Liquidity Services, Inc. :LQDT-US: Earnings Analysis: 2017 By the Numbers : December 11, 2017

Liquidity Services, Inc. reports financial results for the year ended September 30, 2017.

We analyze the earnings along side the following peers of Liquidity Services, Inc. – eBay Inc., Stamps.com Inc., Amazon.com, Inc., Collectors Universe, Inc., Overstock.com, Inc., Cafepress Inc., Sotheby’s Class A, PC Connection, Inc., Systemax Inc. and Wal-Mart Stores, Inc. (EBAY-US, STMP-US, AMZN-US, CLCT-US, OSTK-US, PRSS-US, BID-US, CNXN-US, SYX-US and WMT-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 49.17% to 43.96% compared to the same period last year, operating (EBITDA) margins now -10.94% from -2.68%.
  • Year-on-year change in operating cash flow of -169.05% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings rose compared to same period last year, despite decline in operating and pretax margins.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017 2016 2015 2014 2013
Relevant Numbers (Annual)
Revenues 270.02 316.45 397.13 495.66 505.86
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings -39.19 -59.93 -104.82 30.39 41.1
Earnings Growth (YOY) 34.61 42.83 -444.9 -26.07 -14.89
Net Margin -14.51 -18.94 -26.39 6.13 8.13
EPS -1.25 -1.96 -3.5 0.97 1.26
Return on Equity -26.55 -31.66 -39.33 9.62 14.55
Return on Assets -16.49 -21.85 -29.11 7.12 10

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Earnings Growth Analysis

The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 43.96% to 49.17% for the same period last year, while operating margins (EBITDA margins) went from -10.94% to -2.68% over the same time frame.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

LQDT-US’s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days are now 113.27 days from 126.10 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

LQDT-US’s change in operating cash flow of -169.05% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite a decline in operating (EBIT) margins as well as a decline in pretax margins, the company’s earnings rose.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

Liquidity Services, Inc. engages in the provision of e-commerce solutions to manage, value, and sell inventory and equipment for business and government clients. It operates through the following business segments: GovDeals, Capital Assets Group, and Retail Supply Chain Group. The GovDeals provides self-service solutions in which sellers list their own assets, and it consist of marketplaces that enable local and state government entities to sell, surplus, and salvage assets. The Capital Assets Group focuses on full-service solutions to sellers and it consists of marketplaces that enable federal government agencies as well as commercial businesses to sell, surplus, salvage, and scrap assets. The Retail Supply Chain Group comprises marketplaces that enable corporations located in the United States and Canada to sell, surplus, and salvage consumer goods and retail capital assets. The company was founded by William P. Angrick III, Jaime Mateus-Tique and Benjamin Ronald Brown in November 1999 and is headquartered in Bethesda, MD.

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