UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One) | ||
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission file number 0-51813
LIQUIDITY SERVICES, INC.
(Exact Namename of Registrantregistrant as Specifiedspecified in Its Charter)
Delaware (State or incorporation or | 52-2209244 (I.R.S. Employer Identification No.) | |
6931 Arlington Road, Suite , MD. principal executive offices)(Address of | 20814 (Zip Code) |
(202) 467-6868
(Registrant's Telephone Number, Including Area Code)
Securities Registeredregistered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.001 par value | LQDT | Nasdaq |
Securities Registeredregistered pursuant to Section 12(g) of the Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant: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
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act. (Check One):
Large accelerated filer | ☐ | Accelerated filer | ☒ | 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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Aggregate market value of voting and non-voting common equitythe Common Stock held by non-affiliates computed by reference to the Nasdaq closing price on March 31, 2023, the last business day of the registrant as of March 31, 2017, based upon the closing price of the common stock as reported by The NASDAQ Stock Market on such date,most recently completed second fiscal quarter, was approximately $202,237,496.
The number of shares outstanding of the issuer's common stock, par value $.001 per share,Common Stock outstanding as of December 4, 2017,2023 was 31,889,679.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 20182024 Annual Stockholders' Meeting of Stockholders, to be filed subsequently, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K.
INDEX
TABLE OF CONTENTS
Item | Description | Page |
PART I | ||
1 | ||
1A. | ||
1B. | ||
2 | ||
3 | ||
4 | ||
PART II | ||
5 | ||
6 | ||
7 | ||
7A. | ||
8 | ||
9 | ||
9A. | ||
9B. | ||
PART III | ||
10 | ||
11 | ||
12 | ||
13 | ||
14 | ||
PART IV | ||
15 | ||
Item | Description | Page |
1 | 3 | |
1A. | 33 | |
1B. | 33 | |
1C. | 33 | |
2 | 33 | |
3 | 33 | |
4 | 34 | |
5 | 35 | |
6 | 36 | |
7 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 37 |
7A. | 51 | |
8 | 52 | |
9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 52 |
9A. | 52 | |
9B. | 55 | |
9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 55 |
10 | 56 | |
11 | 56 | |
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 56 |
13 | Certain Relationships and Related Transactions, and Director Independence | 56 |
14 | 56 | |
15 | 57 | |
16 | 98 | |
99 |
Unless the context requires otherwise, references in this report to "we," "us," "our", the "Company" and "our""Liquidity Services" refer to Liquidity Services, Inc. and its subsidiaries.
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PART I
Item 1. Business.
Overview
Liquidity Services, Inc. (Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace platforms that power the circular economy. We manage,create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic value of surplus. We connect millions of buyers and sell inventorythousands of sellers through our leading e-commerce auction marketplaces, search engines, asset management software, and equipment forrelated services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government clientssellers.
Our business delivers value to shareholders by operatingunleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite and enable a networkself-reinforcing cycle of leading ecommerce marketplaces that enablevalue creation where buyers and sellers to transactattract one another in an efficient, automated environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supplygreater numbers. The result of new, surplus, and scrap assets presented with digital images and other relevant product information. Additionally, we enable corporate and government sellers to enhance their financial return on assets offered for sale by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. Our broad range of services include program management, valuation, asset management, reconciliation, RTV and RMA ("Return to Vendor" and "Returns Management Authorization"), refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-service tools. We organize the products on our marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Our network of marketplaces includes: www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.unclesamsretailoutlet.com, www.go-dove.com, www.irondirect.com, and www.auctiondeals.com. We have over 10,000 sellers, including Fortune 1000 and Global 500 organizations as well as government agencies. We have three reportable segments, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and GovDeals. See Note 16 in the Notes to the Consolidated Financial Statements for Segment Information.
During the fiscal year ended September 30, 2017, we2023, the number of registered buyers grew from 4.9 million to 5.1 million, or 5%. We generated GMV of $629.3 million$1.2 billion and revenue of $270.0$314.5 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from sellers, and value-added service charges.charges during the year ended September 30, 2023. Our GMV has grown at a compound annual growth rate of approximately 12.5%13.9% since fiscal year 2006.
Liquidity Services was incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets is a leading online marketplace focused on conducting real property auctions for government entities, including tax foreclosure sales and sheriff's sales. See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Operating Segments
The Company has four reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), and Machinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
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Industry Overview
While a well-established forward supply chain exists for the procurement of assets, mostmany manufacturers, retailers, corporations and government agencies have not made significant investments in theirrecognized the growing need for strategic reverse supply chain process or systems. Thesolutions. For example, according to Allied Market Research (Reverse Logistics Market by Return Type: Global Opportunity and Industry Forecast 2021-2028 (July 2021)), the global reverse supply chain addresses the redeployment and remarketing of surplus and salvage assets. These assets generally consist of retail customer returns, overstock products and end-of-life goods or capital assets from both the corporate and government sectors. Thelogistics market is large,expected to reach $958 billion by 2028, growing at a compound annual growth rate of 5.6% from 2021 to 2028.
The retail industry, as indicated by aper an Appriss Retail and National Retail Federation (NRF) reportQ4 2022 returns survey (2022 Consumer Returns in November 2015the Retail Industry), estimates that $260.5approximately $816 billion of merchandise is returned on an annual basis. According to a May 2015 report by the retail analyst firm IHL Group, retailers worldwide lose $1.75 trillion annually due to the costbasis, representing almost 18% of overstocks, out-of-stocks and needless returns. Additionally, the Investment Recovery Association, a professional association for managers of surplus assets, reports on its websitetotal sales. Liquidity Services estimates that at any given time, almost 20%least $100 billion of a typical organization'sthese returns are moved through secondary markets, with the remaining volume returning to retailer shelves or being sold through discount retailers.
Estimates based on Bureau of Economic Analysis, U.S. Census, and World Bank reports, indicate that the global used equipment market is valued at approximately $350 billion.
Assets handled by reverse supply chain solutions generally consist of retail consumer returns, overstock products and idle goods or capital assets are surplus to its needs.
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The management and remarketing of surplus assets traditionally has been an inefficient process. While many organizations spend considerable resources developing systems and channels supporting the flow of finished goods to their core customers as well as developing procurement processes for acquiring equipment and assets to support their operations, we believe that many have not historically dedicated significantinvested resources toin the reverse supply chain in the same way as the forward supply chain. Factors contributing to these inefficiencies in the reverse supply chain include the lack of:
Traditional methods of surplus and salvage asset disposition include ad-hoc sales, negotiated direct sales, utilization of individual brokers or sales agents and live on-site auctions. We believe these solutions are generally highly fragmented, geographically dispersed and poorly integrated with supply chain operations. The manual, negotiated and geographically dispersed nature of traditional surplus resale methods results in a lack of pricing transparency for offered goods, multiple brokers/parties ultimately involved in the final disposition and a lower number of potential buyers and bids, which we believe typically leads to lower recovery for sellers.
Professional buyers seek surplus and salvage assets to sustain their operations and meet demands of end-customers. They include online and offline retailers, convenience and discount stores, value-added resellers such as refurbishers and scrap recyclers, import and export firms, and small businesses. Traditionally, these buyers have had limited access to a reliable flow of surplus goods and assets, relying instead on their own network of industry contacts and fixed-site auctioneers to locate, evaluate and purchase specific items of interest. Traditional methods are inefficient for buyers due to the lack of:
We believe professional buyers of surplus and salvage assets will increasingly use these B2Bonline marketplace platforms to identify and source goods available for immediate online purchase.
Our Solution
Our solution is comprised of ecommercesolutions include e-commerce marketplaces, self-directed auction listing tools, and value-added services. Our marketplaces and services are designed to provide sellers a comprehensive solution to quickly bring surplus assets to market and enhance the financial value realized from the sale of their surplus assets while providing buyers with confidence in the reliable flow of goods they purchase. We provide our sellers access to a network of liquid marketplaces with over 3.15 million professional buyers and a suite of services including consultative surplus asset management, valuation, sales solutions, logistics capabilities, as well as self-serviceand self-directed service tools to efficiently manage our sellers' reverse supply chain and maximize total supply chain value. We also seek the optimal methods to maximize our sellers' net recovery using channel strategies and dedicated programs to deliver transparent, sustained value.
Through our relationships with our sellers, we provide our buyers with convenient access to a substantial and continuous flow of surplus and salvage assets. Buyers can find products in over 500600 categories in lot sizes ranging from full truck loadstruckloads to pallets, packages, and individual items. Our solution combines leading ecommercee-commerce marketplaces with a full suite of integrated sales, marketing, merchandising, fulfillment, payment collection, customer support, dispute mediation and logistics services. We provide our buyers with a convenient method for sourcing surplus consumer goods and electronics, commercial capital assets, including, industrial equipment, energy equipment, biopharma assets, and transportation assets.real estate. We continually look for new categories in which we can expand our presence. For any given asset, our buyers have access to a detailed product description, product manifest, digital images, of a product, relevant transaction history regarding the seller, and, where appropriate, the shipping weights, product dimensions and estimated shipping costs to the buyer's location. This enables our solutions to become the primaryan important source for surplus and salvage assets for many of our professional buyers and end-users.
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We believe our marketplaces benefit over time from greater scale and adoption by our constituents creating a continuous flow of goods and a virtual cycle forbenefiting our buyers and sellers. As of September 30, 2017,2023, we had aggregated approximately 3,171,0005.1 million registered buyers in our marketplaces andmarketplaces. We had access to millions of additional end-users through a range of existingexternal consumer marketplaces. Aggregating this level of buyer demand and market data enables us to generate a continuous flow of goods from corporate and government sellers, which in turn attracts an increasing number of professional buyers. During the fiscal year ended September 30, 20172023, we had over 2,290,000approximately 3.3 million auction participants in our online auctions. During fiscal year 2017,2023, we grew our registered buyer base by 6.2%4.8% or approximately 185,000. None of our buyers represented more than 3% of our revenue during the fiscal year ended September 30, 2017.234,000. As buyers continue to discover and use our ecommercee-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 value of our marketplaces.
Competitive Factors
We have created liquid marketplaces for virtually any type, quantity, or condition of surplus or salvage assets. The strengths of our business model include:
Aggregation of supply and demand for surplus and salvage assets
The strength of our business model rests on our ability to aggregate sellers and buyers through our marketplaces is the strength of our business model.marketplaces. Sellers benefit from a liquid, transparent market and the active participation of our large base of professional buyers, which enhances returns.their returns in comparison to less efficient models. Buyers benefit from our relationships with high-volume, corporate and government sellers, which provides them with continuous access to a comprehensive selection of surplus and salvage assets. Our solution eliminates the need for sellers and buyers to rely on the highly fragmented and geographically dispersed group of traditional liquidators.liquidators and auctioneers. Instead, sellers and buyers access our ecommerceglobal e-commerce marketplaces for their entire surplus and salvage asset needs.
Integrated and comprehensive solution
Our marketplaces are designed to provide sellers and buyers with a comprehensive solution for the online sale and purchase of surplus and salvage assets. We offer self-servicemarketplaces with full-service and self-directed solutions. Our self-directed solutions as well as a full suiteprovide transaction settlement and marketing support while allowing sellers to undertake the work of photographing, cataloging, and building their auctions.
Our value-added services to simplify the sales and supply chain processes for our sellers and improve the utility of our marketplaces for our buyers. For corporate and certain government sellers, we provide sales, marketing, logistics, and seller support services that are fully integrated with our marketplaces, creating operational and system efficiencies. For many of these sellers, asset disposition is not a core business function to which they desire to dedicate internal resources. With our solution, we manage each step of the transaction and reverse supply chain for our sellers, reducing complexity while providing the ability to optimize the seller's net financial return in the sale of surplus goods and assets. Sellers simply make goods available at their facilities or deliver them to our distribution centerswarehouses and we deliver the sale proceeds, (lessless our portion of such proceeds and/or our commissions or fees)fees, after the sale is completed.
We have also expanded our capabilities to process individual items, pallets, less-than-truckload (LTL) and full-truckload (FTL) auctions. This provides our retail sellers with flexible solutions that can scale to solve their unique liquidity challenges while leveraging our various retail channels to maximize their recovery value.
Our buyer services include intelligent alerts, search tools, dynamic pricing, shipping and delivery where available, secure settlement,payment, live buyer support, and dispute resolution to enable the most effective methods to source assets for their businesses.
Flexible and aligned transaction model
We offer two primary transaction models to our sellers: the purchase transaction model and the consignment transaction model. Under the purchase transaction model, we purchase inventory from a seller that we resell in our marketplaces. In some casesSometimes our inventory purchase price is variable, as we may share the gross or net proceeds of such resales with the seller. Sellers that elect the purchase transaction model are considered vendors. Under the consignment transaction model, we do not purchase inventory from a seller; instead, we enable a seller to sell its goods in our marketplaces and we earn commission revenue based on the proceeds received from the sale. Sellers that elect the consignment transaction model are considered consignors.
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Faster transaction cycle times for our sellers and buyers
We believe our marketplace solutions allow our sellers to complete the entire sales process more rapidly than through other liquidation methods by generally reducing the complexities in the reverse supply chain and utilizing our multi-channel strategies to optimize recovery and velocity. As a result, our sellers are able tocan reduce surplus or less valuable inventory quickly, generate additional working capital and reduce the cost of carrying unwanted assets. We provide a one stopcomplete solution to enable professional buyers of any size throughout the world to purchase assets in an efficient manner.efficiently. For these buyers, we provide a broad range of services to give them the information necessary to make an informed bid and ensure they quickly and efficiently receive the goods purchased.
Solutions that promote sustainability and green solutions for improved corporate/government stewardship
Our e-commerce marketplace solutions power the circular economy and provide a range of capabilities that enable corporatebenefits to businesses, communities, and government agency sellers to directly reduce the amount of waste generated by redistributing end-of-life products or assets,environment. We achieve this through our solutions, improving the net financial recovery generated while positively impacting the communities they serve.safe and effective resale and redeployment of surplus assets; our reduction of waste; and by creating markets for items that might otherwise have been landfilled. Some of the world's largest forward-thinking corporations and government agencies have significantly enhanced their stewardship of communities and the environment by utilizing our services and selling their surplus assets through our marketplaces.
Technology, data & analytics enhance our services and solutions for buyers and sellers
We continue to make strategic investments in our technology capabilities. Aligning the capabilities of our auction platforms with the Company’s unique, vertical-specific knowledge has enabled us to develop the AllSurplus marketplace. This platform provides an aggregated view of all assets available globally in our government and commercial sectors, and retail assets for select local markets. By coupling an intuitive, mobile-optimized design with site search and recommendations driven by machine learning, the platform is optimized to assist buyers in quickly finding the assets that meet their needs. Our sellers benefit from the unique nature of our unified platform by having their assets available, simultaneously, on multiple marketplaces while guaranteeing the integrity of the cross-site auction bidding. Placing the assets on multiple sites enables the marketing organization to directly target unique buyer segments that resonate with an asset’s unique audience niche.
Our data infrastructure and analytics continue to provide near real-time operational insights. By coupling our click-stream data and bid activity with our campaign activity, the marketing organization leverages a feedback loop that increases campaign effectiveness and optimizes spend.
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Our Strategy
The focus of our growth strategy is to providebuild the world's most transparent, innovative and effective ecommerce marketplaces and integrated servicesworld’s leading marketplace for surplus assets in order to bring commercial, municipal governmentbenefit buyers, sellers, and federal agency sellers together with professional buyers.the planet. Our business has already attracted nearly 3.2 million registered buyers and achieved over $629 million of gross merchandise volume in fiscal year 2017, and is well positionedstrategic plan rests on four pillars, that we refer to serve any seller for virtually any asset type in every industry sector. We seek to position ourselves to seize opportunities in a multi-billion-dollar market through organic growth by expanding our platform to a diversified base of Fortune 1000 corporations, municipal agencies and small and medium size businesses that can benefitthe acronym RISE, which pillars are as follows:
Recovery Maximization
Based on feedback from our global marketplace, buyer liquidity and integrated services.
Increased Volume
We intend to grow the volume of transacted surplus on our marketplaces with flexible service offerings and government agencies still rely on inefficient, traditional,pricing models to meet the needs of existing and less transparent disposition methodsnew sellers. We have expanded our self-directed service model to allow commercial sellers that do not require a full-service solution to leverage the power of our marketing and online marketplaces to drive buyer demand for their surplus assets. To helpThis approach allows us to more completely penetrate the total addressable market by better meeting the needs of small and mid-sized organizations, address these inefficiencies, we planequipment dealers, and organizations with lower volume needs. We also anticipate increasing volume by placing a greater focus on certain categories, including real estate, construction, and heavy equipment. We intend to extendgrow our volume within the retail supply chain by leveraging the self-directed service model, continuing to grow our network of warehouses, and expanding our AllSurplus Deals marketplace, offering consumers deals for curbside pick-up. We will continue to provide flexible pricing models that allow our sellers to use either a consignment or a purchase-based model.
Service Expansion
We intend to grow our services with recurring revenue characteristics that leverage our technology platform, to new sellers, including dealers, auctioneersdomain expertise, data, and refurbishers and other principals, who would benefit from accessing our marketplaces,marketplace channels. By leveraging our global buyer base,extensive knowledge and relyingtechnology, we intend to grow our revenue by attracting more sellers and more volume through expanding our services to better support sellers and buyers and expanding and improving our asset management and redeployment tools for commercial and municipal government sellers on our service offerings.
Expense Leverage
We intend to improve operating expense leverage by controlling costs coupled with technology innovation that increases productivity. We have simplified and streamlined our operations and consolidated business processes and systems, which has improved scalability.
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We have a unified marketing organization to improve our seller and buyer management, property management, transaction management,marketing productivity by increasing the number of sellers using our platform and financial and human capital management across all our marketplaces. This initiative implements a uniform setby driving increased volumes of best practices across our entire business and provides a greater user experience by making more personalized tools and services availablehighly targeted buyers to our buyers and sellers.
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Our Marketplaces
Our network of fiscal year 2017, we launched our Network International energy marketplace on the new LiquidityOne platform. Our LiquidityOne platform’s upgraded features and enhancements to our multi-channel optimization capabilities have already improved our business by enabling us to quickly adapt marketing and operations activities to match current seller and buyer demands, optimize marketing spend, and improve lotting activity to drive maximum recovery value for sellers. We expect that the efficiencies and operating leverage created by the LiquidityOne platform will drive profitability, and enable us to be more competitive in pricing new seller programs.
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Our e-commerce marketplaces are seeking to leverage the increasing insight we gain with each transaction to enhance the recovery value sellers realize and improve the relevancy of our offerings for our buyers in the reverse supply chain. Following the migration of our major marketplaces onto our new LiquidityOne platform, we anticipate an overall increase in productivity across our sales, marketing, and operations activities, as the initiative is intended to simplify and streamline our operations, improve the functionality of our systems support, decrease the cost of our systems infrastructure, and increase participation from our sellers and buyers.
Besides these leading business-to-business marketplaces, we recognize the need to reach end usersend-users for some of the assets our sellers have entrusted to us. Thus, weWe have developed the capability to sell products on our seller'ssellers' behalf directly to end-users and/or consumers using a range of existing marketplaces. Our
In addition to our e-commerce marketplaces, we have dedicated sales teams supporting the needs of every sale to charity. Our Uncle Sam's Retail Outlet website uses a business-to-consumer model to sell surplus military goods. We also have anour established global buyer base that seeks to buyseek items in larger quantities than are offered through our standard auction platform. Thus, we have dedicated sales teams to support their needs and supply chain.platforms. These range from a single truckload to ongoing flows of goods for export anywhere in the world, where we market, handle, and support the full transaction on behalf of our buyers. We expect to continue to meet the needs of our sellers and to access a growing range of products for all our buyers by enhancing our multi-channel strategy to ensure we create the greatest value for assets at the end of their initial product life cycle.
Our Value-Added Services for Buyers and Sellers
In addition to our self-directed tools for our sellers, we have integrated value-added services to simplify the reverse supply chain processes for both our buyerssellers and sellers.buyers. We believe these services create the greatestgenerate operational efficiencies within this element of the supply chain enabling the greatest value for sellers and buyers with the highest level of confidence and transparency in the services we provide. Additionally, we believe these services improve compliance with the various policies, regulations, and sale restrictions of our corporate and government sellers while supporting, or greatly enhancing, many corporate or government environmental initiatives.
Seller services.
We offer value-added services to sellers in three areas:11
Buyer services. Many of the services we provide to sellers also benefit buyers by providing them with the information necessary to make a more informed bid and by delivering the goods they purchased. Our buyer-focused services include the following:
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Sales and Marketing We Sales Our sales personnel develop seller relationships, We organize our sellers into two distinct utilize a directuse sales and marketing forceactivities to acquire and manage our seller and buyer accounts. As of September 30, 2017, we had 210 sales and marketing personnel. Our sales activities are focused primarily on acquiring new sellers and improving the valueexpanding existing sellers' use of our solutions to existing sellers.solutions. Our marketing activities are focused primarily on acquiring and activating new buyers and increasing existing buyerbuyers' participation. Our marketing team also manages our Liquidity Services and marketplace brands and drivesseller lead generation efforts that support the sales team.enter into agreementscontract to provide our services and manage the business accounts on an on-goingongoing basis. Our sales team focuses on building long-term relationships with sellers that we believe will generate recurring transactions. They also leverage our years of experience and market data of completed transactions to identify which of our various services would be beneficial to each new or existing seller. Our sales team works with a numberbrings our global scale and specialist knowledge to an ecosystem of auction partners, globallyleveraging our expertise to create additional opportunities for bothus to participate in purchase and consignment transaction model projects.projects across the globe. In addition, we have a Lead Generation Teamlead generation team which tracks announcements regarding plant closures on a global basis inrelevant media around the key industries which we serve.world. The lead generation team uses a number ofseveral sources to research plant closuresinformation relevant to our marketplaces, which sources include news aggregators, trade journals, industry specific web sitesindustry-specific websites and bankruptcybusiness reports on a global basis.Our sales group is organized to serve threegroups of sellers: large corporate accounts, medium to small corporate accountsgroups: full-service sellers, and government accounts. Thisself-directed sellers. We base our approach is based on our experience in understanding and serving the unique needs of each type of seller:
Our sales personnel receive a salary and performance-based commissions.
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Marketing
We use a variety of online and traditional marketing strategies to attract and activate professional buyers to maximize the number of bidders participating in our ecommercee-commerce marketplaces as well as to support our sales team:
All marketing activities are evaluated based on the level of auction participation in our marketplaces, the cost to acquire new sellers,participants, and the cost effectiveness of each action.
Technology and IT Infrastructure
As digital transformation accelerates globally, sellers are searching for partner solutions that enable them to move faster and generate maximum recovery with minimal investment. Buyers search for marketplaces that enable them to locate the assets they need and transact in an efficient and secure manner, regardless of device. Our online marketplaces are fully web-basedserve as the trusted platform for facilitating the seamless exchange of goods and can be accessed from any Internet-enabled device by using a standard web browser.payment between buyers and sellers of surplus assets. Our technology systems and committed teams enable us to automate and streamline many of the manual processes associated with finding, evaluating, bidding on, paying for, and shipping surplus assets, retail returns and salvage assets.overstocks, and government owned real-estate. The technology and content behind our marketplaces and integrated value-added services were developed in-house, providing usconsists of a combination of proprietary technologies augmented with control over the marketplaces and thecapabilities provided by specialized service providers. This combination enables our ability to make enhancements quicklyrapidly enhance the core marketplace experience, in response to better fit the specific needs of our buyers and sellers. Our infrastructure provides:
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We have designed our websites and supporting infrastructure to be highly robustleverage the full power of the leading cloud providers. Our services leverage the scale and to support new services and increased traffic. Our servers are fully-managed and hosted bypower of Amazon Web Services and MicrosoftMicrosoft’s Azure Public Cloud Platforms. Every critical piece of our application is regionally resilient,platforms enabling us to efficiently respond to increased traffic. Our applications are designed with resiliency and we maintain off-site back-up systems and we can provision a disaster recovery facility. Our network connectivity offers high performance and scalability to accommodate increasesfault tolerance in website traffic.mind. Since January 1, 2003, we have experienced no financially material service interruptions on our ecommercee-commerce marketplaces.
In October 2023, we successfully migrated the GovDeals.com marketplace to our latest state-of-the-art modernized platform, giving our buyers the best buying experience. This new user experience leverages the knowledge we gained developing AllSurplus.com with the 20+ years of operating GovDeals.com. The net result is a consolidated, scalable platform that couples an enhanced and accessible user experience with state-of-the-art site search, navigation, and product recommendations. This engine is powered by a combination of artificial intelligence (AI) and machine learning (ML) algorithms which enable our buyers to locate the assets they desire in a more efficient manner.
We devote substantial resources to the continuous improvement of our technology and IT infrastructure which allows us to continually deliver value to our buyers, sellers, and employees. In fiscal year 2023, we continued to expand the capabilities of our flagship e-commerce platform, AllSurplus, enabling multiple user experience and back-office improvements including:
Our core back-office infrastructure is flexible by design. We are a remote-first work organization. The cloud-based, flexible infrastructure has enabled our operations to continue, uninterrupted, in a variety of working models, including fully remote, on-site, and hybrid. This flexibility affords us the ability to recruit and retain outstanding talent and to service our customers’ needs regardless of location.
Our customers are increasingly looking to our solutions to facilitate robust recovery for their assets, regardless of industry or location. We continue to develop intelligent solutions for our customers that facilitate rapid and secure transactions between buyer and seller, whether they are in the same town or across the globe. Our goal is to lead the industry in several distinct areas over the long term, which we expect will translate to sustained growth. We are investing significant resources in:
Our future growth depends on our continued ability to execute these priorities.
Cybersecurity and Data Privacy
The protection of our clients’ data, our brand, and our systems is of utmost importance. We are subject to governmental regulation and other legal obligations, particularly related to privacy, data protection and information security. We employ robust cybersecurity and data privacy programs that span all employee groups and systems to ensure that a culture of cybersecurity and data privacy awareness permeates the organization. By coupling proactive training, vulnerability management, and system design with active threat defense mechanisms, we have developed a robust cybersecurity program. Our marketplace services are protected by multiple layers of security, including password-protected log-ins, encryption technologyemploying a "defense in depth" approach to safeguard information transmittedasset protection that is backed by AI powered threat detection and response systems and actively monitored by a dedicated team of security professionals.
We approach cybersecurity protection and data privacy as a team sport in web sessionswhich all employees are active members. This is reflected in both our tactical and firewalls to help prevent unauthorized access to our networkgovernance activities. Each employee undergoes annual cybersecurity training with supplemental education disseminated throughout the year. This continual education helps promote a culture that understands the critical role cybersecurity and servers. We devote significant efforts todata privacy play in protecting our systems from intrusion.
