Liquidity Services Successfully Weathers Another Challenging Quarter

By Markets Fool.com

Image source: Liquidity Services Inc.

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Liquidity Services Inc.(NASDAQ: LQDT) released better-than-expected fiscal third-quarter 2016 results Thursday morning. With shares of the reverse supply chain logistics specialist up 10% as of this writing, investors are obviously pleased with what it had to say. So let's take a closer look at what Liquidity Services accomplished in its latest quarter.

Liquidity Services' results: The raw numbers

Metric

Fiscal Q3 2016 Actuals

Fiscal Q3 2015 Actuals

Growth (YOY)

Revenue

$85.2 million

$89.7 million

(5.2%)

GAAP net income (loss)

($0.12 million)

$1.62 million

(92.3%)

GAAP net income (loss) per share

$0.00

$0.05

N/A

Data source: Liquidity Services Inc.

What happened with Liquidity Services this quarter?

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  • On an adjusted (non-GAAP) basis, which excludes items like share-based compensation, Liquidity Services generated net income of $2.1 million, or $0.07 per share.
  • Gross merchandise volume (GMV) -- which measures total sales value of all merchandise sold through its various marketplaces -- declined 7.8% year over year, to $178.5 million.
  • Consignment model pricing represented:
    • 65.9% of GMV, including 35.9% from GovDeals, and 30% commercial.
    • 20.9% of total revenue, including 7.5% from GovDeals and 13.4% commercial.
  • Purchase model pricing represented:
    • 29.9% of GMV, including 18.2% from commercial and 11.7% from surplus contracts.
    • 64.2% of total revenue, including 39.6% from commercial and 24.6% from surplus contracts.
  • Other pricing models represented the remaining 4.2% of GMV, and 14.9% of total revenue.
  • That might not seem encouraging, but keep in mind guidance provided last quarter called for GMV of $150 million to $175 million, and an adjusted quarterly net loss per share of $0.13 to $0.07.
  • This outperformance was driven by stronger volume and margins at Liquidity Services' commercial capital assets marketplaces, thanks to earlier-than-expected completion of sales transactions, early signs of increasing liquidity in the energy market, and higher buyer demand in the company's industrial marketplace.
  • The number of registered buyers increased 5% year over year, to approximately 2,958,000.
  • Auction participants also increased 5% year over year, to roughly 642,000.
  • Completed transactions increased 10% year over year, to approximately 151,000.

What management had to say

Liquidity Services CEO Bill Angrick elaborated on his company's broad-based growth, stating:

While our energy and industrial groups led our outperformance in Q3, our state and municipal government marketplace also achieved double digit top line growth as more sellers utilized our platform and value added services. Our retail supply chain marketplace continues to attract new clients and expand existing relationships driven by our strong recovery rates and innovative returns management services which address a critical need for both manufacturers and retailers. Additionally, our team has worked diligently to ready the launch of our first marketplace on our new e-commerce platform in Q4 which will expand our addressable market. Our near term outlook remains cautious due to the increasing costs of our DoD surplus contract, soft pricing in our scrap and energy verticals, variability in the timing of large client projects in our industrial business, and ongoing investments in our LiquidityOne transformation plan.

Looking forward

For the current quarter, Liquidity Services expects GMV to be in the range of $155 million to $170 million, which should translate to a GAAP net loss per diluted share of $0.20 to $0.10, and an adjusted net loss per diluted share of $0.14 to $0.05. For perspective -- and though we don't typically pay much attention to Wall Street's near-term demands -- analysts, on average, were modeling an adjusted net loss of $0.08 per share.

In the end, this was a solid report from Liquidity Services as it works to navigate the fast-changing business surplus market. Though its near-term outlook isn't exactly awe-inspiring given the uncertainty it still faces, I think long-term Liquidity Services investors should be pleased with where it stands today.

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Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Liquidity Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.