||||||||||||||||
| Gross profit | $ | 16,619 | $ | 15,933 | $ | 30,876 | $ | 30,560 | ||||||||||||||||||||||||
| Gross profit margin | 39.7 | % | 40.8 | % | 38.4 | % | 41.3 | % | ||||||||||||||||||||||||
| CAG: | ||||||||||||||||||||||||||||||||
| GMV | $ | 37,520 | $ | 37,763 | $ | 87,382 | $ | 68,843 | ||||||||||||||||||||||||
| Total revenue | $ | 8,992 | $ | 9,492 | $ | 20,200 | $ | 17,405 | ||||||||||||||||||||||||
| Gross profit | $ | 6,085 | $ | 6,988 | $ | 14,805 | $ | 13,346 | ||||||||||||||||||||||||
| Gross profit margin | 67.7 | % | 73.6 | % | 73.3 | % | 76.7 | % | ||||||||||||||||||||||||
| Machinio: | ||||||||||||||||||||||||||||||||
| GMV | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||
| Total revenue | $ | 2,899 | $ | 2,240 | $ | 5,731 | $ | 4,354 | ||||||||||||||||||||||||
| Gross profit | $ | 2,750 | $ | 2,104 | $ | 5,424 | $ | 4,095 | ||||||||||||||||||||||||
| Gross profit margin | 94.9 | % | 93.9 | % | 94.6 | % | 94.1 | % | ||||||||||||||||||||||||
| Consolidated: | ||||||||||||||||||||||||||||||||
| GMV | $ | 276,861 | $ | 207,311 | $ | 537,027 | $ | 397,712 | ||||||||||||||||||||||||
| Total revenue | $ | 68,275 | $ | 61,786 | $ | 134,983 | $ | 117,538 | ||||||||||||||||||||||||
| Gross profit | $ | 39,307 | $ | 35,401 | $ | 78,253 | $ | 68,580 | ||||||||||||||||||||||||
| Gross profit margin | 57.6 | % | 57.3 | % | 58.0 | % | 58.3 | % | ||||||||||||||||||||||||
Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate and equipment used in our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases and acquisitions. As of MarchDecember 31, 2022, we had $84.3$76.2 million in cash and cash equivalents.
Our capital expenditures consist primarily of capitalized software, warehouse equipment, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the three months ended December 31, 2022, and December 31, 2021, were $1.2 million and $2.0 million, respectively. This decrease was primarily driven by prior year growth in our distribution network facilities. As of December 31, 2022, we had no significant outstanding commitments for capital expenditures.
Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. We may seek to enter agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.
Credit Agreement
The Company maintains a $25.0 million Credit Agreement due March 31, 2024 (Credit Agreement). The Company may draw upon the Credit Agreement for general corporate purposes. Repayments of any borrowings under the Credit Agreement shall become available for redraw at any time by the Company. The interest rate on borrowings under the Credit Agreement is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. During the three and six months ended MarchDecember 31, 2022, the Company did not make any draws under the Credit Agreement. As of MarchDecember 31, 2022, the Company had no outstanding indebtedness under the Credit Agreement and our borrowing availability was $25.0 million.
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.
26
Other Uses of Capital Resources
Bid4Assets Earn-out Liability. As of December 31, 2022, the remaining earn-out fair value is $0 based upon actual performance through the final earn-out measurement period ending December 31, 2022.
Share Repurchases. From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash.
On December 6, 2021,2022, the Company's Board of Directors authorized a new stock repurchase plan (the "December 6 Stock Repurchase Plan") of up to $20$8.4 million of the Company's outstandingoutstanding shares of common stock through December 31, 2023. 2024.
The Company repurchased 1,011,881531,819 shares for $17.0 million, and 1,159,066 shares for $20.0$7.2 million during the three and six months ended MarchDecember 31, 2022, respectively.2022. As of MarchDecember 31, 2022, the Company had no$7.8 million of remaining authorization to repurchase shares.
Changes in Cash Flows: SixThree Months Ended MarchDecember 31, 2022 Compared to the SixThree Months Ended MarchDecember 31, 2021
Net cash provided by (used in) operating activitieswas $14.6($10.7) million and $31.3$1.9 million for the sixthree months ended MarchDecember 31, 2022, and 2021, respectively. The $16.7$12.6 million decrease in cash provided by operating activities between periods was attributable to cash flows associated with accounts payable and payables to sellers which had a net decrease of $12.8 million$18.7 million. While a decrease in the first fiscal quarter generally occurs due to reduced rates of changeseasonality in the underlying transaction volumes during the current period. Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. As GovDeals real estate sales with settlement services increase through the integration with Bid4Assets, operating cash flow fluctuations from accounts payable and payables to sellers are expected to become more variable. The amount of cash received and settled will be substantially higher than our take rate on such transactions, and the timing of auction events cash collection period, and paymentsettlement payments, including lower transaction volumes around the holidays at the end of settlements relative to periodthe quarter, the larger decrease towards the end dates can potentially drive substantial cash movements toof the extentthree months ended December 31, 2022, was also affected by macroeconomic challenges slowing the timingsupply of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.used vehicles.