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Our internal security team in conjunction with the fourth quarterChief Technology Officer (CTO) reviews current risks with a cross-functional leadership committee quarterly. Our Board of fiscal year 2017, we launched our Network International energy marketplace on the new LiquidityOne platform. Key enhancements offer buyers and sellers a more attractive and updated responsive design, engaging user experience and improved functionality that provides greater visibility and access to a universe of surplus energy assets. This launch marks a significant deployment in the company’s LiquidityOne transformation initiative
Operations
Supporting large organizations that have a recurring need to sell surplus and salvage assets requires systematic processes to enhance the financial value and convenience received by our sellers. We believe we have integrated all of the required operational processes into our solution to efficiently and to effectively support our buyers and sellers. Our operations group is comprised ofcomprises three functions: (1) buyer relations, (2) shipping logistics and (3) distribution center and field service operations.
Buyer relations
Our buyer relations group supports the completion of buyer transactions by managing the buyer registration and qualification process, answering questions and requests from buyers, collecting buyer payments, and resolving disputes. Our websites contain extensive information about buying through our ecommercee-commerce marketplaces, including an online tutorial regarding the use of our marketplaces, answers to frequently-askedfrequently asked buyer questions, and an indexed help section. Buyers are able tocan contact a buyer support service representative by live chat as well asand e-mail or phone if they need additional support.
Shipping logistics
Our shipping logistics group manages and coordinates inbound and outbound shipping of merchandise for sellers and buyers.buyers of our Retail services. We offer, as part of our value-added services, integrated shipping services using our own fleet or multiple vetted and pre-qualified carrier partners. In addition, our shipping coordination group personnelcoordinators monitor the performance and service level of our network of carriers to help ensure speed and quality of service.
Warehouse network and field service operations
Our distribution centerwarehouse network and field service operations group perform selected pre-sale and post-sale value-added services atacross our distribution centersnetwork of warehouses and at seller locations globally. These activities include unloading, manifesting and reporting discrepancies for all received assets and sales preparation of offered assets, including merchandising and organizing offered assets, writing product descriptions, capturing digital images and/or video and providing additional optional value-added services such as returns management (RM) services, return to vendor (RTV) services and product delabeling,delabelling, data cleaning/wiping, testing, refurbishment and repackaging. Our distribution centerwarehouse network and field service operations group personnel also arrange the outbound shipping or pick-up of purchased assets for our buyers.
Competition
The online services market for auctioning or liquidating surplus and salvage assets is competitive and growing rapidly. We currently compete with:
In our marketplaces for surplus assets, we compete with a variety of online, mobile, and offline channels. These include, but are not limited to, e-commerce providers, B2B online marketplace platforms, auction websites, retailers, distributors, liquidators, import and export companies, auctioneers, and government agencies that have created websites to sell surplus. As our product offerings continue to broaden into new categories of surplus items, we expect our market to face additional competition from other online, mobile, and offline channels.
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Our markets may become even more competitive as traditional and online liquidators and auctioneers continue to develop online and offline services for disposition, redeployment, and remarketing of surplus and salvage assets. In addition, manufacturers, retailers and additional government agencies may decide to create their own websites to sell their own surplus and salvage assets and those of third parties. Competitive pressures could harm
Competition may intensify as our competitors enter into business financial conditioncombinations or alliances and operating results.
Our Vendor Contracts with the United States Department of Defense and Amazon.com, Inc.
We have two materialmultiple vendor contracts with the DoD, the Surplus Contract and the Scrap Contract, under which we acquire, manage and sell government property. This relationship provides a significant supply of goods that we offer to our buyer base through our ecommerce marketplace
Government Regulation
We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information and regulations prohibiting unfair and deceptive trade practices. Furthermore, theThe growth and demand for ecommercee-commerce has resulted in and may continue to result in more stringent consumer protection laws and data privacy laws that impose additional compliance burdens on ecommercee-commerce companies. In particular, we continue to address changes in state, federal and international privacy laws and regulations, including the General Data Protection Regulations (GDPR) in the European Union. Many jurisdictions also regulate "auctions" and "auctioneers" and may regulate online auction services. These consumer protection laws and regulations could result incause substantial compliance costs and could interfere with the conduct of our business.
Intellectual Property
We regard our intellectual property, particularly domain names, copyrights and buyer database trade secrets, as critical to our success. We rely on a combination of contractual restrictions and common law copyright and trade secret laws to protect our proprietary rights, know-how, information, and technology. These contractual restrictions include confidentiality and non-compete provisions. We generally enter into agreements containing these provisions with our employees, contractors and third parties with whom we have strategic relationships. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without our authorization. We currently are the registered owners of several Internet domain names, including
Human Capital Management
In order to enforceachieve our intellectual property rights. We seekgoal to protect our domain names in an increasing number of jurisdictionsbuild the world’s leading marketplace for surplus assets to benefit buyers, sellers, and may not be successful in certain jurisdictions.
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Diversity, Equity, and Inclusion
We believe our employees are key to achieving our business goals and growth strategy. Our human capital objective is to attract, retain, develop, and motivate talented employees. We use online search tools, specialized recruiting firms, employee referral programs, job postings in various media platforms, and university recruiting to identify and attract talented candidates. By doing so, we aim to leverage the variety of skills and perspectives inherent in a diverse workforce, improve our problem-solving abilities, and bring innovative solutions to a wider range of clients and customers.
Health and Well-Being
We value the health and well-being of our employees and provide generous benefit options to our employees and their families. Our plans are designed to enhance employee wellness by focusing on health, financial security, life, and learning. Our health benefits include multiple medical plans, dental and vision coverage, and paid parental leave. In the U.S., we pay a significant portion of the benefit premiums related to our health benefits. Employees are offered certain benefits at no charge to them or their families, e.g., Life and AD&D insurance, short- and long-term disability insurance, and Health Savings Account contributions. The financial security benefits program includes a 401(k) plan with discretionary employer match and access to health savings accounts and health and dependent care flexible spending accounts. We provide a range of insurance products and employee assistance programs. Internationally, we also offer a variety of benefit plans customized to reflect local conditions. Our learning and development programs include tuition support for employees and a global training and development program that focuses on leadership development, as well as training in various topics including 150diversity, anti-harassment, ethics, and regulatory compliance.
Culture and Community
The Company's culture is rooted in salesour core values and marketing, 120 in technology, 45 in buyeraligned to the Company’s strategic framework. Our culture expresses our expansive vision and fervor for community and collaboration and is honed by the following core values:
We reinforce, monitor, and assess our culture through a variety of that date, we had 152 international employees, including 61 in salesprograms which include performance management, succession planning, and marketing, 7 in technology, 2 in buyer and seller support service, 54 in operations and 28 in finance and administration.
Flexible Workspace
We are a remote-first work environment. We are committed to allowing flexibility in our workplace to promote high performance, retention, diversity, equity, and inclusion while also continuing to meet customer and business needs.
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Sustainability Efforts
At our core, Liquidity Services strives to benefit businesses, communities, and the environment through our marketplaces which enable the continued use of surplus assets that may otherwise wind up in landfills. These efforts extend to our employees as well, where our remote work structure for applicable employees has enabled lower expended energy and emissions from both transportation-related activities and operations across our real estate portfolio.
Available Information
Our proxy statement, annual, quarterly, and current reports, proxy statements,as well as amendments to those reports and other information, are also made availableprovided free of charge on our website
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements.statements made pursuant to the Private Securities Litigation Reform Act of 1995. These statements are only predictions. The outcome of the events described in these forward-looking statements isare 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, statements regarding the Company’s business outlook; anticipated economic and operational impacts as a result of global macro-trends and events; the migration of our retail marketplace to our core e-commerce technology platform; expected future effective tax rates; trends and assumptions about future periods, the numerous factors that influence the supply of and demand for used equipment; economic and other conditions in local, regional and global sectors; and those listed in Part I, Item 1A ("Risk Factors")(Risk Factors) and in our other filings with the Securities and Exchange Commission (SEC)SEC from time to time. 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 apply only as of the date of this Annual Report on Form 10-K 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 Annual Report or to reflect the occurrence of unanticipated events.
Use of Market and Industry Data
Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning our industry and the markets in which we operate, including our general expectations about our industry, market position, market opportunity, and market size, is based on data from various sources including internal data and estimates as well as third-party sources widely available to the public such as independent industry publications, government publications, reports by market research firms, or other published independent sources and on our assumptions based on that data and other similar sources. Industry publications and other published sources generally state that the information contained therein has been obtained from third-party sources believed to be reliable. Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and management’s understanding of industry conditions, and such information has not been verified by any independent sources. This data involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market, industry, and other information included in this Annual Report on Form 10-K to be the most recently available and to be generally reliable, such information is inherently imprecise and we have not independently verified any third-party information or verified that more recent information is not available. The information in any such publication, report, survey, or article is not incorporated by reference in this Annual Report on Form 10-K.
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Item 1A. Risk Factors.
You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K, including the consolidated financial statements and related notes, before making an investment decision with respect toregarding our common stock. If any of the following risks occur, our business, financial condition or operating results could suffer. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment in our common stock. The risks and uncertainties described below are not in any particular order and are not the only significant risks we may face. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition.
Business and Amazon.com, Inc. in our RSCG segment under which we acquire a significant portion of our inventory, and if our relationship with either of them is disrupted, we would experience a significant decrease in revenue and income.
The success of our business depends on our ability to successfully obtainsource a sufficient supply of merchandise for our buyers andassets from sellers to attract and retain active professional buyers, to create sufficient demand for ourwho in turn attract more sellers.
Our ability to increase our revenue and maintain profitabilityearn profits depends on whether we can successfully retain existing sellers, attract new sellers, expand the supply of merchandiseassets available for sale on our ecommercee-commerce marketplaces and, at the same time, attract and retain active professionalqualified buyers to purchase the merchandise.assets in the categories we sell. Our ability to attract sufficientenough quantities of suitable merchandiseassets and new buyers with suitable interests in those assets will depend on various factors, some of which are out of our control. These factors include our ability to:
Failure to attract and retain buyers and sellers, which could decrease our revenue and negatively affect our operating results.
If we do not respond to rapid technological changes or continuously upgrade our systems, we could fail to grow our business and our revenue could decrease.
To remain competitive, we must continue to enhance and improve the functionality and features of our ecommercee-commerce business, through initiatives like the LiquidityOne Transformation initiative. Althoughparticularly those that attract and retain buyers and sellers. As an e-commerce company, we currently do not have specific plans for any upgrades that would require significant capital investment beyond the LiquidityOne Transformation initiative, in the future we will need tomust continuously improve and upgrade our technology, transaction processing systems, and network infrastructure in order to allow our operations to grow in both size and scope. Without such continuous improvements, our operations might suffer from unanticipated system disruptions, slow transaction processing, unreliable service levels, or impaired quality or delays in reporting accurate financial information, any of which could negatively affect our reputation and ability to attract and retain sellers and buyers. We may also face material delays in introducing new services, productsassets, and enhancements. The Internet and the ecommercee-commerce industry areis rapidly changing. If competitors introduce new productsassets and services using new technologies or if new industry standards and practices emerge, our existing websitesonline marketplaces and our proprietary technology and systems may become obsolete. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational, and technical resources, with no assurance our business will increase.grow as a result. If we fail to respond to technological change or to adequately maintain, expand, upgrade, and develop our systems and infrastructure in a timely fashionpromptly, our ability to grow could be limited and our revenue could decrease.
We may not realize all of the anticipated benefits from our LiquidityOne Transformation initiative.
We expect that our LiquidityOne Transformation initiativerecent initiatives will significantly increase our efficiency and productivity, the functionality of our marketplaces, and our cross-selling opportunities, as well as decrease the cost of our systems infrastructure, all of which we expect will drive our scale and growth for our company and have a positive effect on our business, competitive position, and results of operations. This initiative is a major undertaking spanning multiple years that will replace manyoperations over time. Many of our existingprevious operating and financial systems. This complex, multifacetedsystems have been recently replaced, and extensive initiative may result in material unanticipated problems and expenses. If ourif these new systems do not operate as expected, we may have to incur significant additional costs and delays to modify them. We cannot assure you that the LiquidityOne Transformation initiativethese initiatives will be beneficial to the extent, or within the timeframes, expected, or that the estimated efficiency, cost savings, and other improvements will be realized as anticipated or at all. If the LiquidityOne Transformation initiative isour initiatives are not implemented successfully and within budget, or if the changes, including the new ERP systemour systems do not perform in a satisfactory manner, it could disrupt or otherwise materially adversely affect our business and results of operations.operations, as well as divert management resources. Similarly,
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if our buyers and sellers fail to accept our new platform or our new unified process for handling the transactions on all ofacross our marketplaces, it could materially adversely affect our business and results of operations.
The information technology and digital marketing improvements that are core to our strategy place a significant strain on our management, operational, financial and other resources.
We continue to decommission non-scalable legacy IT platformsplatform technology with a singular, modular technology platform withincluding key modules for unified management of sellers and buyers, property handling, transaction processing and finance functions across our entire company. The new platformCompany. Our AllSurplus marketplace is designed to provide our buyers with access to all the property available in all our CAG and GovDeals marketplaces, provideprovides a common account experience for sellers, harmonize, simplify and streamlinesimplifies our operations. This programWe expanded our AllSurplus marketplace to include an online, direct-to-consumer channel for returned and overstock inventory from retailers and manufacturers, which is placing significant strain on our management, personnel, operations, systems, technical performancereferred to as AllSurplus Deals. Iterative information technology and financial resources and internal financial control and reporting function. The LiquidityOne Transformation initiative requiresdigital marketing improvements require management time and resources to educate employees, redesign internal processes, and implement new ways of conducting business. We maybusiness with our sellers and buyers. If we do not be able to effectively manage this initiative,improvements to our marketplaces, including itsdigital marketing and data driven improvements or the timing, costs, and adoption by sellers and buyers, whichit could negatively affect our business and our operating results, as well as result in damage to our reputation and our prospects. In addition, the dedication of resources to sustain and enhance our existing sites constrains the LiquidityOne Transformationability to undertake transformation initiatives focused on growth opportunities. The continuous improvement of our new aggregated marketplace initiative limits the resources we have available to devote to other initiatives or growth opportunities, or to invest in the maintenance of our internal systems. Further, the timing
We have vendor contracts with Amazon.com, Inc. in our RSCG segment under which we acquire a significant portion of completion of various remaining phases of marketplace rollouts on to the new LiquidityOne platformour purchased inventory, and if our relationship with Amazon is disrupted, there could be delayed, resultinga material adverse effect on our revenues and operating results.
We have multiple vendor contracts with Amazon.com, Inc., under which we acquire and then resell assets. $5.8 million and $8.1 million of inventory purchased under such contracts with Amazon.com, Inc. is included in higherour Inventory balances on our Consolidated Balance Sheets as of September 30, 2023, and 2022, respectively. If Amazon stopped selling inventory to us on acceptable terms or adversely changed the mix and quantity of the inventory that they make available to us for purchase, we likely could not procure alternative inventory from other vendors in a timely and efficient manner and on acceptable terms, or at all, which could have a material adverse effect on our revenues and operating results.
If we do not retain our senior management and other highly skilled employees, we may not achieve our business objectives.
Our future success, including our ability to successfully implement recent initiatives, depends substantially on the continued service of our senior management and other key personnel, particularly William P. Angrick, III, our Chairman and Chief Executive Officer. We do not have key-person insurance on any of our officers or employees. Losing any member of our existing senior management team could damage key seller relationships, result in the loss of key information, expertise, or know-how, lead to unanticipated recruitment and training costs, duringand make it more difficult to operate our business and achieve our business goals. Our future success also depends on our ability to continue to attract, retain, and motivate highly skilled employees, particularly employees with technology, sales, marketing, operations, and administrative technical expertise. Competition for employees in our industry is intense. We have experienced occasional difficulty in attracting personnel to support the implementationgrowth of our business, and greater strain on management timewe may experience similar difficulties. If we cannot attract, assimilate, and resources.
We may need additional financingmust also attract, train, and retain a large and growing number of qualified employees in our RSCG warehouses while controlling related labor costs and maintaining our core values. Our ability to control labor and benefit costs is subject to numerous internal and external factors, regulatory changes, prevailing wage rates, and healthcare and other insurance costs. We compete with other retail and non-retail businesses for these employees and invest significant resources in training and motivating them. There is no assurance that we will be able to attract or retain highly qualified employees in the future, which could have a material adverse effect on our business, financial condition, and results of operations.
We face intense competition.
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Our businesses operate in intensely competitive markets. We have many competitors in different industries, including the online services market for auctioning or liquidating surplus assets and retail markets. Competitive pressures could affect our ability to attract and retain buyers and sellers, which could decrease our revenue and negatively affect our operating results.
Some of our other current and potential competitors have longer operating histories, larger seller and buyer bases, greater brand recognition and greater financial, marketing, and other resources than we do. They may devote greater financial resources to marketing and promotional campaigns, secure better terms from sellers and vendors, adopt more aggressive pricing or inventory availability policies, and devote substantially more resources to technology and infrastructure than we do.
During the course of the COVID-19 pandemic, several of our competitors were driven to upgrade aspects of their core information and marketing technology stacks. This heightened focus on e-commerce has increased the competition we face. If this competition continues to intensify, it may become progressively more difficult to attract enough buyers and sellers to our marketplaces to sustain growth without significant increases in resources.
In some countries, we have competitors that may have a better understanding of local culture and commerce. We increasingly may compete in other countries with local competitors that have advantages we do not, such as a greater ability to operate within the local regulatory environment.
In addition, we may face competition from certain of our retail clients and smaller actors. For example, a retail client may invest in its warehouse operational capacity to handle higher volumes of online returns which may cause such retailer to send us a reduced volume of returned merchandise or a product mix that is lower in value due to the removal of high value returns. Furthermore, a smaller competitor may achieve scale by means of competitive advantage over our company, resulting in their ability to directly compete with us for the same source of inventory that we currently acquire.
If our strategy to compete against our many competitors is not effective, we may lose market share and our results of operations may be negatively affected. We may not be availableable to compete successfully against competitors and our financial condition and results of operations may be adversely impacted and we may not be able to achieve long-term earnings growth targets.
Our operating results depend on favorable terms, if at all.
Any system interruptions that affect our websites or our transaction systems could impair the services we provide to our sellers and buyers. In addition, our systems and data centers may be vulnerable to damage from a variety of other sources, including: damage to, or failure of, our computer software or hardware, or our connections to, and outsourced service arrangements with, third parties; failure of, or defects in, the third-party systems, software, or equipment on which we rely to access our data centers and other systems; errors in the processing of data; computer viruses, malware, or software defects; physical or electronic break-ins, sabotage, distributed denial of service, or DDoS, penetration attacks, intentional acts of vandalism, and similar events; and telecommunications failures, power outages, pandemics, political unrest, malicious human acts, and natural disasters.
Improving the reliability and redundancy of our systems may be expensive or reduce our margins and may not be successful in preventing system failures.
Our ability to provide services depends substantially on systems provided by third parties, over whom we have little control. We have occasionally experienced interruptions to our services due to system failures. Any disruption to the third-party data centers we utilize, interruptions or failures of our systems or our ability to communicate with third-party systems could negatively affect the demand for our businesses, fund initiatives such asservices and our ability to grow our revenue.
Many of our information technology systems consist of outsourced, cloud-based infrastructure, platform, and software-as-a-service solutions not under our direct management or control. Any disruption to either the LiquidityOne Transformation initiative, respondoutsourced systems or the communication links between us and the outsourced supplier could negatively affect our ability to competitive pressures, acquire complementary businessesoperate our websites or technologies or otherwise support our growth.transaction systems and could impair our ability to provide services to our sellers and buyers. We may alsoincur additional costs to remedy the damages caused by these disruptions.
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Our inability to use software licensed from third parties, open-source software, SAAS, and PAAS offerings under current license or contractual terms could interfere with our proprietary rights disrupt our business.
We use a combination of licensed and opensource software, software as a service (SAAS), and platform as a service (PAAS) offerings from multiple third parties. We use, among others, the following: Akamai, Algonomy, Amazon Web Services, Google, Postmark, HubSpot, Jenkins, LeaseQuery, Liferay, Microsoft Azure and M365, MuleSoft, MySQL, Oracle Fusion, and various Linux distributions, and we may use additional open-source software. Licenses to third-party software may not continue to be available on terms that are acceptable to us, or at all.
Our inability to use third-party software or to enter into agreements on acceptable terms with providers of cloud-based solutions could cause disruptions to our business, or delays in developing future services or enhancements of existing services, which could impair our business. In addition, the terms of certain open-source software licenses may require additional funds if vendorsus to provide modified versions of the open-source software or any proprietary software that we develop that incorporates all or a portion of the open-source software to others on unfavorable license terms consistent with the open-source license term. If we must license our proprietary software under the foregoing, our competitors and other third parties fromcould obtain access to our intellectual property, which could harm our business.
Certain aspects of our marketing technology depend on third parties over whom we purchase inventory, other goods or services extend less favorable credit terms to us. Our business may not generatehave no control.
Obtaining organic search engine traffic from Google is a significant traffic driver for our marketplaces. If Google modified the cash needed to finance such requirements. We currently do not have a credit facility with third-party lenders from whichsearch engine algorithms that control our page rankings, we may draw funds. If we raise additional funds throughexperience a significant negative impact on the issuancetraffic coming to our marketplaces. A decrease in traffic would reduce the number of equity or convertible debt securities, the percentage ownership ofnew buyers and sellers on our existing stockholders would be reduced,marketplaces and these securities may have rights, preferences or privileges senior to those ofcould harm our common stock. The general economic and capital market conditions in the United States and other parts of the world can deteriorate significantly, adversely affecting access to capital and increasing the cost of capital. A large degree of uncertainty remains both domestically and abroad, which can adversely impact access to capital, and the cost of capital. If adequate funds are not available or are not availablebusiness.
Additionally, our marketing technology relies heavily on acceptable terms, our ability to enhancetrack our services, fund strategic initiatives, respondpromotional campaign performance across marketing channels (i.e., email, search engines, social media, and third-party banner ads). If industry leading software browsers, such as Google Chrome, Microsoft Edge, or Apple Safari, disable user analytics tracking or other similar capabilities, our ability to competitive pressures, take advantagetrack our promotional campaign performance could be affected, which could in turn prevent us from fully optimizing the marketing spend associated with our promotional campaigns. Like many other e-commerce marketplaces, Apple’s recent upgrades to provide greater transparency as to Identifier for Advertisers (IDFA) has, with respect to some categories of assets, made it harder and more expensive for us to target customers with the interest in purchasing those categories of assets.
We are required to maintain the privacy and security of personal and business opportunities or growinformation amidst multiplying threat landscapes and in compliance with privacy and data protection regulations globally. Failure to do so could damage our business, would be limited, and we might need to restrictincluding our operations and initiatives.
Increased security threats and more sophisticated cyber misconduct pose a result.
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expend, and we cannot be sure that our relationship with UPS will continue on terms favorable to us, if at all. If our relationship with UPS is terminated or impaired or if UPS is unable to deliver merchandise for us, we wouldmay be required to use alternative carriers for the shipment of productsexpend, significant additional capital and other resources to our buyers. Weprotect against such security breaches or to alleviate problems caused by such breaches. Our insurance coverage may be unableinadequate to engage alternative carriers on a timely basis or on terms favorable tocompensate us if at all. Potential adverse consequences include:
An interruption in the operations of our buyer and seller support service system or our distribution centerswarehouses could significantly harm our business and operating results.
Our business depends, to a large degree, on the provision of effective support services to our buyers and sellers, and on effective distribution center operations. We currently staff DoD warehouse distribution space, for which we do not incur leasing costs, as well asoperations (including leased commercial warehouse distribution space.space). These operations could be harmed by several factors, including any material disruption or slowdown at our distribution centersnetwork of warehouses resulting from labor disputes, changes in the terms of our underlying lease agreements, or occupancy arrangements in the case of government provided facilities, telecommunications
If we fail to accurately predict our ability to sell merchandiseassets in which we take inventory risk and credit risk our margins may decline as a result of lower sale prices from such merchandise.
Under our purchase transaction model, we purchase merchandiseassets and assume the risk that the merchandiseassets may sell for less than we paid for it.them. We assume general and physical inventory and credit risk.risk with respect to these assets. These risks are especially significant because some of the goods we sellpurchase and resell on our websites are characterizedimpacted by rapid technological change, obsolescence, and price erosion, and because we sometimes make large purchases of particular types of inventory.inventory or industrial equipment when manufacturing facilities or campuses close. In addition, we do not typically receive warranties on the surplus goodsassets we purchase and, as a result, we have tomust resell or dispose of any returned goods. Historically,goods on an as-is basis, which limits the numbertypes of disposed goods (which includes returned goods that we have not resold) has been less than 2% of the goods we have purchased.buyers willing to purchase our assets. To manage our inventory successfully, we need tomust maintain sufficientenough buyer demand andto sell merchandiseassets for a reasonable financial return. We may overpay for the acquired merchandiseassets if we miscalculate buyer demand or if the acquired merchandise has defects of whichassets are not as desirable as we were unaware. In the event that merchandise ispredicted. If assets are not attractive to our buyer base, we may be requiredhave to take significant losses resulting from lower sale prices, which could reduce our revenue and margins. Currency exchange rates may negatively affect our results if we pay for inventory using a different currency than we receive when we sell the inventory. Declines in commodity prices may also reduce the profit we are able to realize
Occasionally, in our scrap business. For example, we may not be able to sell our inventory for amounts above its cost and we may incur a loss in products we handle for our commercial sellers.
As we grow our business, we may choose to increase the amount of merchandiseassets we purchase directly from sellers, thus resulting in increased inventory levels and related risk.risks, including increased risk of losses on the sale of the inventory acquired. Any such increase would require the use of additional working capital and subject us toany funds so used would not be available for other purposes.
Our quarterly operating results have fluctuated in the additional risk of incurring losses onpast and may do so in the sale of that inventory.
Our prior operating results have fluctuated due to changes in our business and negatively impact the growthe-commerce industry. Similarly, our future operating results may vary significantly from quarter to quarter due to many factors, including factors beyond our control. You should not rely on period-to-period comparisons of our business.
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Our operating results may fall below the expectations of market analysts and investors in some future periods. If this occurs, even temporarily, it could cause volatility in our stock price.
Our stock price has been volatile, and your investment in our common stock could decline in value.
Worldwide financial crises have led to an increase in the overall volatility of the stock market. Increased volatility and other broad market and industry factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Other factors that could cause fluctuation in our stock price may include:
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Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices they view as attractive. In the past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources.
The seasonality of our business places increased strain on our operations.
We experience seasonality in each portion of our business at various times during the year. As a result, we expect a disproportionate number of transactions on our marketplaces to occur at certain times during the year. If we cannot effectively manage increased demand, or the increased flow of goods we typically experience during these times, it could adversely affect our revenue and our future growth. If too many buyers and sellers access our websites within a short period of time due to increased demand, we may experience system interruptions that make our websites unavailable or prevent us from providing efficient service, which may reduce our financial and operational results and the attractiveness of our value-added services. In addition, we could face trade name, trademark or service mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations of our marketplace names. Any claims related to our intellectual property or confusion related to our marketplaces could damage our reputation and negatively impact the growth of our business.
If we fail to successfully identify, finance, and integrate acquisitions, our future operating results may be materially adversely affected
We have expanded our business in part through acquisitions andsuch as the acquisition of Bid4Assets, Inc. in November 2021. We may continue to do so in the future.so. The success inof any future growth strategy involving acquisitions will depend on our ability to identify, and the availability of, suitable acquisition candidates.targets. We may incur costs in the preliminary stages of anconnection with a potential acquisition but may ultimately be unable or unwilling to consummate the proposed transaction for various reasons. In addition, acquisitions involve numerous risks, including our ability to successfully integrate the acquired businesses and operations with our other businesses and fully realize the anticipated benefits of the acquisitions. If we are not able tocannot achieve these objectives in a cost-effective and timely manner, we may not fully realize the anticipated benefits of the acquisition, or it may take us longer to realize the benefits of the acquisition than we expect. Acquired operations outside the U.S. may present unique challenges or increase our exposure to risks associated with foreign operations, including foreign currency risks and risks associated with local regulatory regimes.
The integration process could result incause the loss of key employees, buyers, sellers, or other vendors, increase our operating or other costs, decrease our profit margins, or disrupt our other businesses, each of which could impair our ability to achieve the anticipated benefits of the acquisition. Our efforts to integrate acquired businesses will divert management's attention and resources from our other businesses. Any failure to timely and cost-effectively realize the anticipated benefits of the acquisition could have a material adverse effect on our revenues, expenses, and operating results.
Acquisitions could result incause dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill, and substantial amortization expenses of other intangible assets. We may be unable tonot obtain any required acquisition financing on favorable terms, or at all, if necessary to finance future acquisitions, makingwhich could make it impossible or more costlycostlier to acquire other businesses. If we are able tocan obtain financing, the terms may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be time-consuming and costly to obtain, and the terms of such regulatory approvals may impose limitations on our ongoing operations or require us to divest assets or lines of business.
Our international operations expose us to a number ofseveral risks.
Our international activities are significant to our revenues and profits, and we may continue to expand internationally, including through acquisitions, organic growth and through joint ventures or strategic alliances with third parties. We are required to comply with the laws of the countries or markets in which we operate. In addition, because our services are accessible worldwide and facilitate the sales of goods and provide services to users worldwide, one or more jurisdictions may claim that we or our users are required to comply with their laws based on the location of our servers, or one or more of our users, or location of the assets or service being sold or provided.
It is costly to establish, develop, and maintain international operations and websites, and promote our brand internationally. Our international operations may not be profitable on a sustained basis.basis or at all. In addition to the risks described elsewhere in this section, our international operations are subject to a number ofseveral risks, including:
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If we expand internationally through joint ventures or strategic alliances, we will also face counterparty risk in addition to the risks described above. If any counterparty to our joint ventures or strategic alliances is unwilling or unable to perform its obligations to us, for any reason, we may not realize the benefits of such arrangements and we may experience material unanticipated problems, expenses, and liabilities.
Our international operations expose us to foreign exchange fluctuations that could harm our operations.
We conduct business in many countries around the world and receive fees and pay expenses (including salaries to our international workforce) in several different currencies despite reporting our financial results in U.S. dollars. As a result, our financial results are subjectimpacted by fluctuations in foreign currency rates. The results of our foreign subsidiaries are translated from the local currency to extensive anti-corruption lawsU.S. dollars for financial reporting purposes. For example, if the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated revenues and regulations.
We may need additional financing in the future, which may not be available on favorable terms, if at all.
We may need additional funds to finance our operations, as well as to enhance our services, acquire inventory for our businesses, fund initiatives, respond to competitive pressures, acquire complementary businesses or technologies, or otherwise support our growth. We may also require additional funds if vendors and other third parties from whom we purchase inventory, other goods or services extend less favorable credit terms to us. Our business may not generate the cash needed to finance such requirements. We currently maintain a line of credit facility with Wells Fargo Bank, National Association (Wells Fargo NA) that allows for a maximum revolver to be drawn-upon of $25.0 million, access to which expires on March 31, 2025. As of September 30, 2023, the Company had not outstanding borrowings on this line of credit facility.
Although we have this existing line of credit facility with Wells Fargo NA from which we may draw funds, there may be situations in which we seek funding through other sources. Further, upon expiration of this line of credit facility, the borrowing amount, interest rates, or related terms may no longer be favorable to the international scopeCompany. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our existing stockholders would be reduced, and these securities may have rights, preferences,
27
or privileges senior to those of our common stock. The general economic and capital market conditions in the United States and other parts of the world can deteriorate significantly, limiting access to capital and increasing the cost of capital. A large degree of economic uncertainty remains both domestically and abroad, which can adversely affect access to capital, and the cost of capital. If adequate funds are not available or are not available on acceptable terms, our ability to enhance our services, fund strategic initiatives, respond to competitive pressures, take advantage of business opportunities, or grow our business would be limited, and we might need to restrict our operations we are subjectand initiatives.
Global economic conditions, including those from macro-trends and global events, may harm our business and results of operations.
Our overall performance depends in part on worldwide economic conditions. Global financial developments, downturns, and global health crises or pandemics may harm us, including due to disruptions or restrictions on our employees’ ability to work and travel. The United States and other key international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity, and foreign exchange markets, bankruptcies, labor shortages, labor unrest, pandemics, natural disasters, supply chain disruptions, inflation, and overall uncertainty with respect to the U.S. Foreign Corrupt Practices Act,economy, including with respect to tariff and trade issues.
For example, inflation rates, particularly in the U.K. Bribery ActUnited States, continue to increase to levels not seen in years, and similar foreign anti-corruption laws. These laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value to improperly influence foreign government officials for the purpose of obtaining or retaining business, or obtaining an unfair advantage. Global enforcement of these laws has increased substantially in recent years. Violations of anti-corruption laws or regulations by our employees or by intermediaries acting on our behalfinflation may result in severe criminalincreases in our operating costs (including our labor costs). In addition, the Federal Reserve and other central banks have raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.
Ongoing armed conflicts around the world, such as the invasion of Ukraine by Russia and recently, the conflict in and adjacent to Israel, could create or civilexacerbate risks facing our business. The Russia-Ukraine conflict specifically results in numerous countries, including the United States, imposing significant new sanctions and export controls against Russia, Russian banks, and certain Russian individuals. These armed conflicts have resulted and could disrupt our business, andcontinue to result in, andisruptions to trade, commerce, pricing stability, and/or supply chain continuity, in both Europe and globally, and has introduced significant uncertainty into the global markets. If global economic conditions remain uncertain or deteriorate further, particularly to the extent such conflicts escalate to involve additional countries, we could see potential scenarios having a material adverse effect on our reputation, business such as a reduction in the ability of international buyers and sellers to conduct business due to travel restrictions impacting the ability of: sellers and their agents to travel to prepare assets for sale; buyers travelling to inspect assets; sellers and buyers completing international transactions requiring assets to cross export and import border control points; and the overall willingness of sellers and buyers to decommission capital assets and engage in cross-border transactions. Separately, any factors that reduce cross border trade or make such trade more difficult could harm our business. Increasing costs, such as increasing tariffs and trade wars between nations, may make international trade less profitable and adversely affect our global business.
We believe that other potential conflicts that could result in similar disruption could include a military conflict between mainland China and Taiwan, possible international intervention and sanctions, and the resulting potential disruption to the operations of our CAG and Machinio teams in China. Moreover, in addition to our operations, in the case of a military conflict between China and Taiwan, global manufacturers would likely lose access to advanced semiconductor chips and other products that are sourced from Taiwan. Such a conflict would also likely limit access to key Chinese ports and exporters due to both military actions and potential international sanctions, which would create significant disruption for a variety of industries that we serve that rely on supply chain in China.
Decreases in the supply of, demand for, or market values of surplus assets and real estate, could harm our business.
Our revenues could decrease if there was significant erosion in the supply of, demand for, or market values of surplus assets, which could adversely affect our financial condition and results of operations oroperations. We have no control over any of the factors that affect the supply of, and demand for, surplus assets, and the circumstances that cause market values to fluctuate including, among other things, economic uncertainty, global geopolitical climate, disruptions to credit and financial condition.
28
also likely to increase, making it more costly for potential buyers to find suitable replacements for their existing vehicles. As a result, potential buyers may retain their existing vehicles for longer periods of time, further decreasing supply. These factors could impact the overall profitability of used vehicle sales on our marketplaces because although used vehicles are selling for higher prices, fewer vehicles are being sold. Climate change initiatives, including significant changes to engine emission standards applicable to certain types of assets, may also adversely affect the supply of, demand for, and market values of such assets.
Legal and Regulatory Risks
We face legal uncertainties relating to the Internet in general and to the ecommercee-commerce industry in particular and may become subject to costly government regulation.
The laws and regulations related to the Internet and ecommercee-commerce are evolving. These laws and regulations relate to issues such as user privacy, freedom of expression, pricing, fraud, quality of productsassets and services, taxation, advertising, intellectual
Our auction business may be subject to a variety of additional costly government regulations.
Many states and other jurisdictions have regulations governing the conduct of traditional "auctions" and"auctions," the liability of traditional "auctioneers" in conducting auctions as well as theand handling of property by "secondhand dealers", which may apply to online auction services. In addition, certain states have laws or regulations that expressly apply to online auction services. We expect to continue to incur costs in complying with these laws and could be subject to fines or other penalties for any failure to comply with these laws. We may be required to make changes in our business to comply with these laws, which could increase our costs, reduce our revenue, cause us to prohibit the listing of certain items, or restrict certain listing formats in some locations, or otherwiseany of which may adversely affect our financial condition or operating results.
In addition, the body of law regarding the potential liability of an online auction service for the activities of its users is not clear. Users of our websites may not always comply with our terms and conditions or with laws and regulations applicable to them and their transactions. It is possible that we may be subject to allegations of civil or criminal liability for any unlawful activities conducted by sellers or buyers. Any costs we incur as a resultbecause of any such allegations, or as a resultbecause of actual or alleged unlawful transactions using our marketplaces, or in our efforts to prevent any such transactions, may harm our opportunities for future revenue growth. In addition, any negative publicity we receive regarding any such transactions or allegations may damage our reputation, our ability to attract new sellers and buyers, and our business.
In addition, for specified categories of property we purchase underif our vendor contracts with the DoD for resale, we are required to (1) obtain an end-use certificate from the prospective buyer describing the nature of the buyer's business, describing the expected disposition and specific end-use of the property, and acknowledging the applicability of pertinent export control and economic sanctions laws and (2) confirm that each buyer has been cleared to purchase export-controlled items.
If we fail to comply with increasing levels of regulation relating toviolate privacy regulations, our business could suffer harm.
We are subject to regulation at the federal, state, and international levels relating to privacy and the use of third-party data, including personal user information and employee data. These statutory and regulatory requirements are evolving, increasing in complexity and number, sometimes conflicting, and may change significantly. How companies collect, process, use, store, share, or transmit personal and employee data is subject to increasing scrutiny by governments as well asand the public, which could influenceaccelerate the adoption of additional legislation or regulation. New statutory or regulatory developments may restrict our ability to collect and use demographic and personal information from our buyers and our sellers, which could be costly or harm our marketing efforts. Further, there may be conflicts among the privacy and data protections laws adopted by the various countries in which we operate. Judicial and regulatory application and interpretation of these statutory and regulatory requirements are often uncertain and may also limit our marketing efforts. Compliance with regulations regarding privacy, security, and protection of user and employee data, increased government or private enforcement, and changing public attitudes about data privacy, may increase the cost of growing our business and require us to expend significant capital and other
29
resources. Our failure to comply with these federal, state, and international laws and regulations could subject us to lawsuits, fines, criminal penalties, statutory damages, adverse publicity, and other costs which could decrease our profitability.
Certain categories of assets sold on our marketplaces are subject to government restrictions.
We sell assets, such as scientific instruments, information technology equipment and aircraft parts, that are subject to export control and economic sanctions laws, among other laws, imposed by the United States and other governments. Such restrictions include the U.S. Export Administration Regulations, the International Traffic in Arms Regulations, and economic sanctions and embargo laws administered by the Office of the Foreign Assets Control Regulations. These restrictions prohibit us from selling property to (a) persons or entities that appear on lists of restricted or prohibited parties maintained by the United States or other governments or (b) countries, regimes, or nationals that are the target of applicable economic sanctions or other embargoes. Such laws could become even more restrictive and cover a wider array of assets in the event of escalations of a conflict between China and Taiwan.
We may incur significant costs or be required to modify our business to comply with these requirements. If we are alleged to have violated these laws or regulations, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with U.S. federal government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety are made against us, whether or not true.
We may be subject to product liability claims if people or property are harmed by the productsassets we sell
Some of the productsassets we sell through our ecommercee-commerce marketplaces or through our IronDirect business may expose us to product liability claims relating to personal injury, death, or environmental or property damage, and may be the subject of product recalls or other actions. Our exposure to product liability claims may be increased byif, for example, the fact that we sell products manufactured by third parties. For example, ifmanufacturers of the manufacturersrelevant assets do not have sufficientenough protection from such claims, we may be subject to claims relating to the products in question.claims. Defense of any such actions could be costly and involve significant time and attention of our management and commitment of other resources, may result incause us to incur monetary liabilities or penalties, and may require us to change our business in anways adverse manner. Although we maintain liability insurance, weto us. We cannot be certain that our insurance coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economicallycommercially reasonable terms, or at all. In addition, some of our agreements with our vendors and sellers do not indemnify us fromagainst product liability.
Unfavorable findings resulting from audit or investigation could subject us to a variety of penalties and sanctions, could negatively impact our future operating results, and could force us to adjust previously reported operating results.
Many of our sellers, including large commercial corporations and governmental entities, have the right to audit our performance under our contracts. Any adverse findings from audits or reviews of our performance could result in a significant adjustment to our previously reported operating results. The results of an audit could significantly limit the volume and type of assets made available to us, resulting in lower revenue and profitability. If onesuch an audit uncovers improper or more states successfully assertillegal activities, we could be subject to civil and criminal penalties and administrative sanctions and we could suffer serious harm to our reputation. Government and law enforcement agencies may also investigate our activities under contracts with commercial businesses and governmental entities. If such an investigation alleges that we should collect salesengaged in improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business with government agencies. If, as the result of a government audit or investigation, or for any other taxes onreason, we are suspended or debarred from contracting with governments generally, or any specific agency, if our reputation or relationship with government agencies is impaired, or if any government otherwise ceases doing business with us or significantly decreases the saleamount of business it does with us, our revenue and profitability could substantially decrease.
Our operations are subject to extensive anti-corruption laws and regulations.
Due to the international scope of our merchandiseoperations, we are subject to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act 2010 and similar anti-corruption laws of other countries. These laws generally prohibit companies and their intermediaries from making improper payments or the merchandiseproviding anything of third parties that we offer for salevalue to improperly influence foreign government officials to obtain or retain business or obtain an unfair advantage. Global enforcement of these laws has increased substantially in recent years. Our practices and policies to promote compliance with such laws and regulations may not be effective and violations of anti-corruption laws or regulations by our
30
employees or by intermediaries acting on our websites, our business could be harmed.
Fraudulent activities involving our websites and disputes relating to transactions on our websites may cause us to lose sellers and buyers and adversely affecthurt our ability to grow our business.
We are aware that other companies operating online auction or liquidation services have periodically receivedreceive complaints of fraudulent activities of buyers or sellers on their websites,our marketplace, including disputes over the quality of goods and services, unauthorized use of credit card and bank account information and identity theft, credit chargebacks that are fraudulent in nature, potential breaches of system security, and infringement of third-party copyrights, trademarks and trade names or other intellectual property rights. We may receive similarFrom time to time, we have received complaints ifthat our sellers or buyers trading in our marketplaces are alleged to have engaged in fraudulent or unlawful activity. In addition, we may suffer losses as a resultbecause of purchases paid for with fraudulent credit card data even though the associated financial institution approved payment. In the case ofIf a transaction is disputed, transactions, we may not be able to require users of our services to fulfill their obligations to make required payments or to deliver promised goods. We also may receive complaints from buyers about the quality of purchased goods, requests for reimbursement or communications threatening or commencing legal actions against us. Negative publicity generated as a resultbecause of fraudulent conduct by third parties or the failure to satisfactorily settle disputes related to transactions on our websites could damage our reputation, cause us to lose sellers and buyers and adversely affecthurt our ability to grow our business.
Some provisions of our charter, bylaws, and Delaware law inhibit potential acquisition bids that you may consider favorable.
Our corporate documents and Delaware law contain provisions that may enable our boardBoard of directorsDirectors to resist a change in control of our companyCompany even if a change in control were to be considered favorable by you and other stockholders. These provisions include:
These provisions could discourage, delay or prevent a transaction involving a change in control of our company.Company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you desire. In addition, our bylaws provide that the Delaware Court of Chancery will be the exclusive forum for certain types of legal action (or, if the Court of Chancery does not have jurisdiction, another state court or a federal court within Delaware). This provision may make it more difficult for you and other stockholders to challenge certain corporate actions we take.
We may not adequately protect or enforce our intellectual property rights, which could harm our reputation and negatively affect the growth of our business.
We regard our intellectual property, particularly domain names, copyrights and buyer database trade secrets, as critical to our success. We rely on contractual restrictions and copyright and trade secret laws to protect our proprietary rights, know-how, information and technology. Despite these protections, a third party could copy or otherwise obtain and use our intellectual property without authorization or independently develop similar intellectual property.
We currently are the registered owners of several Internet domain names, including www.liquidation.com, www.govdeals.com, www.allsurplus.com, www.secondipity.com, www.go-dove.com, www.machinio.com, www.machineryhost.com, and www.bid4assets.com. We pursue the registration of our domain names in the U.S. and internationally. We have no patents or registered copyrights. Effective patent, copyright, trademark, service mark, trade secret, and domain name protection are expensive to maintain and may require litigation to enforce. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or copyrighted material, to others. These licensees may take actions that diminish the value of our proprietary rights or harm our reputation. Our competitors may adopt trade names or domain names similar to ours, impeding our ability to promote our marketplaces and possibly leading to buyer or seller confusion. In addition, we could face trade name, trademark, or service mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations of our marketplace names. Any claims related to our intellectual property or confusion related to our marketplaces could damage our reputation and negatively affect the growth of our business.
31
Assertions that we infringe on intellectual property rights of others could result in significant costs and substantially harm our business and operating results.
Third parties may assert that we have infringed their intellectual property rights in technology or otherwise based on our internally developed systems or use of licensed third-party technology to operate our online auction platform and related websites. Third parties also could assert intellectual property infringement claims against the parties from whom we license technology. If we are forced to defend against any infringement claims, whether they are with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, and/or delays in completion of sales. Furthermore, the outcome of a dispute may require us to change technology, develop non-infringing technology, or enter into royalty or licensing agreements. A switch to different technology could interrupt our business. Internal development of a non-infringing technology may be expensive and time-consuming, if we are able to successfully develop such technology at all. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all. Incurrence of any of these costs could negatively impact our operating results.
General Risk Factors
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results, and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing management's assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not such internal controls are effective. Compliance with these requirements has resulted in, and is likely to continue to result in, significant costs and the commitment of time and operational resources. Recently completed initiatives, as well as other changes in our business (including initiatives to invest in information systems, transition particular functions to third-party providers, and acquire new businesses such as Bid4Assets) have necessitated, and will continue to necessitate, modifications to our internal controls. We cannot be certain that our design for internal control over financial reporting, or any changes to be made, will enable management to determine that our internal controls are effective for any period. If we cannot conclude that our internal controls over financial reporting are effective, market perception of our financial condition and the trading price of our stock may be adversely affected, and seller and buyer perception of our business may suffer.
Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents, or by third parties with whom we work. Internal controls may become less effective over time because of, among other things, changes in conditions, failures to comply with our policies and procedures, or new business that strains our system of internal controls.
Changes in accounting and reporting policies or practices may affect our financial results, which may affect our stock price.
Our accounting policies are fundamental to determining and understanding our financial results and condition. Some require our management to use estimates and make subjective and complex judgments about matters that are uncertain. Factors may arise over time that lead us to change our estimates and judgments. Sometimes, our management must use judgment to select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may cause us to report materially different results than would have been reported under a different alternative. Any changes in accounting policies or methods could reduce our net income, which reductions may be independent of changes in our operations. These reductions in reported net income could cause our stock price to decline.
Damage to our reputation could harm our business.
Our positive reputation is based on our core values of integrity, customer focus, continuous improvement, innovation, mutual trust and accountability, shared success, and doing well and doing good. Our ability to attract and retain highly skilled employees, clients and buyers, and to successfully do business would be harmed if our reputation was damaged. Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, security breaches, compliance failures, litigation or regulatory outcomes, or governmental investigations. Our reputation could also be harmed by the failure or perceived failure of an affiliate, joint-venture, or a vendor or other third party with which we do business, to comply with laws or regulations. In addition, our reputation or prospects may be significantly damaged by adverse publicity or negative information regarding us, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the Internet, and this risk can be magnified by the speed and pervasiveness with
32
which information is disseminated through those channels. Should any of these or other events or factors that can undermine our reputation occur, the additional costs and expenses that we may need to incur to address the issues giving rise to the damage to our reputation may adversely affect our earnings and results of operations. Any damage to our reputation could impair our ability to retain existing or attract new customers, investors and employees.
We carry a significant amount of goodwill on our balance sheet.
As of September 30, 2023, we had goodwill of $89.4 million. The future occurrence of a potential indicator of impairment, such as a significant adverse change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a material negative change in relationships with significant customers, strategic decisions made in response to economic or competitive conditions, loss of key personnel, or a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges. We have recorded goodwill impairment charges in the past, and such charges materially affected our historical results of operations. For additional information, see Note 7 - Goodwill to the accompanying consolidated financial statements.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Not Applicable
Item 2. Properties.
As a remote-first organization, the Company continues to reduce or eliminate its leases of administrative spaces where practicable, including a 48% reduction to the size of the Company's Corporate Headquarters during the year ended September 30, 2023.
The Company leases the following properties:
Purpose | Location | Segment | Square Feet | Lease Expiration Date | ||||
Corporate Headquarters | Bethesda, | Corporate & Other | 4,027 | January 31, 2029 | ||||
Warehouse | Atlanta, Georgia, USA | GovDeals | 47,636 | May 31, 2024 | ||||
Warehouse | Brampton, Canada | RSCG | 53,621 | August 31, 2025 | ||||
Warehouse | E. Brunswick, NJ, USA | CAG | 4,800 | December 31, 2025 | ||||
Warehouse | Garland, Texas, USA | RSCG | 127,144 | January 31, 2026 | ||||
Warehouse | Hebron, Kentucky, USA | RSCG | 101,614 | July 31, 2025 | ||||
Warehouse | Kenilworth, NJ, USA | CAG | 10,507 | December 31, | ||||
Warehouse | ||||||||
North Las Vegas, Nevada, USA | RSCG | 102,400 | June 30, 2026 | |||||
Warehouse | Phoenix, Arizona, USA | RSCG | 84,690 | January 31, 2027 | ||||
Warehouse | Pittston, Pennsylvania, USA | RSCG | 108,536 | January 7, 2027 | ||||
Warehouse | Plainfield, Indiana, USA | RSCG | 187,704 | April 30, 2024 | ||||
Administrative | Montgomery, Alabama, USA | GovDeals | 19,762 | December 31, | ||||
Administrative | Plano, Texas USA | Corporate & Other | 2,280 | |||||
November 30, | ||||||||
In addition, we lease various administrative spaces in North America totaling 40,2105,074 square feet, in Europe 4,000totaling 500 square feet, and in Asia 9,088totaling 3,747 square feet. We also own a 420,000 square feetfoot warehouse located in North Wilkesboro, North Carolina, USA. Our servers are housed in data centers in Ashburn, Virginia, which is managed by Equinix, Inc.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation relating to claims arising in the ordinary course of ourthe business.
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Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been traded on The NASDAQNasdaq Stock Market under the symbol LQDT since February 23, 2006. The following table sets forth the intra-day high and low per share bid price of our common stock as reported by The NASDAQ Stock Market for the periods indicated.
Fiscal year ended September 30, 2016 | Low | High | ||||||
First Quarter | $ | 6.20 | $ | 9.19 | ||||
Second Quarter | $ | 4.42 | $ | 6.58 | ||||
Third Quarter | $ | 5.10 | $ | 7.84 | ||||
Fourth Quarter | $ | 7.06 | $ | 11.25 | ||||
Fiscal year ended September 30, 2017 | ||||||||
First Quarter | $ | 8.05 | $ | 11.49 | ||||
Second Quarter | $ | 7.50 | $ | 10.45 | ||||
Third Quarter | $ | 6.05 | $ | 8.05 | ||||
Fourth Quarter | $ | 5.50 | $ | 7.10 |
Holders
As of November 21, 2017,13, 2023, there were approximately 1,75710,345 beneficial holders of our common stock and 1826 holders of record of our common stock.
Dividends
We have not paid any cash dividends on our common stock, and currently anticipate that we have no present intention to do so. Payment of cash dividends, if any, will continue to retain any future earnings to finance the growthbe determined by our Board of Directors after consideration of our business.
Recent Sales of Unregistered Securities
None.
Stock Performance Graph
*$100 invested on 9/30/1218 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Copyright© 20172023 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 20172023 Russell Investment Group. All rights reserved.
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Issuer Repurchases of Equity Securities
The following table presents information about our repurchases of common stock that were made during the following selected consolidated financial data together with our consolidated financial statements and the related notes, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the yearsthree months ended September 30, 2017, 20162023 (in millions, except share and 2015per share amounts):
Period |
| Total Number of Shares Purchased |
|
| 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 Program(1) |
| ||||
July 1 to July 31, 2023 |
|
| 9 |
|
| $ | 15.53 |
|
|
| 9 |
|
| $ | 1.8 |
|
August 1 to August 31, 2023 |
|
| 490 |
|
|
| 18.64 |
|
|
| — |
|
|
| 1.8 |
|
September 1 to September 30, 2023 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 17.0 |
|
Total |
|
| 499 |
|
|
|
|
|
| 9 |
|
|
|
|
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 September 8, 2023, the consolidated balance sheet data asCompany's Board of Directors authorized a new stock repurchase plan of up to $15.2 million. As of September 30, 2017 and 2016 are derived from, and are qualified by reference2023, the Company had $17.0 million of remaining authorization to our consolidated financial statements that have been audited by Ernst & Young LLP, an independent registered public accounting firm, and that are included in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended September 30, 2014 and 2013, and the consolidated balance sheet data as of September 30, 2015, 2014 and 2013 are derived from our audited consolidated financial statements that are not included in this Annual Report on Form 10-K.