Net cash used in investing activitieswas $14.7$3.0 million and $1.6$13.0 million for the sixthree months ended MarchDecember 31, 2022, and March 31, 2021, respectively. The $13.1$10.0 million increasedecrease in cash used in investing activities was primarily driven by the prior year $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021, net of cash acquired. See Note 3 - Bid4Assets Acquisition for further information. This decrease was offset by $1.8 million in short-term investments purchased during the three months ended December 31, 2022.
Net cash used byin financing activitieswas $21.9$6.9 million and $19.0$3.8 million for the sixthree months ended MarchDecember 31, 2022, and March 31, 2021, respectively. The $2.9$3.1 million increase in cash used in financing activities was primarily driven by a $3.9$4.2 million increase in share repurchases, offset by $1.4$0.6 million in lower taxes paid in connection with the net settlement of stock compensation awards.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
Interest rate sensitivity. As of March 31, 2022, we do not have any debt, and we are not holding any short-term investments. Our cash and cash equivalents balance of $84.3 million is maintained within various interest bearing and earnings allowance checking accounts. Changes in interest rates on these checking accounts are not expected to have a significant impact to our consolidated results of operations. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss. As of December 31, 2022, we hold cash and cash equivalents and short-term investments that are subject to varying interest rates based upon their maturities. A hypothetical 100 basis point decline in interest rates would impact our pre-tax earnings by less than $1.0 million on an annualized basis.
Exchange rate sensitivity.Because of the number of countries and currencies we operate in, movements in currency exchange rates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars.
Outside the United States, we predominantly generate revenues and incur expenses in theboth U.S. dollars and local currency.currencies. Our primary foreign exchange exposures include British Pounds, Canadian Dollars, Chinese Yuan, Euros, and Hong Kong Dollars. When we translate the results and net assets of theseour international operations into U.S. dollars for financial reporting purposes, movements in exchange rates will affect our reported results and net assets.results. Volatile market conditions arising from ongoing macroeconomic conditions such as rising interest rates at federal banks and the COVID-19 pandemic and/or ongoing hostilities in UkraineRussia-Ukraine conflict, may result in significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars. A hypothetical 10% decrease in foreign exchange rates reduce our total expected revenues by approximately 1%. The potential impact on pre-tax earnings would be less as total expected expenses would also decrease.
Item 4. Controls and Procedures.
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
29
| Period | Total Number of Shares Purchased1 | Average Price Paid Per Share | Total Number of Shares Purchased as a Part of a Publicly Announced Program | Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs | |||||||||||||||||||||||||
| January 1, 2022 to January 31, 2022 | 78,584 | $ | 20.77 | 78,584 | $ | 15,405 | |||||||||||||||||||||||
| February 1, 2022 to February 28, 2022 | 764,653 | $ | 16.40 | 764,653 | $ | 2,863 | |||||||||||||||||||||||
| March 1, 2022 to March 31, 2022 | 168,644 | $ | 16.97 | 168,644 | $ | — | |||||||||||||||||||||||
| Total | 1,011,881 | 1,011,881 | |||||||||||||||||||||||||||
|
|
|
|
|
|
| Total Number of Shares |
| Approximate Dollar Value |
| |
|
| Total Number of | Average Price | Purchased as a Part of a |
| of Shares that May Yet be |
| ||||
Period |
|
| Publicly Announced |
|
| Purchased Under the |
| ||||
| Shares Purchased1 | Paid Per Share | Program |
|
| Programs (in million) |
| ||||
October 1, 2022, to October 31, 2022 |
| — |
| $ | — |
| — |
| $ | 6.6 |
|
November 1, 2022, to November 30, 2022 | — |
| $ | — |
| — | $ | 6.6 |
| ||
December 1, 2022, to December 31, 2022 | 531,819 |
| $ | 13.53 |
| 531,819 | $ | 7.8 |
| ||
Total | 531,819 |
|
|
|
| 531,819 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase programRepurchase programs may be discontinued or suspended at any time and will be funded using our available cash.
On December 6, 2022, the Company's Board of Directors authorized a new stock repurchase plan of up to $8.4 million of the Company's outstanding shares of common stock through December 31, 2024.
As of MarchDecember 31, 2022, the Company had no$7.8 million of remaining authorization to repurchase shares.
Item 5. Other Information
30
Item 6. Exhibits
Exhibit No. |
| Description | ||||||
| ||||||||
| ||||||||
| ||||||||
| ||||||||
3.2 | Amended and Restated | |||||||
| ||||||||
10.1 | ||||||||
| ||||||||
10.2 | ||||||||
10.3 | Form of Indemnification Agreement for directors and officers. | |||||||
10.4 | ||||||||
31.1 | ||||||||
| ||||||||
31.2 | ||||||||
| ||||||||
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| ||||||||
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| ||||||||
101 | The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended | |||||||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
LIQUIDITY SERVICES, INC. | ||||||||
| (Registrant) | |||||||
February 2, 2023 | ||||||||
By: | /s/ William P. Angrick, III | |||||||
| William P. Angrick, III | |||||||
| Chairman of the Board of Directors | |||||||
| and Chief Executive Officer | |||||||
February 2, 2023 | ||||||||
By: | /s/ Jorge A. Celaya | |||||||
| Jorge A. Celaya | |||||||
| Chief Financial Officer | |||||||
32