Year ended September 30, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||
Consolidated Statement of Operations Data: | ||||||||||||||||||||
Revenue | $ | 404,041 | $ | 388,671 | $ | 315,668 | $ | 233,828 | $ | 188,570 | ||||||||||
Fee revenue | 101,815 | 106,990 | 81,457 | 82,626 | 81,445 | |||||||||||||||
Total revenue | 505,856 | 495,661 | 397,125 | 316,454 | 270,015 | |||||||||||||||
Costs and expenses: | ||||||||||||||||||||
Cost of goods sold | 199,494 | 211,659 | 166,009 | 143,127 | 126,227 | |||||||||||||||
Profit-sharing distributions/Client distributions | 35,944 | 35,055 | 28,093 | 11,214 | 19,298 | |||||||||||||||
Technology and operations | 90,052 | 108,160 | 99,550 | 93,405 | 82,988 | |||||||||||||||
Sales and marketing | 40,170 | 41,451 | 41,465 | 37,570 | 35,211 | |||||||||||||||
General and administrative | 48,950 | 48,928 | 41,338 | 39,717 | 35,835 | |||||||||||||||
Depreciation and amortization | 17,374 | 16,595 | 9,235 | 6,502 | 5,796 | |||||||||||||||
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets | 5,921 | (18,384 | ) | 147,414 | 19,037 | 1,009 | ||||||||||||||
Business disposition loss | — | — | 7,963 | — | — | |||||||||||||||
Other operating expenses (1) | — | 1,780 | 273 | — | 3,651 | |||||||||||||||
Total costs and expenses | 437,905 | 445,244 | 541,340 | 350,572 | 310,015 | |||||||||||||||
Income (loss) from continuing operations | 67,951 | 50,417 | (144,215 | ) | (34,118 | ) | (40,000 | ) | ||||||||||||
Interest income (expense) and other income (expense), net | 704 | (370 | ) | 171 | (1,217 | ) | (362 | ) | ||||||||||||
Income (loss) from continuing operations before income taxes | 68,655 | 50,047 | (144,386 | ) | (32,901 | ) | (39,638 | ) | ||||||||||||
Provision (benefit) for income taxes | 27,551 | 19,657 | (39,571 | ) | 27,025 | (451 | ) | |||||||||||||
Net income (loss) | $ | 41,104 | $ | 30,390 | $ | (104,815 | ) | $ | (59,926 | ) | $ | (39,187 | ) |
Basic earnings (loss) per common share: | ||||||||||||||||||||
Basic earnings per common share | $ | 1.30 | $ | 0.97 | $ | (3.50 | ) | $ | (1.96 | ) | $ | (1.25 | ) | |||||||
Diluted earnings (loss) per common share: | ||||||||||||||||||||
Diluted earnings per common share | $ | 1.26 | $ | 0.97 | $ | (3.50 | ) | $ | (1.96 | ) | $ | (1.25 | ) | |||||||
Basic weighted average shares outstanding | 31,616,926 | 31,243,932 | 29,987,985 | 30,638,163 | 31,402,921 | |||||||||||||||
Diluted weighted average shares outstanding | 32,657,236 | 31,395,301 | 29,987,985 | 30,638,163 | 31,402,921 | |||||||||||||||
Non-GAAP Financial Measures: | ||||||||||||||||||||
EBITDA from continuing operations(2) | $ | 85,325 | $ | 67,012 | $ | (134,980 | ) | $ | (27,616 | ) | $ | (34,204 | ) | |||||||
Adjusted EBITDA from continuing operations(2) | 104,625 | 63,013 | 33,075 | 3,668 | (21,595 | ) | ||||||||||||||
Supplemental Operating Data: | ||||||||||||||||||||
Gross merchandise volume from continuing operations(3) | $ | 973,325 | $ | 931,556 | $ | 798,977 | $ | 642,078 | $ | 629,330 | ||||||||||
Completed transactions(4) | 530,000 | 547,000 | 567,000 | 574,000 | 530,000 | |||||||||||||||
Total registered buyers(5) | 2,424,000 | 2,615,000 | 2,845,000 | 2,986,000 | 3,171,000 | |||||||||||||||
Total auction participants(6) | 2,458,000 | 2,538,000 | 2,483,000 | 2,417,000 | 2,290,000 |
As of September 30, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Consolidated Balance Sheet Data | ||||||||||||||||||||
Cash, cash equivalents and short-term investments | $ | 95,109 | $ | 62,598 | $ | 95,465 | $ | 134,513 | $ | 94,348 | ||||||||||
Working capital(7) | 79,289 | 77,935 | 119,225 | 99,424 | 68,166 | |||||||||||||||
Total assets | 421,344 | 431,718 | 288,488 | 260,109 | 215,229 | |||||||||||||||
Total liabilities | 106,465 | 114,735 | 72,486 | 97,498 | 82,593 | |||||||||||||||
Total stockholders' equity | 314,879 | 316,983 | 216,002 | 162,611 | 132,636 |
Item 6. [Reserved]
Year ended September 30, | ||||||||||||||||||||
2013 | 2014 | 2015 | 2016 | 2017 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net income (loss) from continuing operations | $ | 41,104 | $ | 30,390 | $ | (104,815 | ) | $ | (59,926 | ) | $ | (39,187 | ) | |||||||
Interest and other (income) expense, net | (704 | ) | 370 | 171 | (1,217 | ) | (362 | ) | ||||||||||||
Provision (benefit) for income taxes | 27,551 | 19,657 | (39,571 | ) | 27,025 | (451 | ) | |||||||||||||
Depreciation and amortization | 17,374 | 16,595 | 9,235 | 6,502 | 5,796 | |||||||||||||||
EBITDA from continuing operations | 85,325 | 67,012 | (134,980 | ) | (27,616 | ) | (34,204 | ) | ||||||||||||
Stock compensation expense | 13,379 | 12,605 | 12,405 | 12,247 | 7,377 | |||||||||||||||
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets | 5,921 | (18,384 | ) | 147,414 | 19,037 | 1,009 | ||||||||||||||
Business disposition loss | — | — | 7,963 | — | — | |||||||||||||||
Business realignment expenses* | — | 1,780 | 273 | — | 4,223 | |||||||||||||||
| | | | | ||||||||||||||||
Adjusted EBITDA from continuing operations | $ | 104,625 | $ | 63,013 | $ | 33,075 | $ | 3,668 | $ | (21,595 | ) |
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained under the caption "Selected Consolidated Financial Data" contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
About us.
Liquidity Services, Inc. (Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace platforms that power the circular economy. WeOur business delivers value to shareholders by operatingunleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite and enable a networkself-reinforcing cycle of leading ecommerce marketplaces that enablevalue creation where buyers and sellers to transactattract one another in an efficient, automated environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supplygreater numbers. The result of new, surplus, and scrap assets presented with digital images and other relevant product information. Additionally, we enable corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. Our broad range of services include program management, valuation, asset management, reconciliation, Return to Vendor ("RTV") and Returns Management Authorization ("RMA"), refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, and compliance and risk mitigation. We organize the products on our marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Our network of marketplaces includes: www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, www.unclesamsretailoutlet.com, www.irondirect.com, and www.auctiondeals.com. We have over 10,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies. We have three reportable segments, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and GovDeals. See Note 16 in the Notes to the Consolidated Financial Statements for Segment Information.
During the year ended September 30, 2023, the number of registered buyers grew from 4.9 million to 5.1 million. We believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtualself-sustaining cycle for our buyers and sellers. We generated GMV of $1.203 billion and revenue of $314.5 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from sellers, and value-added service charges during the year ended September 30, 2023. Our GMV has grown at a compound annual growth rate of 13.9% since 2018.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. 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. See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Operating Segments
The Company has four reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), and Machinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
37
Macroeconomic Conditions
Supply chain challenges and shifting consumer sentiment. Constraints in the production of new vehicles and heavy equipment, particularly as it relates to new fleet sales, are continuing to impact 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 and travel with limited discretionary high-value purchases. These conditions are impacting our financial performance 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.
International armed conflicts. The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing, as well as the recent conflict in and adjacent to Israel. The Russia-Ukraine conflict specifically resulted in numerous countries, including the United States, imposing significant new sanctions and export controls against Russia, Russian banks, and certain Russian individuals. These armed conflicts have further heightened global supply chain disruptions and impacted the international trade markets. For the year ended September 30, 2023, the Company's total revenues directly associated with Russia, Ukraine, and Israel were not material to our consolidated financial results. We will continue monitoring these armed conflicts around the world and any potential future impacts on our business.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to global economic conditions including those discussed above.
Industry Trends
We believe there are several industry trends positively impacting the long-term growth of our business including:
Revenues
Substantially all of our revenue is earned through the following transaction models.
38
Purchase model.
Under our purchase transaction model, we recognize revenue within the Purchase revenues line item on the Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay ourConsignment model—fee revenue.
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.Other — fee revenue. We also earn non-consignment fee revenue from our consignment transaction modelMachinio's subscription services, as well as other services including asset valuation, product handling, and storage fees. Non-consignment fee revenue is recognizedrecorded within the Fee RevenueConsignment and other fee revenues line item on the Consolidated Statements of Operations.
Transaction Model Mix. Most of service revenue related to our Surplus contract. This revenue is recognized within the Fee revenue line item on our Consolidated Statements of Operations, and is discussed in further detail in Note 3 - Significant Contracts of the Notes to our Consolidated Financial Statements.
Purchase model transactions are a smaller proportion of our consolidated GMV, representing 14.2%, 13.7%, and 16.4% of our consolidated GMV for the years ended September 30, 2023, 2022, and 2021, respectively. However, all of the GMV associated with the purchase model transaction is included withingenerally able to be recognized as revenue, causing purchase revenues to account for 54.7%, 54.0%, and 56.8% of our CAG segment.
Other fee revenues accounted for 7.5%, 7.6%, and 7.2% of our total revenues for the years ended September 30, 2023, 2022, and 2021, respectively
Our Vendor Agreements
Commercial Agreements
39
Key Business Metrics
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 or(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.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. TheOur GMV of goods sold in our marketplace during fiscalfor the year 2017 totaled $629.3 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 September 30, 2017,2023, 2022, and 2021, we had approximately 3,171,0005.1 million, 4.9 million, and 4.0 million, registered buyers.
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.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 theCritical Accounting Policies
The Company's consolidated financial statements, whichincluded in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K with their accompanying notes, have been prepared in accordance with GAAP. The preparationGAAP, which requires management of thesethe Company to make assumptions, judgments and estimates that affect amounts reported in its consolidated financial statements requires usstatements. Accounting policies and estimates are considered to make estimates andbe "critical" when the nature of the estimate includes subjective or sensitive assumptions or judgments that affectcan have a material impact on the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. A “critical accounting estimate” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a resultoperating performance of the need to make estimates about the effect of matters that are inherently uncertain. We continuously evaluate our critical accounting estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.Company. Actual results may differ from these estimates under different assumptions or conditions.
We consider the following criteria are met:
40
We consider the following accounting estimates to be critical: valuation of goodwill (Note 7), and sold, transferred, licensed, rented or exchanged.income taxes (Note 10). Refer to these individually referenced notes and Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details on these accounting estimates. The following discussion is a supplement to the disclosures referenced.
Valuation of goodwill. Goodwill is allocated to our reporting units. The Company has determined our reporting units to consist of GovDeals, CAG, RSCG, and Machinio. Only the GovDeals, CAG, and Machinio reporting units maintain a goodwill balance.
As of July 1, 2023, the Company performed its annual goodwill impairment test using a quantitative fair-value based test for all reporting units maintaining a goodwill balance. The fair value test was performed utilizing the discounted cash flow method under the Income approach and the guideline company method under the Market approach, the results of identified intangible assets is based upon an estimate ofwhich were weighted 75:25, respectively, in the future economic benefits expected to result from ownership, which represents the amount at which the assets could be bought or sold in a current transaction between willing parties, that is, other than in a forced or liquidation sale.
Components of Revenue and Expenses
Revenue.
Cost of goods sold.
Technology and pay the DLA a revenue-sharing payment equal to 64.5%operations. Technology expenses primarily consist of the gross resale proceeds. We bear all of the costs for the sorting, merchandising and sale of the property. Our previous Scrap contract with the DoD was structured as a profit-sharing arrangement in which we purchased and took possession of all goods we received from the DoD at a contractual price per pound. After deducting allowable operating expenses, we disbursed to the DoD on a monthly basis a percentage of the profits of the aggregate monthly sales. We retained the remaining percentage of these profits after the DoD’s disbursement.
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 350.350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our LiquidityOne platform. During the second quarter of fiscal 2017, we determined that a sellermarketplaces and buyer management module of the LiquidityOne platform was ready for its intended use. As such, we began amortizing the associated capitalized costs during the second quarter of fiscal year 2017. During the fourth quarter of fiscal year 2017, we launched our Network International energy marketplace on the new LiquidityOne platform. As such, we determined that additional modules of the LiquidityOne platform were ready for their intended use, and began amortizing the associated capitalized costs during the fourth quarter of fiscal year 2017.
Operations expenses consist primarily of operating costs to operate our network of warehouses, including buyer relations, shipping logistics, inventory management, refurbishment, and distribution center operating costs.
Sales and marketing.
Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of lead generation, marketing and promotionalGeneral 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.41
Depreciation and amortization.
Depreciation and amortizationFair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs consists of the amortization of our contract intangibles associated with the Jacobs Trading acquisition on October 1, 2011, and the NESA transaction on November 1, 2012. The intangible asset created in conjunction with the acquisition of Jacobs Trading Company was valued at $33.3 million and was being amortized over 55 months on a straight-line basis. The amortization period was correlated to the base term of the Wal-Mart contract from the acquisition date, exclusive of renewal periods. Upon the early termination of the Wal-Mart contract in December 2014, we expensed the remaining amount of unamortized expense of approximately $10.3 million during the three months ended December 2014. The contract intangible asset created in conjunction with the NESA acquisition was written off in fiscal year 2015.
Other operating expenses, net. Other operating expenses, net includes impairment of long-lived and other assets, and liabilities,impacts of lease terminations, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.
Interest (income) expense and other expense, net.
Income taxes.
Income taxes include current and deferred income tax expense for the U.S. federal, state, and foreign jurisdictions. DuringResults of Operations
The following table presents reportable segment GMV, revenue, segment direct profit (which is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization)), and segment direct profit as a percentage of total revenue for the periods indicated ($ in thousands):
|
| Year Ended September 30, |
| |||||||||
(dollars in thousands |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
GovDeals: |
|
|
|
|
|
|
|
|
| |||
GMV |
| $ | 726,124 |
|
| $ | 720,323 |
|
| $ | 498,742 |
|
Total revenue |
| $ | 62,010 |
|
| $ | 59,352 |
|
| $ | 49,579 |
|
Segment direct profit |
| $ | 58,810 |
|
| $ | 56,408 |
|
| $ | 47,030 |
|
Segment direct profit as a percentage of total revenue |
|
| 94.8 | % |
|
| 95.0 | % |
|
| 94.9 | % |
RSCG: |
|
|
|
|
|
|
|
|
| |||
GMV |
| $ | 285,574 |
|
| $ | 236,236 |
|
| $ | 229,290 |
|
Total revenue |
| $ | 200,218 |
|
| $ | 166,100 |
|
| $ | 158,806 |
|
Segment direct profit |
| $ | 68,068 |
|
| $ | 63,704 |
|
| $ | 64,564 |
|
Segment direct profit as a percentage of total revenue |
|
| 34.0 | % |
|
| 38.4 | % |
|
| 40.7 | % |
CAG: |
|
|
|
|
|
|
|
|
| |||
GMV |
| $ | 191,333 |
|
| $ | 188,813 |
|
| $ | 158,736 |
|
Total revenue |
| $ | 38,476 |
|
| $ | 42,575 |
|
| $ | 39,645 |
|
Segment direct profit |
| $ | 32,215 |
|
| $ | 29,120 |
|
| $ | 29,324 |
|
Segment direct profit as a percentage of total revenue |
|
| 83.7 | % |
|
| 68.4 | % |
|
| 74.0 | % |
Machinio: |
|
|
|
|
|
|
|
|
| |||
GMV |
| — |
|
|
| — |
|
|
| — |
| |
Total revenue |
| $ | 13,821 |
|
| $ | 12,083 |
|
| $ | 9,559 |
|
Segment direct profit |
| $ | 13,110 |
|
| $ | 11,471 |
|
| $ | 8,992 |
|
Segment direct profit as a percentage of total revenue |
|
| 94.9 | % |
|
| 94.9 | % |
|
| 94.1 | % |
Consolidated: |
|
|
|
|
|
|
|
|
| |||
GMV |
| $ | 1,203,031 |
|
| $ | 1,145,372 |
|
| $ | 886,768 |
|
Total revenue |
| $ | 314,462 |
|
| $ | 280,050 |
|
| $ | 257,531 |
|
NM = not meaningful
42
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment increased $2.7 million, or 4.5%, due to a $5.8 million, or 0.8%, increase in GMV driven by increased marketplace activity for its surplus property categories, including the number of sellers and assets sold; however, supply chain challenges reduced the volume of used vehicles available to be sold during the first quarter of the current fiscal year and market prices for used vehicles remain volatile. Revenue grew at a greater rate than GMV due to marketplace pricing increases and a decline in the mix of lower take-rate foreclosed real estate properties available for auction. In periods where GovDeals real estate sales increase, GovDeals revenue as a percent of GMV would be expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories. Segment direct profit increased by $2.4 million, or 4.3%, consistent with the increase in revenues. Segment direct profit as a percentage of total revenue remained consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased $34.1 million, or 20.5%, due to a $49.3 million, or 20.9%, rise in GMV due to access to recurring product flows from new and expanded client programs and network of warehouses, including expansion of our AllSurplus Deals direct-to-consumer storefront locations, a stronger holiday return and liquidations season, and favorable recovery rates at the points in the year where less inventory was available to buyers in the broader spot market. Segment direct profit increased by $4.4 million, or 6.8%, due to increased volumes. Segment direct profit as a percentage of total revenue decreased from 38.4% to 34.0%, due to changes in the product mix available as certain client programs made a higher volume of lower value products available for sale in the current year, in addition to $1.0 million in inventory provisions.
CAG. Revenue from the CAG reportable segment decreased by $4.1 million, or 9.6%. GMV increased by $2.5 million, or 1.3%, driven by increased consignment sales in our industrial and heavy equipment categories. Revenue declined despite the increase in GMV due to a lower mix of large spot purchase transactions with international clients. The increase in transactions conducted under the consignment model contributed to Segment direct profit increasing by $3.1 million, or 10.6%. Segment direct profit as a percentage of total revenue increased 15.3%, which may fluctuate due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, due to a higher mix of consignment transactions conducted during the current year. Challenged global supply chains are experiencing heightened disruptions due to international tensions and other factors, which could limit the volume of assets made available for sale in any period.
Machinio. Revenue from our Machinio reportable segment increased 14.4%, or $1.7 million, due to price increases and continued growth in subscribers. As a result of the increase in revenues, Segment direct profit increased 14.3%, or $1.6 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.
43
Consolidated Results
The following table sets forth, for the periods indicated, selected statementour operating results (dollars in thousands):
|
| Year Ended September 30, |
|
| Change |
| ||||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| $ |
|
| % |
| ||||
Purchase revenues |
| $ | 172,089 |
|
| $ | 151,271 |
|
| $ | 20,818 |
|
|
| 13.8 | % |
Consignment and other fee revenues |
|
| 142,373 |
|
|
| 128,779 |
|
|
| 13,594 |
|
|
| 10.6 | % |
Total revenue |
|
| 314,462 |
|
|
| 280,050 |
|
|
| 34,412 |
|
|
| 12.3 | % |
Costs and expenses from operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold (excludes depreciation and amortization) |
|
| 142,322 |
|
|
| 119,407 |
|
|
| 22,916 |
|
|
| 19.2 | % |
Technology and operations |
|
| 57,078 |
|
|
| 55,522 |
|
|
| 1,556 |
|
|
| 2.8 | % |
Sales and marketing |
|
| 49,443 |
|
|
| 43,224 |
|
|
| 6,219 |
|
|
| 14.4 | % |
General and administrative |
|
| 28,074 |
|
|
| 28,282 |
|
|
| (208 | ) |
|
| (0.7 | )% |
Depreciation and amortization |
|
| 11,255 |
|
|
| 10,322 |
|
|
| 933 |
|
|
| 9.0 | % |
Fair value adjustment of acquisition earn-outs |
|
| — |
|
|
| (24,500 | ) |
|
| 24,500 |
|
| NM |
| |
Other operating expenses, net |
|
| 186 |
|
|
| 388 |
|
|
| (202 | ) |
|
| (52.1 | )% |
Total costs and expenses |
|
| 288,358 |
|
|
| 232,645 |
|
|
| 55,713 |
|
|
| 23.9 | % |
Income from operations |
|
| 26,105 |
|
|
| 47,405 |
|
|
| (21,300 | ) |
|
| (44.9 | )% |
Interest and other income, net |
|
| (2,912 | ) |
|
| (248 | ) |
|
| (2,664 | ) |
| NM |
| |
Income before provision for income taxes |
|
| 29,016 |
|
|
| 47,653 |
|
|
| (18,636 | ) |
|
| (39.1 | )% |
Provision for income taxes |
|
| 8,039 |
|
|
| 7,329 |
|
|
| 710 |
|
|
| 9.7 | % |
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | (19,346 | ) |
|
| (48.0 | )% |
NM = not meaningful
Total revenues. Total consolidated revenue increased $34.4 million, or 12.3%. Refer to the discussion of operations data expressed asSegment Results above for discussion of the increase in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $22.9 million, or 19.2%, which changed at a percentage of revenue.
Year ended September 30, | |||||||||
2017 | 2016 | 2015 | |||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | |||
Costs and expenses: | |||||||||
Cost of goods sold | 46.7 | 45.2 | 41.8 | ||||||
Seller distributions | 7.1 | 3.5 | 7.1 | ||||||
Technology and operations | 30.7 | 29.5 | 25.1 | ||||||
Sales and marketing | 13.0 | 11.9 | 10.4 | ||||||
General and administrative | 13.3 | 12.6 | 10.4 | ||||||
Depreciation and amortization | 2.1 | 2.1 | 2.3 | ||||||
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets | 0.4 | 6.0 | 37.1 | ||||||
Business disposition loss | — | — | 2.0 | ||||||
Other operating expenses | 1.4 | — | 0.1 | ||||||
Total costs and expenses | 114.7 | 110.8 | 136.3 | ||||||
Loss from operations | (14.7 | ) | (10.8 | ) | (36.3 | ) | |||
Interest (income) expense and other expense, net | (0.1 | ) | 0.4 | — | |||||
Loss before provision for income taxes | (14.6 | ) | (10.4 | ) | (36.3 | ) | |||
(Benefit) provision for income taxes | (0.2 | ) | 8.5 | (10.0 | ) | ||||
Net loss | (14.4 | )% | (18.9 | )% | (26.3 | )% |
Year Ended September 30, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
GovDeals: | |||||||||||||
Total revenue from operations | $ | 26,853 | $ | 22,802 | $ | 20,577 | |||||||
Gross profit | 25,172 | 21,422 | 19,342 | ||||||||||
Gross profit margin | 93.7 | % | 93.9 | % | 94.0 | % | |||||||
CAG: | |||||||||||||
Total revenue from operations | 145,131 | 191,765 | 211,949 | ||||||||||
Gross profit | 71,934 | 109,373 | 135,829 | ||||||||||
Gross profit margin | 49.6 | % | 57.0 | % | 64.1 | % | |||||||
RSCG: | |||||||||||||
Total revenue from operations | 95,032 | 94,218 | 161,813 | ||||||||||
Gross profit | 30,050 | 29,903 | 46,656 | ||||||||||
Gross profit margin | 31.6 | % | 31.7 | % | 28.8 | % | |||||||
Corporate & Other: | |||||||||||||
Total revenue from operations | 2,999 | 7,669 | 2,786 | ||||||||||
Gross profit | (2,666 | ) | 1,415 | 1,197 | |||||||||
Gross profit margin | (88.9 | )% | 18.5 | % | 42.9 | % | |||||||
Consolidated: | |||||||||||||
Total revenue from operations | 270,015 | 316,454 | 397,125 | ||||||||||
Gross profit | $ | 124,490 | $ | 162,113 | $ | 203,023 | |||||||
Gross profit margin | 46.1 | % | 51.2 | % | 51.1 | % |
Technology and operations expenses. Technology and operations expenses increased 17.5%$1.6 million, or 2.8%, or $3.8 million, to $25.2 million for the year ended September 30, 2017, from $21.4 million for the year ended September 30, 2016,primarily due to higher sales volume. As a percentagetechnology labor costs supporting our continued marketplace modernization efforts, greater operations labor associated with the timing of revenue, gross profit slightly decreased to 93.7%, from 93.9%.
Sales and marketing expenses. Sales and marketing expenses increased $6.2 million, or 14.4%, due to the impact of our GovDeals segment,market share expansion and client diversification efforts, as well as a $0.8$1.3 million increase in revenue from our RSCG segment. Total consolidated GMV decreased $12.7stock compensation expense and other variable compensation, a $1.2 million increase in bad debt expense, and the impact of other inflationary cost increases.
General and administrative expenses. General and administrative expenses were consistent between the years ended September 30, 2023, and 2022.
Depreciation and amortization. Depreciation and amortization expense increased $0.9 million, or 2.0%9.0%, primarily due to $629.3a full year impact of the increase in amortization of intangible assets following our acquisition of Bid4Assets on November 1, 2021.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs decreased by $24.5 million fordue to the cumulative non-cash gain arising from the reduction in the fair value of the Bid4Assets earn-out liability during the prior year ended September 30, 2017, from $642.1 million for the year ended September 30, 2016, due to a $53.9 million decrease in GMV from our CAG segment,2022. Through and a $9.9 million decrease in GMV related to exiting certain TruckCenter operations, partially offset by a $39.5 million increase in GMV from our GovDeals segment, and an $11.5 million increase in GMV related to our RSCG segment.
Interest and other income, net. Interest and other income, net increased $8.1$2.7 million, or 72.3%,due to $19.3the effect of rising interest rates on our cash equivalent and short-term investment holdings.
44
Provision (benefit) for income taxes. Provision (benefit) for income taxes increased $0.7 million for the year ended September 30, 2017,to an expense of $8.0 million from $11.2an expense of $7.3 million for the year ended September 30, 2016 due to the increase in state and deferred income taxes resulting from higher income in the amount of distributions payablecurrent year compared to the DLA under the new termsprior year, exclusive of the current Scrap contract. As a percentage of revenue, distributions increased to 7.1%$24.5 million non-cash gain from 3.5%, which is due to the increases described above.
Year Ended September 30, 2022 Compared to Year Ended September 30, 2021
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment increased 19.7%, or $9.8 million, due to a 44.4%, or $221.6 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate. In addition, increased recovery rates on assets sold were driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. However, this has been partially offset by lower volumes of used vehicles made available for sale, as new vehicle production disruptions impact government agency vehicle fleet retirement timelines. As GovDeals real estate sales increase through the integration with Bid4Assets, GovDeals revenue as a percent of GMV is expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories. For that reason, revenue as a percentage of GMV decreased to 8.2% from 9.9% last year. As a result of the increase in revenues, segment direct profit increased 19.9%, or $9.4 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased 4.6%, or $7.3 million due to a 3.0%, or $6.9 million, increase in GMV as it continues to diversify its client programs, sales channels, and its network of warehouses. Segment direct profit decreased by 1.3%, or $0.9 million, impacted by certain client returns management programs which provided fewer higher value products than in prior years, including for some of our low touch services. As a result, segment direct profit as a percentage of total revenue decreased by 2.3%.
CAG. Revenue from the CAG reportable segment increased by 7.4%, or $2.9 million due to a 18.9%, or $30.1 million, increase in GMV driven by increasing opportunities to obtain and sell inventory under our purchase model, and strong consignment sales in the energy and heavy equipment categories, partially offset by strong prior year consignment sales in the industrial category. Revenues did not increase at the same rate as GMV due to increases in the mix of transactions conducted with partner organizations. Segment direct profit decreased 0.7%, or $0.2 million. Segment direct profit as a percentage of total revenue decreased 5.6% due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, including increased international purchase transaction activity, some of which had lower than average margins due to incremental costs from COVID-19 related delays in conducting cross-border transactions. Further, challenged global supply chains experienced heightened disruptions from the Russian invasion of Ukraine and its impacts on international trade and energy markets, COVID-19 and other disruptions, which limited the volume of assets made available for sale.
Machinio. Revenue from our Machinio reportable segment increased 26.4%, or $2.5 million, due to an increase in subscription activity through a greater number of subscribers and increased pricing. As a result of the increase in revenues, segment direct profit increased 27.6%, or $2.5 million.
45
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
| Year Ended September 30, |
|
|
|
|
|
|
| ||||||||
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| |||||
Purchase revenues |
| $ | 151,271 |
|
| $ | 146,151 |
|
| $ | 5,120 |
|
|
| 3.5 | % |
Consignment and other fee revenues |
|
| 128,779 |
|
|
| 111,380 |
|
|
| 17,399 |
|
|
| 15.6 | % |
Total revenues |
|
| 280,050 |
|
|
| 257,531 |
|
|
| 22,519 |
|
|
| 8.7 | % |
Costs and expenses from operations: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of goods sold (excludes depreciation and amortization) |
|
| 119,407 |
|
|
| 107,678 |
|
|
| 11,729 |
|
|
| 10.9 | % |
Technology and operations |
|
| 55,522 |
|
|
| 47,673 |
|
|
| 7,849 |
|
|
| 16.5 | % |
Sales and marketing |
|
| 43,224 |
|
|
| 37,635 |
|
|
| 5,589 |
|
|
| 14.9 | % |
General and administrative |
|
| 28,282 |
|
|
| 28,938 |
|
|
| (656 | ) |
|
| (2.3 | )% |
Depreciation and amortization |
|
| 10,322 |
|
|
| 6,969 |
|
|
| 3,353 |
|
|
| 48.1 | % |
Fair value adjustment of acquisition earn-outs |
|
| (24,500 | ) |
|
| — |
|
|
| (24,500 | ) |
| NM |
| |
Other operating expenses, net |
|
| 388 |
|
|
| 1,470 |
|
|
| (1,082 | ) |
|
| (73.6 | )% |
Total costs and expenses |
|
| 232,645 |
|
|
| 230,363 |
|
|
| 2,282 |
|
|
| 1.0 | % |
Income from operations |
|
| 47,405 |
|
|
| 27,168 |
|
|
| 20,237 |
|
|
| 74.5 | % |
Interest and other income, net |
|
| (248 | ) |
|
| (411 | ) |
|
| 163 |
|
|
| (39.7 | )% |
Income before income taxes |
|
| 47,653 |
|
|
| 27,579 |
|
|
| 20,074 |
|
|
| 72.8 | % |
Provision (benefit) for income taxes |
|
| 7,329 |
|
|
| (23,370 | ) |
|
| 30,699 |
|
| NM |
| |
Net income |
| $ | 40,324 |
|
| $ | 50,949 |
|
| $ | (10,625 | ) |
|
| (20.9 | )% |
NM = not meaningful
Total revenues. Total consolidated revenue increased $22.5 million, or 8.7%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $11.7 million, or 10.9%, which changed at a higher rate than Revenue primarily due to an increase in purchase transactions at CAG and RSCG, which also contained a more favorable mix of higher value returned products in the prior year.
Technology and operations expenses. Technology and operations expenses increased $7.8 million, or 16.5%, as we increased our technology and operations functions to continue our growth, including RSCG's expansion of its network of warehouses, and launching AllSurplus Deals as a new marketplace offering consumers deals for curbside pick-up.
Sales and marketing expenses. Sales and marketing expenses increased $5.6 million, or 14.9%, as we increased our sales and marketing functions to continue our growth, including promotional efforts to expand our market share in key verticals, and to promote new business initiatives including our AllSurplus Deals consumer marketplace.
General and administrative expenses. General and administrative expenses decreased $0.7 million, or 2.3%, primarily due to changes in expected attainment of certain variable compensation targets, and partially offset by increased corporate support costs to support the anticipated growth resulting from the increases in our technology, operations, sales and marketing functions.
Depreciation and amortization. Depreciation and amortization expense increased $3.4 million, or 48.1%, primarily due to the increase in intangible assets following our acquisition of Bid4Assets on November 1, 2021.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs reflects a $24.5 million non-cash gain due to a reduction in the fair value of the Bid4Assets earn-out liability during the year ended September 30, 2022. See Note 13 - Fair Value Measurement for further information.
Interest and other income, net. Interest and other income, net increased $0.2 million, due to the effect of rising interest rates on our cash, cash equivalent and short-term investment holdings.
46
Provision (benefit) for income taxes. Provision (benefit) for income taxes increased $30.7 million to an expense of $7.3 million from a benefit of $23.4 million due to the release of $27.9 million of our valuation allowance on U.S. deferred 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 Net income (loss) plus Interest and other expense (income), net excluding the non-service components of net periodic pension (benefit); Provision (benefit) for income taxes; and Depreciation and amortization. Interest and other 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 impairment.
We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:
47
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities, or our other financial information as determined under GAAP.
We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA 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 Net loss. Net lossincome to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.
| Year ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | 50,949 |
|
Interest and other (income) expense, net(1) |
|
| (2,859 | ) |
|
| 126 |
|
|
| (76 | ) |
Provision (benefit) for income taxes |
|
| 8,039 |
|
|
| 7,329 |
|
|
| (23,370 | ) |
Depreciation and amortization |
|
| 11,255 |
|
|
| 10,322 |
|
|
| 6,969 |
|
Non-GAAP EBITDA |
| $ | 37,412 |
|
| $ | 58,101 |
|
| $ | 34,472 |
|
Stock compensation expense |
|
| 8,191 |
|
|
| 8,482 |
|
|
| 6,947 |
|
Acquisition costs and impairment of goodwill and long-lived and other non-current assets(2) |
|
| 252 |
|
|
| 473 |
|
|
| 1,464 |
|
Business realignment expenses(2,3) |
|
| — |
|
|
| 191 |
|
|
| 5 |
|
Fair value adjustments to acquisition earn-outs |
|
| — |
|
|
| (24,500 | ) |
|
| — |
|
Non-GAAP Adjusted EBITDA |
| $ | 45,855 |
|
| $ | 42,747 |
|
| $ | 42,888 |
|
Liquidity and Capital Resources
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. The Company has not paid a dividend historically, nor do we have any intention to do so in the foreseeable future. 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 September 30, 2023, we had $110.3 million in cash and cash equivalents, which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial statements.
Capital Expenditures
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 year ended September 30, 2017, improved $20.72023, were $5.4 million. As of September 30, 2023, we had no significant outstanding commitments for capital expenditures.
48
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 expand our network of warehouses. 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 to $39.2 million, compared to a loss of $59.9 million forCredit Agreement with Wells Fargo Bank, National Associated (the Credit Agreement). During the year ended September 30, 2016, due2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First Amendment). No other changes, including with respect to the reasons described above.
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 our GovDeals segment increased 10.8%, or $2.2 million, due1.25% to additional sales volume from existing sellers and an increase in the number of new sellers. GMV from our GovDeals segment increased 13.9%, or $27.7 million, also due to additional sales volume from existing sellers and an increase in the number of new sellers. Gross profit within this segment increased 10.8%, or $2.1 million, to $21.4 million for1.75%. Interest is payable monthly. During the year ended September 30, 2016, from $19.3 million for2023, the year ended September 30, 2015, due to the new business. As a percentage of revenue, gross profit slightly decreased to 93.9%, from 94.0%.
The obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic subsidiaries and secured on a first priority basis by a security interest (subject to permitted liens) in cashsubstantially all assets owned by us, and cash equivalents. Effective March 25, 2016, we terminatedeach of our $75 million senior credit facility. Terminationother domestic subsidiaries, subject to limited exceptions. The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of September 30, 2023, the Company was in full compliance with the terms and conditions of the senior credit facility has not had, and we do not expect it to have a material effect on our liquidity or financial position. Throughout the fiscal year, we continued to advance the design and developmentCredit Agreement.
Working Capital Management
Most of our LiquidityOne platform, servicessales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and analytical toolsPayPal, an Internet-based payment system, as methods of payments. As a result, we are not subject to empower our sellerssignificant collection risk, as goods are generally not shipped before payment is received.
We expect to maximize bottom-line return, and transform their supply chain into a high-performing business function. During the fourth quarter of fiscal year 2017, we launched our Network International energy marketplace on the new LiquidityOne platform. We will continue to incur additional costs throughoutinvest in enhancements to our e-commerce technology platform, marketplace capabilities, and tools for data-driven product recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.
We intend to indefinitely reinvest the durationearnings of this initiative to implementour foreign subsidiaries outside the new platform and educate our employees and our buyers and seller about the initiative.United States. As part of this process,a result, we have invested in new business ventures, such as our IronDirect marketplace in the construction vertical.
49
Other Uses of Capital Resources
Bid4Assets, Inc. Acquisition. On November 1, 2021, our GovDeals segment purchased all of the issued and not availableoutstanding shares of stock of Bid4Assets. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. Our investment through the acquisition of Bid4Assets will support continued growth in the GovDeals reportable segment, particularly in our real estate vertical.
The acquisition date fair value of the consideration transferred to fund domestic operations without incurring taxesthe former shareholders of Bid4Assets was approximately $42.7 million consisting of $14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a fair value of $28.0 million. As part of the acquisition of Bid4Assets, former shareholders of Bid4Assets were eligible to receive earn-out consideration of up to $37.5 million in cash.
Through December 31, 2022, $3.5 million in earn-out payments were made. The remaining earn-out fair value was $0 based upon repatriation.
Share Repurchases. From time to time, we may be 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, and May 13, 2022, the Company's Board of Directors authorized new stock repurchase plans of up to $20 million and $12 million, respectively. The Company repurchased 408,211 shares for $5.4 million during the year ended September 30, 2022.
On December 6, 2022, March 13, 2023 and September 8, 2023, the Company's Board of Directors authorized new stock repurchase plans of up to $8.4 million, $8.0 million and $15.2 million, respectively. The Company repurchased 1,607,141 shares for $21.2 million during the year ended September 30, 2023.
As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.
Off-Balance Sheet Arrangements. We diddo not repurchase shares under this program duringhave any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.
Changes in Cash Flows: 2023 Compared to 2022
Net cash provided by operating activities was $47.0 million and $44.8 million for the years ended September 30, 2017 or 2016.2023, and 2022, respectively. The $2.2 million increase in cash provided by operating activities between periods was attributable to $8.4 million of higher Net income as adjusted for non-cash items; a $9.0 million increase in cash inflows from Accounts receivable driven by the collection of proceeds from large spot purchase transactions with international clients conducted in the prior year; and a $2.9 million decrease in cash outflows from Accrued expenses and other current liabilities driven by changes in other variable compensation targets. These increases were offset by a combined $18.0 million decrease in cash inflows associated with our Accounts payable and Payables to sellers primarily due to lower volumes of foreclosed real estate property sales and timing differences in the payment of GovDeals seller settlements relative to the period end date.
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 payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.
50
Net cash used in investing activities was $11.4 million and $21.1 million for the years ended September 30, 2017, we are authorized to repurchase up to an additional $10.12023, and 2022, respectively. The $9.7 million decrease in cash used in investing activities was driven by the prior year $11.2 million in shares under this program. A summarycash paid at closing to acquire Bid4Assets on November 1, 2021, net of our share repurchase activitycash acquired (see Note 3 - Bid4Assets Acquisition for further information), $2.7 million in lower capital expenditures, and $1.9 million from fiscalthe maturity of short-term investments. These decreases were offset by a $6.2 million increase in the purchase of short-term investments.
Net cash used in financing activities was $22.1 million and $31.9 million for the years ended September 30, 2023, and 2022, respectively. The $9.8 million decrease in cash used by financing activities was primarily driven by $4.2 million of lower common stock repurchases in the current year, 2014 toa $1.5 million decrease in taxes paid associated with net settlement of stock compensation awards, and the non-recurring earn-out payment of $3.5 million made during the year ended September 30, 2017, is as follows:
Fiscal Year Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Cash Paid for Shares Purchased | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | |||||||||
2014 | 2,962,978 | 16 | 44,873,000 | 5,127,000 | |||||||||
2015 | — | — | — | 5,127,000 | |||||||||
2016 | — | — | — | 10,127,000 | |||||||||
2017 | — | — | — | $ | 10,127,000 |
Changes in Cash Flows: 20172022 Compared to 2016
Net cash provided by operating activities was $44.8 million and $65.4 million for the years ended September 30, 2022, and 2021, respectively. The $20.6 million decrease in cash provided by operating activities between periods was attributable to cash flows associated with a higher Accounts receivables balance of $5.4 million driven by the completion of a significant international industrial partner purchase transaction during the year ended September 30, 2022, as well as Accounts payable and Payables to sellers which together had a net decrease of $11.5 million due to reduced rates of change 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 payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.
Net cash used in operatinginvesting activities was $31.7$21.1 million for the year ended September 30, 2017,2022, and net cash provided by operating activities was $45.8$1.0 million for the year ended September 30, 2016.2021. The $77.5$20.1 million decreaseincrease in cash provided by operations between periods was primarily attributable to an overall increase of approximately $21.4 million in net loss after adjusting for non-cash adjustments, as well as a decrease in cash flows from changes in working capital of approximately $56.1 million. This decrease primarily resulted from the recovery in fiscal year 2016 of prior year income taxes amounting to approximately $34.0 million, as well as a reduction in accrued liabilities to the DLA.
Net cash used in financing activities was $31.9 million for the year ended September 30, 2017,2022, and $6.2$34.7 million for the year ended September 30, 2016. Net cash used2021. The $2.7 million decrease in investing activities for both periods consisted primarily of expenditures for capitalized software, purchases of equipment and leasehold improvements.
New Accounting Pronouncements
Information regarding our adoption of new sellers or buyers or expansionaccounting and reporting standards is discussed in Note 2 - Summary of existing seller or buyer relationships. We intendSignificant Accounting Policies, to fund those expenditures primarily from operating cash flows. Our capital expenditures for the twelve months ended September 30, 2017 were $7.8 million. As of September 30, 2017, we had no outstanding commitments for capital expenditures.
Total | Less than 1 year | 1 to 3 years | 3 to 5 Years | 5+ years | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Operating leases | $ | 27,143 | $ | 9,432 | $ | 13,599 | $ | 3,807 | $ | 305 | ||||||||||
Other contractual cash obligations | 2,017 | 1,555 | 452 | 10 | — | |||||||||||||||
Total contractual cash obligations | $ | 29,160 | $ | 10,987 | $ | 14,051 | $ | 3,817 | $ | 305 |
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest rate sensitivity.
51
As of September 30, 2023, we do not have any debt; however, should the Company draw on our Letter of Credit in the future, such draw would incur interest as determined by the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%.
Exchange rate sensitivity.
Outside the United States, we generate revenues and incur expenses in both U.S. dollars and local 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 our revenue was generated outsideinternational operations into U.S. dollars for financial reporting purposes, movements in exchange rates will affect our reported results. Volatile market conditions arising from ongoing macroeconomic conditions such as rising interest rates at federal banks and armed conflicts around the world, may result in significant changes in exchange rates, which could affect our results of theoperations expressed in U.S. We have not engageddollars. A hypothetical 10% decrease in any hedging or other derivative transactions to date.
Item 8. Financial Statements and SupplementalSupplementary Data.
The consolidated financial statements and accompanying notes listedare included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K are included elsewhere in this Annual Report.
Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer Chief Financial Officer and Chief AccountingFinancial Officer, which are required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended.amended (the Exchange Act). This "Controls and Procedures" section includes information concerning the controls and controls evaluation referred to in the certifications. The report of ErnstDeloitte & YoungTouche LLP, our independent registered public accounting firm, regarding management's assessment of internal control over financial reporting, and its audit of our internal control over financial reporting is set forth below in this section. This section should be read in conjunction with the certifications and the ErnstDeloitte & YoungTouche LLP report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation of the effectiveness of the design and operation of our "disclosuredisclosure controls and procedures"procedures and our internal control over financial reporting as of the end of the period covered by this Form 10-K. The controls evaluation was conducted under the supervision and with the participation of management, including our Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer. Disclosure controls and procedures are controls and procedures designed to reasonably assureensure that information required to be disclosed in our reports filed under the Securities Exchange Act, of 1934, such as this Form 10-K, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and communicated to our management, including the Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of disclosure controls includes an evaluation of some components of our internal control over financial reporting, and internalreporting. Internal control over financial reporting is also separately evaluated on an annual basis for purposes of providing the management report which is set forth below.
52
The evaluation of our disclosure controls included a review of the controls' objectives and design, our implementation of the controls and their effect on the information generated for use in this Form 10-K. In the course of the controls evaluation, we reviewed identified data errors, control deficiencies and, where appropriate, sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so that the conclusions of management, including the Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and Form 10-K. Many of the components of our disclosure controls are also evaluated on an ongoing basis by our finance organization. The overall goals of these various evaluation activities are to monitor our disclosure controls, and to modify them as necessary. Our intent is to maintain the disclosure controls as dynamic systems that change as conditions warrant.
Based upon the controls evaluation, our Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer have concluded that, as of the end of the period covered by this Form 10-K, our disclosure controls were effective to provide reasonableensure assurance that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the SEC, and that material information related to Liquidity Services and our consolidated subsidiaries is made known to management, including the Chief Executive Officer Chief Financial Officer, and Chief AccountingFinancial Officer, particularly during the period when our periodic reports are being prepared. We reviewed the results of management's evaluation with the Audit Committee of our Board of Directors.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.GAAP. Internal control over financial reporting includes those policies and procedures that (i)(a) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii)Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles;GAAP; and (iii)(c) provide reasonable assurance regarding authorization to effect the acquisition, use, or disposition of companyCompany assets, as well as the prevention or timely detection of unauthorized acquisition, use, or disposition of the company'sCompany's assets that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of September 30, 2017,2023, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies and our overall control environment. This assessment is supported by testing and monitoring performed by our finance organization.
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
Our independent registered public accounting firm, ErnstDeloitte & YoungTouche LLP, independently assessed the effectiveness of the company'sCompany's internal control over financial reporting. ErnstDeloitte & YoungTouche LLP has issued an attestation report, which is included at the end of this section.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Other inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
53
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2023, no changeschange occurred in our internal controls over financial reporting during the quarterly period ended September 30, 2017, that have materially affected, or areis reasonably likely to materially affect, our internal controlcontrols over financial reporting.
54
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of
Opinion on Internal Control over Financial Reporting
We have audited Liquidity Services, Inc. and subsidiaries'the internal control over financial reporting of Liquidity Services, Inc. and subsidiaries (the “Company”) as of September 30, 2017,2023, based on criteria established in Internal Control—Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)(COSO). Liquidity Services, Inc.In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and subsidiaries'for the fiscal year ended September 30, 2023, of the Company and our report dated December 7, 2023, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the company'sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company'scompany’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.
McLean, Virginia
December 6, 2017 expressed an unqualified opinion thereon.
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
55
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Incorporated by reference from the Company's Proxy Statement relating to its 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.
Code of Ethics, Governance Guidelines and Committee Charters
We have adopted a
Code ofItem 11. Executive Compensation.
Incorporated by reference from the Company's Proxy Statement relating to its 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Incorporated by reference from the Company's Proxy Statement relating to its 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.
Item 13. Certain RelationshipRelationships and Related Transactions, and Director Independence.
Incorporated by reference from the Company's Proxy Statement relating to its 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.
Item 14. Principal AccountingAccountant Fees and Services.
Incorporated by reference from the Company's Proxy Statement relating to its 20182024 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.
56
PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a) | Page | ||
(1) | The following documents related to the financial statements are filed as part of this report: | ||
Reports of Independent Registered Public Accounting | 58 | ||
Consolidated Balance Sheets as of September 30, | 61 | ||
62 | |||
63 | |||
64 | |||
65 | |||
66 | |||
(2) | The following financial statement schedule is filed as part of this report: | ||
Schedules for the three years ended September 30, | |||
96 | |||
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required or are inapplicable and therefore have been omitted. | |||
(3) | The documents required to be filed as exhibits to this report under Item 601 of Regulation S-K are listed in the Exhibit Index included elsewhere in this report, which list is incorporated herein by reference. |
57
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors and Stockholders of
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc. and subsidiaries (the "Company") as of September 30, 20172023 and 2016, and2022, the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity, and cash flows for each of the threetwo years in the period ended September 30, 2017. Our audits also included2023, and the financial statementrelated notes and schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 7, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue - Refer to Note 2 to the consolidated financial statements
Critical Audit Matter Description
The Company earns revenue on transactions where (1) they resell inventory that they purchase from sellers, (2) from the sale of inventory that is sold on a consignment basis, and (3) from other non-consignment fee transactions. When acting as a principal, the Company purchases an asset or assets from a seller and then seeks to sell the asset or assets to a buyer. The Company then recognizes as purchase revenue the gross proceeds from the sale, including buyer's premiums. When the Company is acting as an agent, its performance obligation is to arrange for the seller to sell an asset or assets to the buyer directly. The Company recognizes consignment and other fee revenues based on the sales commissions that are paid to the Company by the sellers for utilizing the Company's services. Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided.
58
We identified a critical audit matter related to revenue transactions recorded, which required an increased extent of effort, including the need for us to involve professionals with expertise in information technology ("IT"), to identify, test, and evaluate the Company’s systems, applications and automated controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s revenue transactions included the following, among others:
/s/ Deloitte and Touche LLP |
McLean, Virginia |
December 7, 2023 |
We have served as the Company’s auditor since 2021. |
59
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Liquidity Services, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the consolidated statement of operations, comprehensive income, stockholders' equity and cash flows for the year ended September 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liquidity Services, Inc. and subsidiaries at September 30, 2017 and 2016, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the periodyear ended September 30, 2017,2021, in conformity with U.S. generally accepted accounting principles. Also, in
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our opinion,audit. We are a public accounting firm registered with the related financial statement schedule, when considered in relationPCAOB and are required to be independent with respect to the basic financial statements taken as a whole, presents fairlyCompany in all material respectsaccordance with the information set forth therein.
We also have audited,conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), Liquidity Services, Inc.PCAOB. Those standards require that we plan and subsidiaries' internal control overperform the audit to obtain reasonable assurance about whether the financial reporting asstatements are free of September 30, 2017, based on criteria established in Internal Control—Integrated Framework issued bymaterial misstatement, whether due to error or fraud. Our audit included performing procedures to assess the Committeerisks of Sponsoring Organizationsmaterial misstatement of the Treadway Commission (2013 framework)financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our report dated December 6, 2017 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP |
We served as the Company's auditor from 2001 to 2021. |
Tysons, Virginia |
December 9, 2021 |
60
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
September 30, | |||||||
2017 | 2016 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 94,348 | $ | 134,513 | |||
Accounts receivable, net of allowance for doubtful accounts of $668 and $718 in 2017 and 2016, respectively | 11,598 | 10,355 | |||||
Inventory | 20,736 | 27,610 | |||||
Tax refund receivable | 357 | 1,205 | |||||
Prepaid taxes | 2,109 | 2,166 | |||||
Prepaid expenses and other current assets | 9,774 | 9,063 | |||||
Total current assets | 138,922 | 184,912 | |||||
Property and equipment, net | 16,793 | 14,376 | |||||
Intangible assets, net | 427 | 2,650 | |||||
Goodwill | 45,388 | 45,134 | |||||
Net deferred long-term tax assets | 962 | 1,021 | |||||
Other assets | 12,737 | 12,016 | |||||
| | | |||||
Total assets | $ | 215,229 | $ | 260,109 | |||
Liabilities and stockholders' equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 13,099 | $ | 9,732 | |||
Accrued expenses and other current liabilities | 30,193 | 45,133 | |||||
Distributions payable | 3,081 | 1,722 | |||||
Payables to sellers | 24,383 | 28,901 | |||||
Total current liabilities | 70,756 | 85,488 | |||||
Deferred taxes and other long-term liabilities | 11,837 | 12,010 | |||||
Total liabilities | 82,593 | 97,498 | |||||
Commitments and contingencies (Notes 7 and 15) | — | — | |||||
Stockholders' equity: | |||||||
Common stock, $0.001 par value; 120,000,000 shares authorized; 31,503,349 shares issued and outstanding at September 30, 2017; 30,742,662 shares issued and outstanding at September 30, 2016 | 29 | 29 | |||||
Additional paid-in capital | 227,264 | 220,192 | |||||
Accumulated other comprehensive loss | (6,431 | ) | (8,571 | ) | |||
Retained earnings (accumulated deficit) | (88,226 | ) | (49,039 | ) | |||
Total stockholders' equity | 132,636 | 162,611 | |||||
Total liabilities and stockholders' equity | $ | 215,229 | $ | 260,109 |
|
| September 30, |
| ||||||
|
| 2023 |
|
|
| 2022 |
| ||
Assets |
|
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 110,281 |
|
|
| $ | 96,122 |
|
Short-term investments |
|
| 7,891 |
|
|
|
| 1,819 |
|
Accounts receivable, net of allowance for doubtful accounts of $1,424 and $449 |
|
| 7,848 |
|
|
|
| 11,792 |
|
Inventory, net |
|
| 11,116 |
|
|
|
| 11,679 |
|
Prepaid taxes and tax refund receivable |
|
| 1,783 |
|
|
|
| 1,631 |
|
Prepaid expenses and other current assets |
|
| 7,349 |
|
|
|
| 6,551 |
|
Total current assets |
|
| 146,268 |
|
|
|
| 129,594 |
|
Property and equipment, net |
|
| 17,156 |
|
|
|
| 19,094 |
|
Operating lease assets |
|
| 9,888 |
|
|
|
| 13,207 |
|
Intangible assets, net |
|
| 12,457 |
|
|
|
| 16,234 |
|
Goodwill |
|
| 89,388 |
|
|
|
| 88,910 |
|
Deferred tax assets |
|
| 7,050 |
|
|
|
| 13,628 |
|
Other assets |
|
| 6,762 |
|
|
|
| 7,437 |
|
Total assets |
| $ | 288,970 |
|
|
| $ | 288,104 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
|
| ||
Accounts payable |
| $ | 39,115 |
|
|
| $ | 41,982 |
|
Accrued expenses and other current liabilities |
|
| 23,809 |
|
|
|
| 23,304 |
|
Current portion of operating lease liabilities |
|
| 4,101 |
|
|
|
| 4,540 |
|
Deferred revenue |
|
| 4,701 |
|
|
|
| 4,439 |
|
Payables to sellers |
|
| 48,992 |
|
|
|
| 49,238 |
|
Total current liabilities |
|
| 120,718 |
|
|
|
| 123,503 |
|
Operating lease liabilities |
|
| 6,581 |
|
|
|
| 9,687 |
|
Other long-term liabilities |
|
| 137 |
|
|
|
| 378 |
|
Total liabilities |
|
| 127,436 |
|
|
|
| 133,568 |
|
Commitments and contingencies (Note 15) |
|
|
|
|
|
|
| ||
Stockholders’ equity: |
|
|
|
|
|
|
| ||
Common stock, $0.001 par value; 120,000,000 shares authorized; 36,142,346 shares issued and outstanding at September 30, 2023; 35,724,057 shares issued and outstanding at September 30, 2022 |
|
| 36 |
|
|
|
| 36 |
|
Additional paid-in capital |
|
| 265,945 |
|
|
|
| 258,275 |
|
Treasury stock, at cost; 5,433,045 shares at September 30, 2023, and 3,813,199 shares at September 30, 2022 |
|
| (84,031 | ) |
|
|
| (62,554 | ) |
Accumulated other comprehensive loss |
|
| (10,457 | ) |
|
|
| (10,285 | ) |
Accumulated deficit |
|
| (9,958 | ) |
|
|
| (30,936 | ) |
Total stockholders’ equity |
|
| 161,533 |
|
|
|
| 154,536 |
|
Total liabilities and stockholders’ equity |
| $ | 288,970 |
|
|
| $ | 288,104 |
|
See accompanying notes to the consolidated financial statements.
61
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Data)
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 188,570 | $ | 233,828 | $ | 315,668 | ||||||
Fee revenue | 81,445 | 82,626 | 81,457 | |||||||||
Total revenue from operations | 270,015 | 316,454 | 397,125 | |||||||||
Costs and expenses from operations: | ||||||||||||
Cost of goods sold | 126,227 | 143,127 | 166,009 | |||||||||
Seller distributions | 19,298 | 11,214 | 28,093 | |||||||||
Technology and operations | 82,988 | 93,405 | 99,550 | |||||||||
Sales and marketing | 35,211 | 37,570 | 41,465 | |||||||||
General and administrative | 35,835 | 39,717 | 41,338 | |||||||||
Depreciation and amortization | 5,796 | 6,502 | 9,235 | |||||||||
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets | 1,009 | 19,037 | 147,414 | |||||||||
Business disposition loss | — | — | 7,963 | |||||||||
Other operating expenses | 3,651 | — | 273 | |||||||||
Total costs and expenses | 310,015 | 350,572 | 541,340 | |||||||||
Loss from operations | (40,000 | ) | (34,118 | ) | (144,215 | ) | ||||||
Interest (income) expense and other expense, net | (362 | ) | �� | (1,217 | ) | 171 | ||||||
Loss before provision for income taxes | (39,638 | ) | (32,901 | ) | (144,386 | ) | ||||||
(Benefit) provision for income taxes | (451 | ) | 27,025 | (39,571 | ) | |||||||
Net loss | $ | (39,187 | ) | $ | (59,926 | ) | $ | (104,815 | ) | |||
Basic and diluted loss per common share | $ | (1.25 | ) | $ | (1.96 | ) | $ | (3.50 | ) | |||
Basic and diluted weighted average shares outstanding | 31,402,921 | 30,638,163 | 29,987,985 |
| Year Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Purchase revenues |
| $ | 172,089 |
|
| $ | 151,271 |
|
| $ | 146,151 |
|
Consignment and other fee revenues |
|
| 142,373 |
|
|
| 128,779 |
|
| $ | 111,380 |
|
Total revenue |
|
| 314,462 |
|
|
| 280,050 |
|
|
| 257,531 |
|
Costs and expenses from operations: |
|
|
|
|
|
|
|
|
| |||
Cost of goods sold (excludes depreciation and amortization) |
|
| 142,322 |
|
|
| 119,407 |
|
|
| 107,678 |
|
Technology and operations |
|
| 57,078 |
|
|
| 55,522 |
|
|
| 47,673 |
|
Sales and marketing |
|
| 49,443 |
|
|
| 43,224 |
|
|
| 37,635 |
|
General and administrative |
|
| 28,074 |
|
|
| 28,282 |
|
|
| 28,938 |
|
Depreciation and amortization |
|
| 11,255 |
|
|
| 10,322 |
|
|
| 6,969 |
|
Fair value adjustment of acquisition earn-outs |
|
| — |
|
|
| (24,500 | ) |
|
| — |
|
Other operating expenses, net |
|
| 186 |
|
|
| 388 |
|
|
| 1,470 |
|
Total costs and expenses |
|
| 288,358 |
|
|
| 232,645 |
|
|
| 230,363 |
|
Income from operations |
|
| 26,105 |
|
|
| 47,405 |
|
|
| 27,168 |
|
Interest and other income, net |
|
| (2,912 | ) |
|
| (248 | ) |
|
| (411 | ) |
Income before provision for income taxes |
|
| 29,016 |
|
|
| 47,653 |
|
|
| 27,579 |
|
Provision (benefit) for income taxes |
|
| 8,039 |
|
|
| 7,329 |
|
|
| (23,370 | ) |
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | 50,949 |
|
Basic income per common share |
| $ | 0.68 |
|
| $ | 1.25 |
|
| $ | 1.53 |
|
Diluted income per common share |
| $ | 0.65 |
|
| $ | 1.20 |
|
| $ | 1.45 |
|
Basic weighted average shares outstanding |
|
| 31,075,648 |
|
|
| 32,292,978 |
|
|
| 33,333,557 |
|
Diluted weighted average shares outstanding |
|
| 32,074,561 |
|
|
| 33,719,424 |
|
|
| 35,024,108 |
|
See accompanying notes to the consolidated financial statements.
62
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
(Dollars In Thousands)
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Net loss | $ | (39,187 | ) | $ | (59,926 | ) | $ | (104,815 | ) | |||
Other comprehensive income (loss): | ||||||||||||
Defined benefit pension plan—unrecognized amounts, net of taxes | 1,589 | (2,547 | ) | 1,101 | ||||||||
Foreign currency translation | 551 | (398 | ) | (3,276 | ) | |||||||
Other comprehensive income (loss), net of taxes | 2,140 | (2,945 | ) | (2,175 | ) | |||||||
Comprehensive loss | $ | (37,047 | ) | $ | (62,871 | ) | $ | (106,990 | ) |
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | 50,949 |
|
Other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
| |||
Defined benefit pension plan—unrecognized amounts |
|
| (1,411 | ) |
|
| 1,836 |
|
|
| 170 |
|
Foreign currency translation |
|
| 1,238 |
|
|
| (3,110 | ) |
|
| 601 |
|
Other comprehensive (loss) income |
|
| (173 | ) |
|
| (1,274 | ) |
|
| 771 |
|
Comprehensive income |
| $ | 20,805 |
|
| $ | 39,050 |
|
| $ | 51,720 |
|
See accompanying notes to the consolidated financial statements.
63
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Dollars In Thousands Except Share Data)
Treasury Stock | Common Stock | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings (Accumulated Loss) | Total | |||||||||||||||||||||
Balance at September 30, 2014 | — | — | 29,668,150 | $ | 28 | $ | 204,704 | $ | (3,451 | ) | $ | 115,702 | $ | 316,983 | ||||||||||||||
Common stock repurchase | — | — | — | — | — | — | — | — | ||||||||||||||||||||
Common stock retired | — | — | — | — | — | — | — | |||||||||||||||||||||
Exercise of common stock options and restricted stock | — | — | 358,073 | 1 | 105 | — | — | 106 | ||||||||||||||||||||
Compensation expense and incremental tax benefit from grant of common stock options and issuance of restricted stock | — | — | — | — | 5,903 | — | — | 5,903 | ||||||||||||||||||||
Net income | — | — | — | — | — | — | (104,815 | ) | (104,815 | ) | ||||||||||||||||||
Defined benefit pension plan—unrecognized amounts, net of taxes | 1,101 | 1,101 | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (3,276 | ) | — | (3,276 | ) | ||||||||||||||||||
Balance at September 30, 2015 | — | — | 30,026,223 | $ | 29 | $ | 210,712 | $ | (5,626 | ) | $ | 10,887 | $ | 216,002 | ||||||||||||||
Exercise of common stock options and restricted stock | — | — | 716,439 | — | 9 | — | — | 9 | ||||||||||||||||||||
Compensation expense and incremental tax benefit from grant of common stock options and issuance of restricted stock | — | — | — | — | 9,471 | — | — | 9,471 | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | (59,926 | ) | (59,926 | ) | ||||||||||||||||||
Defined benefit pension plan—unrecognized amounts, net of taxes | (2,547 | ) | (2,547 | ) | ||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (398 | ) | — | (398 | ) | ||||||||||||||||||
Balance at September 30, 2016 | — | — | 30,742,662 | $ | 29 | $ | 220,192 | $ | (8,571 | ) | $ | (49,039 | ) | $ | 162,611 | |||||||||||||
Exercise of common stock options and restricted stock | — | — | 760,687 | — | 93 | — | — | 93 | ||||||||||||||||||||
Compensation expense and incremental tax benefit from grant of common stock options and issuance of restricted stock | — | — | — | — | 6,979 | — | — | 6,979 | ||||||||||||||||||||
Net loss | — | — | — | — | — | — | (39,187 | ) | (39,187 | ) | ||||||||||||||||||
Defined benefit pension plan—unrecognized amounts, net of taxes | 1,589 | 1,589 | ||||||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | 551 | — | 551 | ||||||||||||||||||||
Balance at September 30, 2017 | — | — | 31,503,349 | $ | 29 | $ | 227,264 | $ | (6,431 | ) | $ | (88,226 | ) | $ | 132,636 |
|
| Common Stock |
|
|
|
|
| Treasury Stock |
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| Shares |
|
| Amount |
|
| Additional |
|
| Shares |
|
| Amount |
|
| Accumulated |
|
| Retained |
|
| Total |
| ||||||||
Balance at September 30, 2020 |
|
| 34,082,406 |
|
| $ | 34 |
|
| $ | 247,892 |
|
|
| (547,508 | ) |
| $ | (3,983 | ) |
| $ | (9,782 | ) |
| $ | (122,346 | ) |
| $ | 111,815 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 50,949 |
|
|
| 50,949 |
|
Exercise of common stock options and vesting of restricted stock |
|
| 1,605,618 |
|
|
| 1 |
|
|
| 444 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 445 |
|
Tax settlements associated with stock compensation expense |
|
| (217,196 | ) |
|
| — |
|
|
| (3,915 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,915 | ) |
Forfeiture of restricted stock awards |
|
| (13,733 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Common stock repurchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,591,963 | ) |
|
| (31,143 | ) |
|
| — |
|
|
| — |
|
|
| (31,143 | ) |
Common stock surrendered in the exercise of stock options |
|
| — |
|
|
| — |
|
|
| 1,502 |
|
|
| (82,612 | ) |
|
| (1,502 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Stock compensation expense |
|
|
|
|
| — |
|
|
| 6,094 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,094 |
| |
Defined benefit pension plan—unrecognized amounts, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 170 |
|
|
|
|
|
| 170 |
| |
Foreign currency translation and other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 601 |
|
|
| (1 | ) |
|
| 600 |
|
Balance at September 30, 2021 |
|
| 35,457,095 |
|
| $ | 35 |
|
| $ | 252,017 |
|
|
| (2,222,083 | ) |
| $ | (36,628 | ) |
| $ | (9,011 | ) |
| $ | (71,398 | ) |
| $ | 135,015 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 40,324 |
|
|
| 40,324 |
|
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units |
|
| 664,921 |
|
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Taxes paid associated with net settlement of stock compensation awards |
|
| (140,202 | ) |
|
| — |
|
|
| (2,805 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,805 | ) |
Common stock repurchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,567,277 | ) |
|
| (25,447 | ) |
|
| — |
|
|
| — |
|
|
| (25,447 | ) |
Common stock surrendered in the exercise of stock options |
|
| — |
|
|
| — |
|
|
| 478 |
|
|
| (23,839 | ) |
|
| (479 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
Forfeiture of restricted stock awards |
|
| (257,757 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 8,586 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,586 |
|
Defined benefit pension plan—unrecognized amounts, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,836 |
|
|
| — |
|
|
| 1,836 |
|
Foreign currency translation |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,110 | ) |
|
| 138 |
|
|
| (2,972 | ) |
Balance at September 30, 2022 |
|
| 35,724,057 |
|
| $ | 36 |
|
| $ | 258,275 |
|
|
| (3,813,199 | ) |
| $ | (62,554 | ) |
| $ | (10,285 | ) |
| $ | (30,936 | ) |
| $ | 154,536 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20,978 |
|
|
| 20,978 |
|
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units |
|
| 500,540 |
|
|
| — |
|
|
| 495 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 495 |
|
Taxes paid associated with net settlement of stock compensation awards |
|
| (82,252 | ) |
|
| — |
|
|
| (1,261 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,261 | ) |
Common stock repurchases |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,607,141 | ) |
|
| (21,277 | ) |
|
| — |
|
|
| — |
|
|
| (21,277 | ) |
Common stock surrendered in the exercise of stock options |
|
| — |
|
|
| — |
|
|
| 200 |
|
|
| (12,705 | ) |
|
| (200 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Forfeiture of restricted stock awards |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock compensation expense |
|
| — |
|
|
| — |
|
|
| 8,235 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,235 |
|
Defined benefit pension plan—unrecognized amounts, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,411 | ) |
|
| — |
|
|
| (1,411 | ) |
Foreign currency translation and other |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,238 |
|
|
| 1 |
|
|
| 1,239 |
|
Balance at September 30, 2023 |
|
| 36,142,345 |
|
| $ | 36 |
|
| $ | 265,945 |
|
|
| (5,433,045 | ) |
| $ | (84,031 | ) |
| $ | (10,458 | ) |
| $ | (9,958 | ) |
| $ | 161,533 |
|
See accompanying notes to the consolidated financial statements.
64
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Operating activities | ||||||||||||
Net loss | $ | (39,187 | ) | $ | (59,926 | ) | $ | (104,815 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 5,796 | 6,502 | 9,235 | |||||||||
Business disposition loss | — | — | 7,963 | |||||||||
Gain on reversal of earnout liability | (954 | ) | — | — | ||||||||
Stock compensation expense | 7,377 | 12,247 | 12,405 | |||||||||
Provision (benefit) for inventory allowance | 10,381 | 2,676 | (575 | ) | ||||||||
Provision for doubtful accounts | 357 | 247 | 1,109 | |||||||||
Deferred tax (benefit) expense | (620 | ) | 26,177 | (6,282 | ) | |||||||
Impairment of goodwill and long-lived assets | 1,963 | 18,998 | 147,414 | |||||||||
Change in fair value of financial instruments | (573 | ) | — | — | ||||||||
Incremental tax loss from exercise of common stock options and restricted stock | 1,198 | 229 | 38 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Accounts receivable | (1,611 | ) | (4,408 | ) | 12,651 | |||||||
Inventory | (3,507 | ) | (4,776 | ) | 43,101 | |||||||
Prepaid and deferred taxes | 730 | 27,057 | (38,545 | ) | ||||||||
Prepaid expenses and other assets | (1,024 | ) | (160 | ) | (1,499 | ) | ||||||
Accounts payable | 3,192 | 232 | (4,534 | ) | ||||||||
Accrued expenses and other current liabilities | (14,882 | ) | 17,151 | (18,895 | ) | |||||||
Distributions payable | 1,359 | (790 | ) | (2,228 | ) | |||||||
Payables to sellers | (4,519 | ) | (901 | ) | (11,742 | ) | ||||||
Other liabilities | 2,871 | 5,283 | (1,310 | ) | ||||||||
Net cash (used) provided by operating activities | (31,653 | ) | 45,838 | 43,491 | ||||||||
Investing activities | ||||||||||||
Cash paid in divestiture | — | — | (2,372 | ) | ||||||||
Increase in intangibles | (119 | ) | (62 | ) | (137 | ) | ||||||
Purchases of property and equipment, including capitalized software | (7,805 | ) | (6,090 | ) | (7,312 | ) | ||||||
Net cash used in investing activities | (7,924 | ) | (6,152 | ) | (9,821 | ) | ||||||
Financing activities | ||||||||||||
Proceeds from exercise of common stock options (net of tax) | 92 | 9 | 106 | |||||||||
Incremental tax loss from exercise of common stock options and restricted stock | (1,198 | ) | (229 | ) | (38 | ) | ||||||
Net cash (used in) provided by financing activities | (1,106 | ) | (220 | ) | 68 | |||||||
Effect of exchange rate differences on cash and cash equivalents | 518 | (418 | ) | (871 | ) | |||||||
Net (decrease) increase in cash and cash equivalents | (40,165 | ) | 39,048 | 32,867 | ||||||||
Cash and cash equivalents at beginning of year | 134,513 | 95,465 | 62,598 | |||||||||
Cash and cash equivalents at end of year | $ | 94,348 | $ | 134,513 | $ | 95,465 | ||||||
Supplemental disclosure of cash flow information | ||||||||||||
Cash received (paid) for income taxes | $ | 793 | $ | 33,966 | $ | (5,678 | ) |
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | 50,949 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
| |||
Depreciation and amortization |
|
| 11,255 |
|
|
| 10,322 |
|
|
| 6,969 |
|
Change in fair value of earn-out liability |
|
| — |
|
|
| (24,500 | ) |
|
| — |
|
Stock compensation expense |
|
| 8,191 |
|
|
| 8,482 |
|
|
| 6,947 |
|
Inventory adjustment to net realizable value |
|
| 1,048 |
|
|
| 194 |
|
|
| 174 |
|
Provision for doubtful accounts |
|
| 1,390 |
|
|
| 136 |
|
|
| 297 |
|
Deferred tax expense (benefit) |
|
| 6,578 |
|
|
| 6,287 |
|
|
| (24,510 | ) |
Impairment of long-lived and other non-current assets |
|
| — |
|
|
| 31 |
|
|
| 1,338 |
|
(Gain) loss on disposal of property and equipment |
|
| (36 | ) |
|
| (14 | ) |
|
| 80 |
|
Gain on disposal of lease assets |
|
| — |
|
|
| (240 | ) |
|
| (23 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| |||
Accounts receivable |
|
| 2,725 |
|
|
| (6,290 | ) |
|
| (843 | ) |
Inventory |
|
| (479 | ) |
|
| 441 |
|
|
| (7,035 | ) |
Prepaid taxes and tax refund receivable |
|
| (152 | ) |
|
| 82 |
|
|
| (61 | ) |
Prepaid expenses and other assets |
|
| (1,166 | ) |
|
| (1,805 | ) |
|
| (2,022 | ) |
Operating lease assets and liabilities |
|
| (228 | ) |
|
| 396 |
|
|
| (79 | ) |
Accounts payable |
|
| (2,889 | ) |
|
| 1,548 |
|
|
| 18,554 |
|
Accrued expenses and other current liabilities |
|
| 277 |
|
|
| (2,653 | ) |
|
| 6,060 |
|
Deferred revenue |
|
| 262 |
|
|
| (185 | ) |
|
| 1,369 |
|
Payables to sellers |
|
| (581 | ) |
|
| 13,000 |
|
|
| 7,543 |
|
Other liabilities |
|
| (157 | ) |
|
| (723 | ) |
|
| (290 | ) |
Net cash provided by operating activities |
|
| 47,016 |
|
|
| 44,833 |
|
|
| 65,417 |
|
Investing activities |
|
|
|
|
|
|
|
|
| |||
Purchases of property and equipment, including capitalized software |
|
| (5,386 | ) |
|
| (8,121 | ) |
|
| (5,419 | ) |
Proceeds from note receivable |
|
| — |
|
|
| — |
|
|
| 4,343 |
|
Purchase of short-term investments |
|
| (8,037 | ) |
|
| (1,820 | ) |
|
| — |
|
Maturities of short-term investments |
|
| 1,923 |
|
|
| — |
|
|
| — |
|
Cash paid for business acquisition, net of cash acquired |
|
| — |
|
|
| (11,164 | ) |
|
| — |
|
Other investing activities, net |
|
| 68 |
|
|
| 21 |
|
|
| 72 |
|
Net cash (used in) provided by investing activities |
|
| (11,432 | ) |
|
| (21,084 | ) |
|
| (1,004 | ) |
Financing activities |
|
|
|
|
|
|
|
|
| |||
Payments of the principal portion of finance lease liabilities |
|
| (101 | ) |
|
| (99 | ) |
|
| (42 | ) |
Payments of debt issuance costs |
|
| — |
|
|
| (91 | ) |
|
| — |
|
Proceeds from exercise of common stock options, net of tax |
|
| 496 |
|
|
| — |
|
|
| 445 |
|
Taxes paid associated with net settlement of stock compensation awards |
|
| (1,262 | ) |
|
| (2,806 | ) |
|
| (3,915 | ) |
Payment of earn-out liability related to business acquisition |
|
| — |
|
|
| (3,500 | ) |
|
| — |
|
Common stock repurchases |
|
| (21,198 | ) |
|
| (25,447 | ) |
|
| (31,143 | ) |
Net cash used in financing activities |
|
| (22,065 | ) |
|
| (31,943 | ) |
|
| (34,655 | ) |
Effect of exchange rate differences on cash and cash equivalents |
|
| 640 |
|
|
| (2,019 | ) |
|
| 541 |
|
Net increase (decrease) in cash and cash equivalents |
|
| 14,159 |
|
|
| (10,213 | ) |
|
| 30,299 |
|
Cash and cash equivalents at beginning of year |
|
| 96,122 |
|
|
| 106,335 |
|
|
| 76,036 |
|
Cash and cash equivalents at end of year |
| $ | 110,281 |
|
| $ | 96,122 |
|
| $ | 106,335 |
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
| |||
Cash paid for income taxes, net |
| $ | 1,590 |
|
| $ | 885 |
|
| $ | 1,442 |
|
Non-cash: Common stock surrendered in the exercise of stock options |
| $ | 200 |
|
| $ | 479 |
|
| $ | 1,502 |
|
See accompanying notes to the consolidated financial statements.
65
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Liquidity Services, (the “Company”) operatesInc. (Liquidity Services, the Company) is a networkleading global commerce company providing trusted online marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading ecommercee-commerce auction marketplaces, thatsearch 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.
Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite and enable a self-reinforcing cycle of value creation where buyers and sellers to transactattract one another in an efficient, automated environment offering over 500 product categories.greater numbers. The Company’s marketplaces provide professionalresult of this cycle is a continuous flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers, buyers, access toand shareholders.
Liquidity Services was incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a global, organized supply of new, surplus,Maryland corporation based in Silver Spring, MD. Bid4Assets is a leading online marketplace focused on conducting real property auctions for government entities, including tax foreclosure sales and scrap assets presented with digital images and other relevant product information. Additionally, the Company enables its corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. The Company's broad range of services include program management, valuation, asset management, reconciliation, Return to Vendor ("RTV") and Returns Management Authorization ("RMA"), refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, and compliance and risk mitigation. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, www.unclesamsretailoutlet.com, www.irondirect.com, and www.auctiondeals.com. sheriff's sales. See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Operating Segments
The Company has over 10,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies. As of September 30, 2017, the Company has threefour reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and GovDeals. SeeMachinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
The Company's operations are subject to certain risks and uncertainties, many of which are associated with technology-oriented companies, including, but not limited to, the Company's dependence on use of the Internet,Internet; the effect of general business and economic trends including inflationary pressures and impacts from interest rate changes; armed conflicts around the world; the Company's susceptibility to rapid technological change,change; actual and potential competition by entities with greater financial and other resources,resources; and the potential for the U.S. Government agencies, or the commercial sellers from which the Company derives a significant portion of its inventory to change the way they conduct their disposition of surplus assets or to otherwise terminate or not renew their contracts with the Company.
66
Liquidity Services, Inc. and filed with the Securities and Exchange Commission. See Note 18 in the Subsidiaries
Notes to the Consolidated Financial Statements for the Subsequent Event disclosure.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions that affect amounts in the consolidated financial statements and accompanying notes. Actual results could differ significantly from those estimates.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Certain prior period amounts have been reclassified to conform to the current year's presentation. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared pursuant toin accordance with accounting principles generally accepted in the rules and regulationsUnited States of the Securities and Exchange Commission.America. In addition, in the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation of the results for the periods presented have been included.
Business Combinations
The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price (
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with an initial maturity of three months or less to be cash equivalents.equivalents and are included as a current asset in the line-item Cash and cash equivalents within our Consolidated Balance Sheets. Interest income earned through our cash and cash equivalents are recorded to Interest and other income, net within the Consolidated Statements of Operations.
Short-term Investments
The Company's short-term investments are designated as held-to-maturity investment securities, recorded at amortized cost, and are included as a current asset in the line-item Short-term investments within our Consolidated Balance Sheets as their maturity is less than one year from the balance sheet date. Interest income earned through our short-term investments are recorded to Interest and other income, net within the Consolidated Statements of Operations.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are non-interest bearing.non-interest-bearing. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. AllowancesChanges in allowances, which are included in Sales and marketing within the Consolidated Statements of Operations, are based on management’s judgment, which considers historical experience and specific knowledge of accounts where collectability may not be probable. The Company makes provisions based on historical bad debt experience, a specific review of all significant outstanding invoices, customer-specific information and relevant conditions, and an assessment of general economic conditions. As of September 30, 2023, the Company's bad debt allowance was $1.4 million.
67
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Inventory
Inventory consists of property obtained for resale, generally through the online auction process, and is stated at the lower of cost or market.net realizable value in the line-item Inventory, net on the Consolidated Balance Sheets. Cost is generally determined using the specific identification method. Costs associated with our warehouse operations are expensed as incurred and included within Technology and operations expenses in the Consolidated Statements of Operations. Charges for unsellable inventory, as well as for inventory written down to expected market price,net realizable value, are included in Cost of goods sold in the period in which they have been determined to occur. During fiscal 2017, the Company recorded a $3.1 million inventory reserve within its IronDirect operating segment, as the carrying value of this inventory was written down to its expected market value. As of September 30, 2017, and 2016,2023, the Company's inventory reserve was approximately $4.6 million and $3.4 million, respectively.Inventory, net on its Consolidated Balance Sheet reflects adjustments to net realizable value of $1.0 million. Adjustments to net realizable value reflected in the Inventory, net balances as of September 30, 2022, were immaterial.
Prepaid expenses and other current assets
Prepaid expenses and other current assets includes prepaid income tax, financial assets,include the short-term portion of a promissory note,contract assets (described in "Contract Assets and Liabilities"), capitalized sales commissions paid (described in "Contract Costs"), as well as other miscellaneous prepaid expenses. Financial assets are related to participation agreements for principal transactions in the Company's commercial business. Changes in the fair value of the Company's financial assets are recorded in Other operating expense. See Note 11 in the Notes to the Consolidated Financial Statements for further information.
Other Assets
On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC (the ‘‘Buyer’’)(Tanager). In connection with the disposition, the BuyerTanager assumed certain liabilities related to the Jacobs Trading business. The BuyerTanager issued a $12.3$12.3 million 5-year interest bearingfive-year interest-bearing promissory note to the Company. Of
On October 10, 2019, the $12.3Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and Guaranty Agreement (the Forbearance Agreement) with Tanager (now known as Jacobs Trading, LLC) and certain of its affiliates (collectively, JTC). In exchange for additional collateral, security, and a higher interest rate, the Company granted JTC a new repayment schedule that requires quarterly payments to be made from August 2020 to August 2023. Upon execution of the Forbearance Agreement, JTC repaid $2.5 million $1.0in principal, plus $0.4 million has beenof accrued interest. As of March 31, 2021, JTC had repaid $7.7 million of the $12.3 million owed to the Company and had an outstanding principal balance of $4.6 million.
On May 12, 2021, the Company entered into the First Amendment to the Forbearance Agreement with JTC, providing JTC with full satisfaction and discharge from its indebtedness upon receipt of a $3.5 million payment made on May 17, 2021. As a result, the Company recorded a $1.1 million loss as component of Other operating expenses in its Consolidated Statements of Operations during the year ended September 30, 2021, representing the difference between the $4.6 million outstanding balance of principal and accrued interest and the $3.5 million payment received. There was no impact on the consolidated financial statements from the Forbearance Agreement as of and during the fiscal years ended September 30, 2017,2022 and another $1.5 million was repaid in October 2017. Of the $11.3 million outstanding at September 30, 2017, $8.3 million was recorded in Other assets, and $3.0 million in Prepaid expenses and other current assets as of September 30, 2017.2023.
Property and Equipment
Property and equipment isare recorded at cost, and depreciated or amortized on a straight-line basis over the following estimated useful lives:
Computers and purchased software | One to five years | |
Equipment | Two to five years | |
Furniture and fixtures | Five to seven years | |
Internally developed software for internal-use | Two to five years | |
Leasehold improvements | Shorter of lease term or useful life | |
Buildings | Thirty-nine years | |
Vehicles | Five years | |
Land | Not depreciated |
68
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Leases
The Company determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract provides the right to control the use of an identified asset for a period of time.
Lease assets and liabilities are recognized at the lease commencement date at an amount equal to the present value of the lease payments to be made over the lease term. The lease payments represent the combination of lease and nonlease components. The discount rate used to determine the present value is the Company’s incremental borrowing rate for a duration that is consistent with the lease term, as the rates implicit in the Company’s leases are generally not determinable. The Company’s incremental borrowing rate is estimated using publicly available information for companies with comparable financial profiles, adjusted for the impact of collateralization. The lease term includes the impacts of options to extend or terminate the lease only if it is reasonably certain that the option will be exercised.
Lease expense related to operating lease assets and liabilities is recognized on a straight-line basis over the lease term. Lease expense related to finance lease assets is recognized on a straight-line basis over the shorter of the useful life of the asset or the lease term, while lease expense related to finance lease liabilities is recognized using the interest method. Lease-related payments not included in the determination of the lease assets and liabilities, such as variable lease payments, are expensed as incurred.
Lease assets and liabilities are not recognized when the lease term is 12 months or less; however, short-term lease expense is still recognized on a straight-line basis over the lease term.
Balances related to the Company's operating leases are included within Operating lease assets, Current portion of operating lease liabilities, and Operating lease liabilities (non-current portion of operating lease liabilities) on the Consolidated Balance Sheets.
Balances related to the Company's finance leases are included within Other assets (finance lease assets), Accrued expenses and other current liabilities (current portion of finance lease liabilities), and Other long-term liabilities (non-current portion of finance lease liabilities) on the Consolidated Balance Sheets.
Lease assets are assessed for impairment in accordance with the Company’s accounting policy for the impairment of long-lived assets.
Intangible Assets
Intangible assets primarily consist of contract acquisition costs, covenants not to compete, customer relationshipsintangibles, brand and other intangible assets associated with acquisitions.technology, and patent and trademarks. Intangible assets are amortized using the straight-line method over their estimated useful lives, ranging from three to ten years.lives.
Impairment of Long-Lived Assets
Long-lived assets, including definite liveddefinite-lived intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present, the Company evaluates recoverability by comparing the carrying amount of the assets to future undiscounted net cash flows expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the estimated fair value of the assets. DuringThe Company did not record impairment charges on material long-lived assets during the yearyears ended September 30, 2017,2023, 2022, and 2021.
Goodwill
Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. The Company recorded a $1.2 million impairment of a contract intangible associated with its IronDirect business, and a $0.6 million impairment to leasehold improvements, also within its IronDirect business. No impairment was recorded during the fiscal year ended September 30, 2016.
69
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In evaluating goodwill for impairment, the Company may first assessesassess qualitative factors to determine whether it is more than likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further testing of goodwill assigned to the reporting unit is required. However, ifIf the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company applies a two-stepfair value-based test.
In applying a fair value-based test, to assess goodwill for impairment. The first step comparesthe Company determines the fair value of aeach of its reporting unitunits and compares that amount to itsthe carrying amount of the respective reporting units, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, no impairment loss is recognized. If, instead, the carrying value of the reporting unit exceeds its fair value, the second stepan impairment loss is then performed. The second step comparesrecognized in the carrying amount of the reporting unit's goodwillexcess carrying value.
Deferred Revenue
Deferred revenue is primarily derived from Machinio Advertising and System subscriptions that range primarily from one to twenty-four months. Subscription fees are recognized ratably over the implied fair valueterm of the goodwill. Ifagreements.
Revenue Recognition
In the implied fair valueConsolidated Statements of Operations, revenue from the goodwillresale of inventory that the Company purchases from sellers is less thanrecognized within Purchase revenues. Revenue from the carrying amount, an impairment loss would be recorded insale of inventory that the statement of operations.
The Company recognizes revenue when all ofor as performance obligations are satisfied and control is transferred to the following criteria are met:
Revenue is also evaluated to determine whether the Company should report the gross proceeds as revenue, (whenwhen the Company acts as the principal in the arrangement)arrangement, or the Company should report its revenue on a net commissions and related fees as revenue (whenbasis, when the Company acts as an agent). In arrangementsagent. Specifically, when other parties are involved in whichproviding goods or services to a customer, the Company must determine whether the nature of its promise is a performance obligation to provide the specified goods or services itself, or to arrange for another party to provide them. The Company evaluates the following factors to determine if it is acting as a principal: (a) whether the Company is deemedprimarily responsible for fulfilling the promise to beprovide the primary obligor, bears physical and generalasset or assets; (b) whether the Company has inventory risk of the asset or assets before they are transferred to the buyer; and credit risk,(c) whether the Company has discretion in establishing the price for the asset or assets.
The Company enters into contracts with buyers and sellers. The Company has master agreements with some sellers pertaining to the sale of a flow of surplus assets over the term of the master agreement; however, a revenue contract for accounting purposes exists when the Company agrees to sell a specific asset or assets. When acting as a principal (a “purchase” arrangement), the Company purchases an asset or assets from a seller and then the Company seeks to sell the asset or assets to a buyer. The Company recognizes as revenuePurchase revenues the gross proceeds from the sale, including buyer's premiums. The Company has evaluated itsIn purchase arrangements, the contract with the seller is not a revenue contract in the scope of the revenue recognition policy related to sales under its purchase transaction model and determinedguidance; rather, it is appropriate to account for these sales on a gross basis. In the Company's evaluation,purchase of inventory.
When the Company relied most heavily upon its status as primary obligor in the sales relationship and the fact that the Company has general inventory risk.
70
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
For the Company’s CAG segment, certain transactions may involve cooperation with third parties to satisfy the performance obligation of arranging for the sale of assets to a buyer, with proceeds shared among the parties. When the Company controls whether to use third parties to fulfill its performance obligation, it is considered the principal and revenue is recognized based on the gross purchase or consignment proceeds, with amounts due to third parties recognized as an expense. When the seller requests multiple parties to fulfill its performance obligation, the Company is considered the agent and revenue is recognized based on the net purchase or consignment proceeds to be retained by the Company.
In both purchase and consignment arrangements, the Company sometimes provides varying levels of services to the seller, such as returns management, refurbishment of assets, or valuation services. These services are considered integrated with the broader performance obligation to sell the seller’s assets to a buyer. Other services provided to sellers are not capable of being distinct, like providing access to the Company’s e-commerce marketplaces or promoting the asset or assets for sale, because they could not benefit the seller separately from the sale of their assets.
The consideration received from buyers and sellers includes (a) buyer’s premiums, (b) seller’s commissions, and (c) fees for services, including reimbursed expenses. Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided. Recognition of variable consideration that is based on the seller paysresults of auctions or purchases by buyers is constrained until those transactions have been finalized. The Company estimates and recognizes amounts related to sales returns, discounts, or rebates promised to customers, and reimbursed expenses; however, those estimates are not significant relative to the Company upon completion ofCompany's consolidated revenues. Revenue is recognized when or as the transaction. Such revenue as well as other feeperformance obligation is satisfied. Variable consideration is allocated to individual performance obligations when the variable consideration is related to satisfying that performance obligation. The Company's revenue is presented as Fee Revenue ingenerally recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers and other methods of payments. Goods are generally not shipped before payment is received. For certain transactions, payment is due upon invoice and the Consolidated Statements of Operations.
The Company collects and remits sales taxes on merchandise that it purchases and sells and reportshas elected the practical expedient to exclude such sales tax amounts underfrom the net methodtransaction price. The Company also provides shipping and handling services in its Consolidated Statementssome arrangements and has elected the practical expedient to treat those activities as fulfillment costs and will recognize the costs of Operations.
The Company’s purchase and consignment performance obligations are satisfied at the point in time when control of the asset is transferred to the buyer or when the service is completed. The Company determines when control has transferred by evaluating the following five indicators: (a) whether the Company has a present right to payment for the asset or assets; (b) whether the buyer has legal title to the asset; (c) whether the buyer has physical possession of the asset or assets; (d) whether the buyer has the significant risks and rewards of ownership; and (e) whether the buyer has accepted the asset or assets.
For the Company's Machinio segment, the performance obligation has been identified as the stand ready obligation to provide access to the Machinio subscription services, which it satisfies over time and recognizes as other fee revenues. As of September 30, 2023, the Machinio segment had a remaining performance obligation of $4.7 million; the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.
Cost of Goods Sold
Cost of goods sold includes thedirect and incremental costs of purchasing andinventory, transporting property for auction, as well asshipping and handling costs, and credit card transaction fees. The Company purchases the majority of its inventory at a percentage of the vendor's original acquisition cost under the Surplus Contract and certain commercial contracts, at a percentage of the vendor's last retail price under certain commercial contracts, and at a fixed price per pound that varies depending on the type of the inventory purchased under the Scrap Contract. Title for the inventory passes toFor transactions where the Company atresells inventory that was purchased from sellers, the time of purchase and the Company bears the risks and rewards of ownership. The Company does not have title to assets sold on behalf of its commercial or government sellers when it receives only sales commission revenue and, as such, recognizes no inventory and related cost of goods sold includes the cost of that inventory, generally using specific identification. There are no inventory costs associated with thoseconsignment sales. Cost
71
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Contract Assets and Liabilities
Contract assets reflect an estimate of goods sold also includes shippingexpenses that will be reimbursed upon settlement with a seller. The contract asset balance was $0.9 and handling costs.$0.9 million as of September 30, 2023, and 2022, respectively, and is included in the line-item Prepaid expenses and other current assets on the Consolidated Balance Sheets.
Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from upfront payments received in connection with Machinio's subscription services. The contract liability balance was $4.7 million and $4.4 million as of September 30, 2023, and 2022, respectively, and is included in the line-item Deferred revenue on the Consolidated Balance Sheet. Of the September 30, 2022 contract liability balance, $4.4 million was earned as Fee Revenue during the year ended September 30, 2023.
Contract Costs
Contract costs relate to sales commissions paid on subscription contracts that are capitalized within our Machinio segment. Contract costs are amortized over the expected life of the customer contract. The contract cost balance was $2.2 million and $1.8 million as of September 30, 2023, and 2022, respectively, and is included in the line-item Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets. Amortization expense was $1.3 million and $1.1 million during the year ended September 30, 2023, and 2022, respectively.
Risk Associated with Certain Concentrations
For the majority of its buyers. However, substantially all salesbuyers that receive goods before payment to the Company is made, credit evaluations are recorded subsequent toperformed; however, for the remaining buyers, goods are not shipped before payment authorization being received. Asis made, and as a result the Company is not subject to significant collection risk as most goods are not shipped before payment is received.
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 cashCash and cash equivalents inon the consolidated financial statements.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. The amount of cash held on behalf of the sellers is recorded as Payables to sellers in the accompanying Consolidated Balance Sheets.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents in banks over FDICwithin non-interest bearing, interest-bearing, and earnings allowance checking accounts, as well as cash equivalent money market funds, all of which exceed the applicable U.S. federal (FDIC and/or SIPC) and local jurisdiction (foreign banking institutions) insurance limits, and accountsAccounts 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.
We have multiple vendor contracts with the Department of Defense (DoD) under which it acquires, manages and sells government property. Revenue from the sale of property acquired, as well as provision of services, under the current Surplus Contract accounted for 27.6%, 31.0%, and 24.7%, of the Company's consolidated revenue for the fiscal years ended September 30, 2017, 2016, and 2015, respectively. Revenue from the sale of property acquired under the Scrap contract accounted for approximately 11.1%, 10.2% and 15.3% of the Company's total revenue for the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
72
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Income Taxes
The Company accounts for income taxes using an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which the taxes are expected to be paid or recovered. We recognizeThe Company recognizes deferred tax assets to the extent that we believeit believes that these assets are more likely than not to be realized. In making such determination, we considerthe Company considers all available positive and negative evidence to estimate whether future taxable income will be generated to permit use of the existing deferred tax asset. The resulting net tax asset reflects management's estimate of the amount that will be realized.
The Company applies the authoritative guidance related to uncertainty in income taxes. Accounting Standards Codification (ASC) 740 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 resolutions of any related appeals or litigation processes, on the basis of technical merits. The Company records unrecognized tax benefits as a reduction to its deferred tax asset for its net operating loss carryforward. During fiscal year 2016, the Company reduced its net operating loss carryforward by $0.7 million for unrecognized tax benefits related to federal and state tax exposures. During fiscal year 2017, the Company reduced its net operating loss carryforward by $3.0 million for unrecognized tax benefits related to federal and state tax exposures. The Company’s policy is to recognize interest and penalties in the period in which they occur in the income tax provision. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and in foreign jurisdictions including, among others, Canada and the U.K.
Stock-Based Compensation
The Company estimateshas incentive plans under which stock options, restricted stock units, restricted stock awards, and stock appreciation rights are issued. The awards issued can contain service conditions, performance conditions based upon Company financial results, and/or market conditions based upon changes in the Company's stock price.
Service- and performance-based stock awards are measured at fair value of share-based awards on the date of grant. The fair value of stocktheir grant date. Stock options and stock appreciation rights is determinedare measured at fair value using the Black-Scholes option-pricing model. Themodel; however, because the stock appreciation rights are cash settled, they are also measured at fair value in each reporting period. The Black-Scholes option-pricing model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company's historical results. Where applicable, the expected term assumption is derived separately for homogenous groups within the overall award population. Restricted stock units and restricted stock units is based onawards are measured at fair value using the closing price of the Company’s commonCompany's stock on the date of grant. The determination of the fair value of the Company’sgrant date. For service-based stock options and stock appreciation rights is based on a variety of factors including, but not limited to, the Company’s common stock price, expected stock price volatility over the expected life of units, and actual and projected exercise behavior. Additionally, the Company has estimated forfeitures for share-based awards, at the dates of grant based on historical experience, adjusted for future expectation. The forfeiture estimate is revised as necessary if actual forfeitures differ from these estimates.
Market-based stock awards are measured at fair value on their grant date using a Monte Carlo simulation. The Company excludesMonte Carlo simulation includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference to the Company's historical results. For market-based stock optionsoption and restricted stock units that contain performance vesting conditions from diluted earnings per share computations untilawards, the contingency is met as ofCompany recognizes expense on a straight-line basis over the end of that reporting period.
The Company recognizes the impact of forfeitures in the period they occur.
Compensation expense from the stock awards is included in the same lines on the Consolidated Statements of Operations as the cash compensation to the employees receiving the stock awards.
73
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Excess tax benefits realized from stock awards are reported as cash flows from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) as a financing activity with a corresponding operating cash outflow inactivities on the Consolidated Statements of Cash Flows when it is considered probable that those tax benefits will be realized.Flows.
Advertising Costs
Advertising expenditures are expensed as incurred. Advertising costs charged to expense were $5.2$4.5 million, $6.0$4.6 million, and $5.3$3.2 million for the years ended September 30, 2017, 20162023, 2022, and 2015,2021, respectively.
Treasury Stock
Treasury stock is presented at cost, including any applicable excise taxes, commissions and fees, as a reduction of Financial Instruments
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is primarily the local currency. The translation of the subsidiary's financial statements into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet date and for revenue and expense accounts using an average exchange rate during the period. The resulting translation adjustments are recognized in accumulatedAccumulated other comprehensive (loss) income,loss, a separate component of stockholders' equity. Realized and unrealized foreign currency transaction gains and losses for 2017, 2016 and 2015 are included in interestInterest and other income, (expense), net in the Consolidated Statements of Operations.
Accumulated Other Comprehensive Income (loss)
The following table shows the changes in accumulated other comprehensive income (loss),loss, net of taxes (in thousands):
| Foreign Currency Translation Adjustments |
|
| Net Change Pension and Other Postretirement Benefit Plans |
|
| Accumulated Other Comprehensive Loss |
| ||||
Balance at September 30, 2020 |
| $ | (8,085 | ) |
| $ | (1,697 | ) |
| $ | (9,782 | ) |
Current-period other comprehensive income |
|
| 601 |
|
|
| 170 |
|
|
| 771 |
|
Balance at September 30, 2021 |
|
| (7,484 | ) |
|
| (1,527 | ) |
|
| (9,011 | ) |
Current-period other comprehensive (loss) |
|
| (3,110 | ) |
|
| 1,836 |
|
|
| (1,274 | ) |
Balance at September 30, 2022 |
|
| (10,594 | ) |
|
| 309 |
|
|
| (10,285 | ) |
Current-period other comprehensive (loss) |
|
| 1,238 |
|
|
| (1,411 | ) |
|
| (173 | ) |
Balance at September 30, 2023 |
| $ | (9,356 | ) |
| $ | (1,102 | ) |
| $ | (10,458 | ) |
Foreign Currency Translation Adjustments | Net Change Pension and Other Postretirement Benefit Plans | Accumulated Other Comprehensive Income (Loss) | |||||||
Balance at September 30, 2014 | (3,671 | ) | 220 | (3,451 | ) | ||||
Current-period other comprehensive (loss) income | (3,276 | ) | 1,101 | (2,175 | ) | ||||
Balance at September 30, 2015 | (6,947 | ) | 1,321 | (5,626 | ) | ||||
Current-period other comprehensive loss | (398 | ) | (2,547 | ) | (2,945 | ) | |||
Balance at September 30, 2016 | (7,345 | ) | (1,226 | ) | (8,571 | ) | |||
Current-period other comprehensive income | 551 | 1,589 | 2,140 | ||||||
Balance at September 30, 2017 | (6,794 | ) | 363 | (6,431 | ) |
Recent Accounting Pronouncements
Accounting Standards Adopted
In December 2019, the Financial Accounting Standards Board (FASB) Topic 260issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The Company adopted the new standard on a prospective basis effective October 1, 2021. This accounting standard has not had a material impact on the Company's consolidated financial statements.
74
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or 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, due to the fact that the Company was classified as a smaller reporting company defined by the SEC at the time the rule was effective for public business entities. The guidance 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 consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable and money market funds. We do not expect the adoption of this ASU will have a material impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. It will require organizations to provide enhanced disclosures primarily regarding significant segment expenses. The guidance will be effective for the Company beginning with its Annual Report on Form 10-K for the fiscal year ending September 30, 2025. The guidance is required to be applied on a retrospective basis, with all such required disclosures to be made with regard to all fiscal years presented in the financial statements. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.
3. Bid4Assets Acquisition
On November 1, 2021, our GovDeals segment 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 acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $42.7 million consisting of $14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a preliminary fair value of $28.0 million. Former shareholders of Bid4Assets were eligible to receive earn-out consideration of 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 Company's allocation of the purchase price to the assets acquired and liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, is as follows:
(in thousands) |
| Fair Value |
| |
Cash and cash equivalents |
| $ | 3,576 |
|
Intangible assets |
|
| 16,500 |
|
Other assets |
|
| 346 |
|
Total assets acquired |
|
| 20,422 |
|
Payables to sellers |
|
| 3,715 |
|
Operating lease liabilities |
|
| 204 |
|
Deferred tax liabilities |
|
| 3,847 |
|
Total liabilities assumed |
|
| 7,766 |
|
Net identifiable assets acquired |
| $ | 12,656 |
|
Goodwill |
|
| 30,083 |
|
Total consideration transferred |
| $ | 42,739 |
|
75
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as Goodwill. The Goodwill associated with our acquisition includes the acquired assembled work force, and the value associated with the opportunity to leverage the workforce to continue to grow by adding additional customer relationships or new solutions in the future. Based on management's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, Goodwill of approximately $30.1 million was recorded. The total Goodwill arising from the acquisition is included in the GovDeals reportable segment and reporting unit and is not deductible for tax purposes.
The known intangible assets acquired were determined to consist of, and fair valued at, the following:
(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 |
|
Contract Intangibles
We recorded contract intangibles separately from goodwill based upon determination of the length, strength, and contractual nature of the relationship that Bid4Assets shared with its suppliers. We valued the contract intangibles using the multi-period excess earnings method, an income approach valuation model. The significant assumptions used in the income approach includes estimates about future expected cash flows from supplier contracts, the attrition rate, and the discount rate. We are amortizing the contract intangibles, valued at $13.9 million, on a straight-line basis over a useful life of eight years, which is materially consistent with the expected pattern of economic benefit.
Developed Software
Developed software primarily consists of intellectual property of the Bid4Assets e-commerce marketplace and associated mailing lists. We valued the developed software by applying the relief-from-royalty method, an income approach valuation model. The significant assumptions used in the relief-from-royalty method include estimates about future expected cash flows from the developed software, the royalty rate, the obsolescence factor and the discount rate. We are amortizing the acquired developed technology, valued at $2.2 million, on a straight-line basis over a useful life of three years, which is materially consistent with the expected pattern of economic benefit.
Trade Name
We valued the trade name acquired using a relief-from-royalty method. The significant assumptions used in the relief-from-royalty method include future expected cash flows from the trade name, the royalty rate, and the discount rate. We are amortizing the trade name, valued at $0.4 million, on a straight-line basis over a useful life of three years, which is materially consistent with the expected pattern of economic benefit.
Contingent Consideration
During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded contingent consideration in the amount of $28.0 million on its Consolidated Balance Sheets. Through and as of the final measurement period ended December 31, 2022, $3.5 million in earn-out payments were made. See further discussion of this matter within Note 13 - Fair Value Measurement.
Other Information
Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the consolidated financial statements and its related notes for the years ended September 30, 2023, and 2022.
4. Earnings Per Share (“ASC 260”). Under ASC 260,
76
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company calculates basic net income (loss) per common share is calculatedEPS by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock units. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options andperiod, excluding unvested restricted stock units. awards.
The Company calculates diluted net income per share by dividing net income by the weighted-average number of common shares and potentially dilutive effect of unexercised stock options and unvested restricted stock units was determinedcommon shares outstanding during the reporting period using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of
The Company's potentially dilutive common shares include stock options, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded in additional paid-in capital whenrestricted stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock optionsunits, and restricted stock unitsawards. For such awards that have performance- or market-conditions, they are not includedconsidered dilutive only when those performance- or market-conditions have been satisfied as of the reporting date; however, in periods of a net loss, the computationCompany's diluted EPS will equal its basic EPS, as all its potential common shares are anti-dilutive in that case. In periods of net income, the calculation of diluted net income (loss) per share when they are antidilutive.
The Company has not included the following stock options in the calculationcomputation of basic and diluted net income per share because the option exercise prices were greater than the average market prices for the applicable periods:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
| |||
Net income |
| $ | 20,978 |
|
| $ | 40,324 |
|
| $ | 50,949 |
|
Denominator: |
|
|
|
|
|
|
|
|
| |||
Basic weighted average shares outstanding |
|
| 31,075,648 |
|
|
| 32,292,978 |
|
|
| 33,333,557 |
|
Dilutive impact of stock options, RSUs and RSAs |
|
| 998,913 |
|
|
| 1,426,446 |
|
|
| 1,690,551 |
|
Diluted weighted average shares outstanding |
|
| 32,074,561 |
|
|
| 33,719,424 |
|
|
| 35,024,108 |
|
Basic income per common share |
| $ | 0.68 |
|
| $ | 1.25 |
|
| $ | 1.53 |
|
Diluted income per common share |
| $ | 0.65 |
|
| $ | 1.20 |
|
| $ | 1.45 |
|
Stock options, RSUs and RSAs excluded from income per diluted share because their effect would have been anti-dilutive |
|
| 1,808,606 |
|
|
| 1,009,288 |
|
|
| 420,454 |
|
September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(amounts in thousands except per share and share data) | ||||||||||||
Weighted average shares calculation: | ||||||||||||
Basic weighted average shares outstanding | 31,402,921 | 30,638,163 | 29,987,985 | |||||||||
Treasury stock effect of options and restricted stock | — | — | — | |||||||||
Diluted weighted average common shares outstanding | 31,402,921 | 30,638,163 | 29,987,985 | |||||||||
Net loss | $ | (39,187 | ) | $ | (59,926 | ) | $ | (104,815 | ) | |||
Basic and diluted loss per common share | $ | (1.25 | ) | $ | (1.96 | ) | $ | (3.50 | ) |
5. Property and Equipment
Property and equipment, including equipment under capital lease obligations, consists of the following:
September 30, |
| ||||||
2023 |
|
| 2022 |
| |||
(in thousands) |
| ||||||
Computers and purchased software | $ | 2,151 |
|
| $ | 2,058 |
|
Developed software for internal-use |
| 25,820 |
|
|
| 22,168 |
|
Equipment |
| 9,337 |
|
|
| 8,536 |
|
Leasehold improvements |
| 2,979 |
|
|
| 3,256 |
|
Building |
| 2,158 |
|
|
| 2,158 |
|
Furniture and fixtures |
| 413 |
|
|
| 527 |
|
Vehicles |
| 1,383 |
|
|
| 1,406 |
|
Land |
| 754 |
|
|
| 754 |
|
Construction in progress |
| 2,249 |
|
|
| 1,812 |
|
Total property and equipment |
| 47,244 |
|
|
| 42,675 |
|
Less: Accumulated depreciation and amortization |
| (30,088 | ) |
|
| (23,581 | ) |
Total property and equipment, net | $ | 17,156 |
|
| $ | 19,094 |
|
September 30, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Computers and purchased software | $ | 23,724 | $ | 24,584 | ||||
Internally developed software for internal-use | 7,100 | — | ||||||
Office/Operational equipment | 6,845 | 6,700 | ||||||
Leasehold improvements | 4,167 | 5,139 | ||||||
Building | 2,558 | 2,257 | ||||||
Furniture and fixtures | 1,247 | 1,356 | ||||||
Vehicles | 1,048 | 981 | ||||||
Land | 754 | 754 | ||||||
Construction in progress | 944 | 3,926 | ||||||
Total property and equipment | 48,387 | 45,697 | ||||||
Less: Accumulated depreciation and amortization | (31,594 | ) | (31,321 | ) | ||||
Total property and equipment, net | $ | 16,793 | $ | 14,376 |
Depreciation and amortization expense related to property and equipment for the years ended September 30, 2017, 20162023, 2022, and 2015,2021, was $4.8$7.4 million, $5.1$6.5 million, and $6.1$5.6 million, respectively. During the year ended September 30, 2017, the Company transferred $3.9 million from ConstructionIncluded in progress to internally developed software for internal-use, and capitalized an additional $3.2 million in cost associated with internally developed software for internal-use. Amortizationthose amounts is amortization of internally developed software for internal-use was $0.4internal use of $5.6 million, for$4.7 million, and $3.9 million, respectively.
The Company did not record impairment charges on material property and equipment during the yearyears ended September 30, 2017.2023, 2022, and 2021.
6. Leases
77
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company has operating leases for its corporate offices, warehouses, vehicles and were the resultequipment. The operating leases have remaining terms of up to 5.3 years. Some of the terminationleases have options to extend or terminate the leases. The exercise of such options is generally at the Wal-Mart Agreement, cessationCompany’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.
The components of operations of NESA, and decline in market capitalization.
| September 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Finance lease – lease asset amortization | $ | 78 |
|
| $ | 80 |
|
Finance lease – interest on lease liabilities |
| 11 |
|
|
| 21 |
|
Operating lease cost |
| 5,328 |
|
|
| 5,695 |
|
Operating lease impairment expense |
| — |
|
|
| — |
|
Short-term lease cost |
| 413 |
|
|
| 337 |
|
Variable lease cost (1) |
| 1,300 |
|
|
| 1,368 |
|
Sublease income |
| (88 | ) |
|
| (111 | ) |
Total net lease cost | $ | 7,042 |
|
| $ | 7,390 |
|
(1)Variable lease costs primarily relate to the Company's fiscal year 2016 annual impairment assessment,election to combine non-lease components such as common area maintenance, insurance and taxes related to its real estate leases. To a lesser extent, the Company identified indicatorsCompany's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.
Maturities of impairmentlease liabilities are:
| September 30, |
| |||||
| Operating Leases |
|
| Finance Leases |
| ||
2024 | $ | 4,629 |
|
| $ | 97 |
|
2025 |
| 3,854 |
|
|
| 68 |
|
2026 |
| 2,418 |
|
|
| 65 |
|
2027 |
| 560 |
|
|
| 12 |
|
2028 |
| 144 |
|
|
| — |
|
Thereafter |
| 49 |
|
|
| — |
|
Total lease payments (1) |
| 11,654 |
|
|
| 242 |
|
Less: imputed interest (2) | $ | (928 | ) |
| $ | (18 | ) |
Total lease liabilities | $ | 10,726 |
|
| $ | 224 |
|
(1)The weighted average remaining lease term is 2.8 years for operating leases and as a result performed step one2.9 years for finance leases.
(2)The weighted average discount rate is 6.2% for operating leases and 5.6% for finance leases.
Supplemental disclosures of the goodwill impairment test. The Company performed the step one test using a discounted cash flow method. information related to leases are:
| Years Ended September 30, |
| |||||
| 2023 |
|
| 2022 |
| ||
Cash paid for amounts included in operating lease liabilities | $ | 4,754 |
|
| $ | 4,368 |
|
Cash paid for amounts included in finance lease liabilities | $ | 101 |
|
| $ | 99 |
|
Non-cash: lease liabilities arising from new operating lease assets obtained | $ | 725 |
|
| $ | 4,664 |
|
Non-cash: lease liabilities arising from new finance lease assets obtained | $ | — |
|
| $ | 175 |
|
Non-cash: adjustments to lease assets and liabilities(1) | $ | 418 |
|
| $ | (196 | ) |
(1)These include adjustments due to lease modifications, renewals, and other related adjustments.
78
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. Goodwill
The Company concluded thatcarrying value and changes in the carrying value exceeded fair value for one of the Company's reporting units that had goodwill. Accordingly, the Company performed the step two test to derive the fair value of the goodwill, and as a result the Company recorded a $19.0 million impairment charge to its RSCG reporting unit during the fourth quarter of fiscal year 2016. The goodwill impairment was due to updated assumptions used in the fair value calculation.
Goodwill (in thousands) |
| GovDeals |
|
| CAG |
|
| Machinio |
|
| Total |
| ||||
Balance at September 30, 2020 |
| $ | 23,731 |
|
| $ | 21,550 |
|
| $ | 14,558 |
|
| $ | 59,839 |
|
Translation adjustments |
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| 33 |
|
Balance at September 30, 2021 |
| $ | 23,731 |
|
| $ | 21,583 |
|
| $ | 14,558 |
|
| $ | 59,872 |
|
Addition: Bid4Assets acquisition |
|
| 30,083 |
|
|
| — |
|
|
| — |
|
|
| 30,083 |
|
Translation adjustments |
|
| — |
|
|
| (1,045 | ) |
|
| — |
|
|
| (1,045 | ) |
Balance at September 30, 2022 |
| $ | 53,814 |
|
| $ | 20,538 |
|
| $ | 14,558 |
|
| $ | 88,910 |
|
Translation adjustments |
|
| — |
|
|
| 478 |
|
|
| — |
|
|
| 478 |
|
Balance at September 30, 2023 |
| $ | 53,814 |
|
| $ | 21,016 |
|
| $ | 14,558 |
|
| $ | 89,388 |
|
Goodwill (in thousands) | RSCG | CAG | GovDeals | Total | ||||||||||||
Balance at September 30, 2014 | $ | 78,458 | $ | 131,198 | $ | — | $ | 209,656 | ||||||||
Impairment charge | (52,716 | ) | (83,532 | ) | — | (136,248 | ) | |||||||||
Business disposition | (6,733 | ) | — | (6,733 | ) | |||||||||||
Translation adjustments | (405 | ) | (2,197 | ) | — | (2,602 | ) | |||||||||
Balance at September 30, 2015 | $ | 18,604 | $ | 45,469 | $ | — | $ | 64,073 | ||||||||
Reallocation of goodwill | — | (23,731 | ) | 23,731 | — | |||||||||||
Impairment charge | (18,998 | ) | — | — | (18,998 | ) | ||||||||||
Translation adjustments | 394 | (335 | ) | — | 59 | |||||||||||
Balance at September 30, 2016 | — | 21,403 | 23,731 | 45,134 | ||||||||||||
Impairment charge | — | — | — | — | ||||||||||||
Translation adjustments | — | 254 | — | 254 | ||||||||||||
Balance at September 30, 2017 | $ | — | $ | 21,657 | $ | 23,731 | $ | 45,388 |
Accumulated goodwill impairment losses as of September 30, 20142023, and 2022 were $13.4$168.6 million.
Impairment Analysis
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 of July 1, 2023, the Company performed a quantitative fair-value-based test for each of our reporting units, determining that each of our reporting units with goodwill balances substantially exceeded their carrying values. The fair value test was performed utilizing the discounted cash flow method under the Income approach and the guideline company method under the Market approach, the results of which were weighted 75:25, respectively, in the ending determined fair value. The Company did not record impairment charges on its goodwill during the years ended September 30, 2023, 2022, and 2021.
The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended September 30, 2023.
8. Intangible Assets
Intangible assets consist of the following:
|
|
|
|
|
|
| September 30, 2023 |
|
| September 30, 2022 |
| |||||||||||||||||||
(in thousands) |
| Useful |
| Weighted |
|
| Gross |
|
| Accumulated |
|
| Net |
|
| Gross |
|
| Accumulated |
|
| Net |
| |||||||
Contract intangibles |
| 6 - 8 |
|
| 8.0 |
|
| $ | 17,000 |
|
| $ | (6,043 | ) |
| $ | 10,957 |
|
| $ | 17,000 |
|
| $ | (3,789 | ) |
| $ | 13,211 |
|
Technology |
| 3 - 5 |
|
| 6.1 |
|
|
| 5,300 |
|
|
| (4,361 | ) |
|
| 939 |
|
|
| 5,300 |
|
|
| (3,089 | ) |
|
| 2,211 |
|
Patent and trademarks |
| 7 - 10 |
|
| 9.1 |
|
|
| 2,375 |
|
|
| (1,814 | ) |
|
| 561 |
|
|
| 2,381 |
|
|
| (1,569 | ) |
|
| 812 |
|
Total intangible assets, net |
|
|
|
|
|
| $ | 24,675 |
|
| $ | (12,218 | ) |
| $ | 12,457 |
|
| $ | 24,681 |
|
| $ | (8,447 | ) |
| $ | 16,234 |
|
Balance as of September 30, 2017 | Balance as of September 30, 2016 | ||||||||||||||||||||||||||
Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||
Contract intangibles | 10 | $ | — | $ | — | $ | — | $ | 1,500 | $ | (150 | ) | $ | 1,350 | |||||||||||||
Brand and technology | 3 - 5 | — | — | — | 5,749 | (5,018 | ) | 731 | |||||||||||||||||||
Covenants not to compete | 3 - 5 | — | — | — | 700 | (533 | ) | 167 | |||||||||||||||||||
Patent and trademarks | 3 - 10 | 943 | (516 | ) | 427 | 820 | (418 | ) | 402 | ||||||||||||||||||
Total intangible assets, net | $ | 943 | $ | (516 | ) | $ | 427 | $ | 8,769 | $ | (6,119 | ) | $ | 2,650 |
Future expected amortization of intangible assets at September 30, 2017,2023, is as follows:
Year Ending September 30, |
| Amortization |
| |
| (in thousands) |
| ||
2024 |
| $ | 3,254 |
|
2025 |
|
| 2,013 |
|
2026 |
|
| 1,768 |
|
2027 |
|
| 1,761 |
|
2028 |
|
| 1,752 |
|
Thereafter |
|
| 1,909 |
|
Total |
| $ | 12,457 |
|
79
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Year Ending September 30, | Amortization | |||
(in thousands) | ||||
2018 | $ | 76 | ||
2019 | 69 | |||
2020 | 70 | |||
2021 | 58 | |||
2022 and after | 154 | |||
Total | $ | 427 |
Amortization expense related to intangible assets for the years ended September 30, 2017, 20162023, 2022, and 20152021 was $1.0$3.8 million, $1.4$3.7 million, and $3.1$1.3 million, respectively.
The Company recorded a $0.1 million charge, and reduced the remaining unamortized value of this intangible asset to zero during the fiscal year ended September 30, 2017. Thesedid not record impairment charges are recorded in the Acquisition costs and related fair value adjustments and impairment of goodwill and long-livedon any intangible assets line item in the Consolidated Statements of Operations and reported under the Corporate & other segment.
Year Ending September 30, | Operating Lease Payments | |||
(in thousands) | ||||
2018 | $ | 9,432 | ||
2019 | 8,696 | |||
2020 | 4,903 | |||
2021 | 2,806 | |||
2022 | 1,001 | |||
2023 | 305 | |||
Total future minimum lease payments | $ | 27,143 |
9. 401(k) Benefit Plan
The Company has a retirement plan (the Plan), which is intended to be a qualified plan under Section 401(k) of the Internal Revenue Code.Code of 1986, as amended. The Plan is a defined contribution plan available to all eligible employees and allows participants to contribute up to the legal maximum of their eligible compensation, not to exceed the maximum tax-deferred amount allowed by the Internal Revenue Service. The Plan also allows the Company to make discretionary matching contributions.
During the fiscal year ended September 30, 2023, the Company stopped accepting investments in the Company’s stock fund under the Plan and all shares of the Company and other Plan interests held in the stock fund under the Plan were reinvested into non-Company investment vehicles. On March 28, 2023, the Company filed a post-effective amendment on Form S-8 with the SEC to deregister all of the previously registered shares and other Plan interests that remained unissued and unsold under the Plan. As a result, interests in the Plan no longer require registration under the Securities Exchange Act of 1934, as amended. On October 2, 2023, the Company filed a Form 15 to suspend the duty of the Plan to file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended.
For the years ended September 30, 2017, 20162023, 2022, and 2015,2021, the Company contributed and recorded expenseexpenses of approximately $2.1$1.4 million, $1.7$1.0 million, and $2.4$1.1 million, respectively, related to its contributions to the Plan.
10. Income Taxes
The components of the provision for income taxes of continuing operations are as follows:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
| (in thousands) |
| ||||||||||
Current tax provision (benefit): |
|
|
|
|
|
|
|
|
| |||
U.S. Federal |
| $ | — |
|
| $ | — |
|
| $ | — |
|
State |
|
| 1,179 |
|
|
| 487 |
|
|
| 293 |
|
Foreign |
|
| 282 |
|
|
| 555 |
|
|
| 847 |
|
|
| 1,461 |
|
|
| 1,042 |
|
|
| 1,140 |
| |
Deferred tax provision (benefit): |
|
|
|
|
|
|
|
|
| |||
U.S. Federal |
|
| 5,251 |
|
|
| 4,962 |
|
|
| (23,315 | ) |
State |
|
| 1,280 |
|
|
| 1,275 |
|
|
| (1,252 | ) |
Foreign |
|
| 47 |
|
|
| 50 |
|
|
| 57 |
|
|
| 6,578 |
|
|
| 6,287 |
|
|
| (24,510 | ) | |
Total provision (benefit) |
| $ | 8,039 |
|
| $ | 7,329 |
|
| $ | (23,370 | ) |
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Current tax provision (benefit): | ||||||||||||
U.S. Federal | $ | (234 | ) | $ | — | $ | (32,116 | ) | ||||
State | 613 | 672 | (1,375 | ) | ||||||||
Foreign | (210 | ) | 176 | 203 | ||||||||
169 | 848 | (33,288 | ) | |||||||||
Deferred tax (benefit) expense: | ||||||||||||
U.S. Federal | (592 | ) | 25,338 | 326 | ||||||||
State | (86 | ) | 3,890 | (4,422 | ) | |||||||
Foreign | 58 | (3,051 | ) | (2,187 | ) | |||||||
(620 | ) | 26,177 | (6,283 | ) | ||||||||
Total (benefit) provision | $ | (451 | ) | $ | 27,025 | $ | (39,571 | ) |
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
80
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
| September 30, |
| ||||||
| 2023 |
|
| 2022 |
| |||
| (in thousands) |
| ||||||
Deferred tax assets: |
|
|
|
|
|
| ||
Net operating losses—Foreign |
| $ | 16,403 |
|
| $ | 12,409 |
|
Net operating losses—U.S. |
|
| 14,581 |
|
|
| 24,054 |
|
Accrued vacation and bonus |
|
| 831 |
|
|
| 701 |
|
Inventory capitalization |
|
| 486 |
|
|
| 683 |
|
Inventory reserves |
|
| 243 |
|
|
| 24 |
|
Allowance for doubtful accounts |
|
| 363 |
|
|
| 113 |
|
Stock compensation expense |
|
| 3,288 |
|
|
| 2,198 |
|
Operating lease liabilities |
|
| 3,552 |
|
|
| 3,565 |
|
Other |
|
| 386 |
|
|
| 845 |
|
Total deferred tax assets before valuation allowance |
|
| 40,133 |
|
|
| 44,592 |
|
Less: valuation allowance |
|
| (16,029 | ) |
|
| (12,259 | ) |
Net deferred tax assets |
|
| 24,104 |
|
|
| 32,333 |
|
Deferred tax liabilities: |
|
|
|
|
|
| ||
Amortization of intangibles |
|
| 2,666 |
|
|
| 3,453 |
|
Amortization of goodwill |
|
| 7,964 |
|
|
| 7,595 |
|
Depreciation |
|
| 1,004 |
|
|
| 938 |
|
Capitalized costs |
|
| 1,440 |
|
|
| 2,786 |
|
Operating/right of use assets |
|
| 3,365 |
|
|
| 3,325 |
|
Pension liability |
|
| 615 |
|
|
| 608 |
|
Total deferred tax liabilities |
| $ | 17,054 |
|
| $ | 18,705 |
|
Net deferred taxes |
| $ | 7,050 |
|
| $ | 13,628 |
|
81
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, | ||||||||
2017 | 2016 | |||||||
Deferred tax assets: | ||||||||
Net operating losses—Foreign | $ | 9,171 | $ | 8,964 | ||||
Net operating losses—U.S. | 31,133 | 17,086 | ||||||
Accrued vacation and bonus | 859 | 1,305 | ||||||
Inventory capitalization | 1,315 | 1,906 | ||||||
Inventory reserves | 1,903 | 1,311 | ||||||
Allowance for doubtful accounts | 98 | 120 | ||||||
Stock compensation expense | 6,689 | 8,105 | ||||||
Amortization of intangibles | 2,753 | 2,286 | ||||||
Amortization of goodwill | — | 1,021 | ||||||
Pension liability | — | 133 | ||||||
Restructuring costs | 913 | — | ||||||
Other | 3,134 | 3,699 | ||||||
Total deferred tax assets before valuation allowance | 57,968 | 45,936 | ||||||
Less: valuation allowance | (54,379 | ) | (44,257 | ) | ||||
Net deferred tax assets | 3,589 | 1,679 | ||||||
Deferred tax liabilities: | ||||||||
Amortization of goodwill | 9,000 | 9,444 | ||||||
Depreciation | 185 | 658 | ||||||
Capitalized costs | 3,032 | — | ||||||
Pension liability | 372 | — | ||||||
Total deferred tax liabilities | $ | 12,589 | $ | 10,102 | ||||
Net deferred taxes | $ | (9,000 | ) | $ | (8,423 | ) |
The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations is as follows:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
U.S. statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
Stock-based stock compensation expense |
|
| (1.3 | )% |
|
| (2.0 | )% |
|
| (14.1 | )% |
Nondeductible compensation expense |
|
| 0.5 | % |
|
| 2.0 | % |
|
| 5.5 | % |
Fair value adjustments of acquisition earn-outs |
|
| — | % |
|
| (10.8 | )% |
|
| — | % |
Other permanent items |
|
| 0.1 | % |
|
| (0.4 | )% |
|
| 0.1 | % |
State taxes |
|
| 7.8 | % |
|
| 3.3 | % |
|
| 3.0 | % |
Net foreign rate differential |
|
| — | % |
|
| 0.1 | % |
|
| 0.5 | % |
Unrecognized tax benefits |
|
| (0.5 | )% |
|
| 0.0 | % |
|
| 0.1 | % |
Change in valuation allowance |
|
| 1.4 | % |
|
| (3.3 | )% |
|
| (98.9 | )% |
Write-down of deferred tax assets on share-based stock compensation |
|
| 0.2 | % |
|
| 0.5 | % |
|
| 0.7 | % |
Write-down of deferred tax assets on net operating loss |
|
| (0.8 | )% |
|
| 4.2 | % |
|
| (2.8 | )% |
Other |
|
| (0.7 | )% |
|
| 0.8 | % |
|
| 0.2 | % |
Effective rate |
|
| 27.7 | % |
|
| 15.4 | % |
|
| (84.7 | )% |
Year Ended September 30, | |||||||||
2017 | 2016 | 2015 | |||||||
U.S. statutory rate | 35.0 | % | 35.0 | % | 35.0 | % | |||
Permanent items | (0.9 | )% | (4.2 | )% | (6.3 | )% | |||
State taxes | 1.2 | % | 1.9 | % | 2.6 | % | |||
Net foreign rate differential | (2.8 | )% | (3.8 | )% | (3.0 | )% | |||
Unrecognized tax benefits | 3.5 | % | (2.2 | )% | — | % | |||
Change in valuation allowance | (34.8 | )% | (108.8 | )% | (0.9 | )% | |||
Other | (0.06 | )% | — | % | — | % | |||
Provision for income taxes | 1.1 | % | (82.1 | )% | 27.4 | % |
As of September 30, 20172023, and 2016,2022, the Company had federal and state deferred tax assets of $45.4$6.6 million and $35.8$13.4 million, respectively, related to available federal and state net operating loss (NOL) carryforwards, foreign tax credit carryforwards, and other U.S. deductible temporary differences. The federal and state NOL carryforwards expire beginning in 2035 through 2037.2038 and 2024, respectively. The Company's ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. The foreign tax credit carryforwards expire beginning in 2024. At September 30, 20172023 and 2016,2022, the Company had deferred tax assets related to available foreign NOL carryforwards of approximately $9.2$16.4 million and $9.0$12.4 million, respectively. All but approximately $0.5$0.5 million of our foreign NOLs maintain an indefinite carry forward life. The NOLs with limited carryforward periods will expire beginning in 2018 through 2037.
The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation allowance is recorded. Consideration was given to the tax planning strategies and, when applicable, future taxable income as to how much of the relevant deferred tax asset could be realized on a more likely than not basis. The Company has recorded a valuation allowance of $16.0 million and $12.3 million against its gross deferred tax asset balance at September 30, 2023 and 2022, respectively. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 30, 2023, the Company determined that there was sufficient positive evidence to conclude that it is more likely than not that all of its U.S. deferred tax assets are realizable, except for $0.2 million of foreign tax credit carry forwards that expire beginning in 2024.
The Tax Act and Jobs Act of 2017 (the Tax Act) subjects a U.S. shareholder to a minimum tax on "global intangible low-taxed income" (GILTI) earned by certain foreign subsidiaries. The FASB Staff Q&A Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as an expense in the period the tax is incurred.
The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022, and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. The CAMT will be effective for us beginning in fiscal year 2024. We currently are not expecting the IRA to have a material adverse impact on our financial statements.
82
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
On November 1, 2021, the Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit useacquired 100% of the existing deferred tax assets. A significant piecestock of objective negative evidence evaluated wasBid4Assets, Inc. for $42.7 million. Under the cumulative loss incurred over the three-year period ended September 30, 2017. Such objective evidence limits the ability to consider other evidence such as our projections for future growth. On the basisacquisition method of this evaluation,accounting, the Company recorded a valuation changenet deferred tax liability of $10.1$3.8 million composed primarily of acquired intangibles netted against NOLs and other deferred assets. The total amount of NOLs, which are subject to bring the total valuation allowance to $54.4 million at September 30, 2017.
The Company has not recorded a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries since the Company intends to indefinitely reinvest the earnings of these foreign subsidiaries outside the U.S. The amount of such undistributed foreign earnings was approximately $8.0$10.6 million as of September 30, 2017.2023. As of September 30, 2017,2023, and 2016, approximately $14.92022, $19.1 million and $21.5$20.3 million, respectively, of cash and cash equivalents was held overseas and not available to fund domestic operations without incurring taxes upon repatriation.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:benefits (in thousands):
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Beginning balance at October 1 |
| $ | 143 |
|
| $ | 143 |
|
| $ | 123 |
|
Additions based on positions related to the current year |
|
| — |
|
|
| — |
|
|
| — |
|
Additions for tax positions of prior years |
|
| — |
|
|
| — |
|
|
| 20 |
|
Reductions for tax positions of prior years |
|
| (143 | ) |
|
| — |
|
|
| — |
|
Settlements |
|
| — |
|
|
| — |
|
|
| — |
|
Balance at September 30 |
|
| — |
|
| $ | 143 |
|
| $ | 143 |
|
Year Ended September 30, (In thousands) | ||||||||||
2017 | 2016 | 2015 | ||||||||
Beginning balance at October 1 | $ | 725 | — | — | ||||||
Additions based on positions related to the current year | — | — | — | |||||||
Additions for tax positions of prior years | 1,426 | 725 | — | |||||||
Reductions for tax positions of prior years | (229 | ) | — | — | ||||||
Settlements | (1,922 | ) | — | — | ||||||
Balance at September 30 | $ | — | 725 | — |
The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740 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 resolutions of any related appeals or litigation processes, on the basis of the technical merits. During fiscal year 2017, we reduced our deferred2023, the Company did not identify any new uncertain tax assetpositions and valuation allowance for our net operating loss carryforward by $1.2released $0.1 million for unrecognized tax benefits related to federal and state exposures. We recorded a net tax benefit of $1.4 million comprised of a $1.2 million recovery of tax deductions related to equity compensation previously recorded to equity and a $0.2 million recovery of prior year taxes. uncertain tax positions related to foreign operations.
The Company has agreed to settle all previously unrecognized tax benefits with the IRS and anticipates no additional adjustments for fiscal years 2013 through 2015.
11. Debt
On February 10, 2022, the Company entered into a Credit Agreement with Wells Fargo Bank, National Association (the Credit Agreement). Terms of the Credit Agreement provide for revolving loans (the Line of Credit) up to a maximum aggregate principal amount of $25.0 million with a $10.0 million sublimit for standby letters of credit.
During the year ended September 30, 2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First Amendment). No other changes, including with respect to the borrowing terms of capacities, were made to the Credit Agreement as a result of the First Amendment.
The applicable interest rate on any draws under the Line of Credit 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. The Company pays an Unused Commitment Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 0.05% per annum on the daily amount of the available, but unused, balance on the Line of Credit. The Company also pays a Line of Credit Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 1.25% on the daily amount available to be drawn for standby letters of credit. Interest incurred on any draws under the Line of Credit, as well as the Unused Commitment Fee and Letter of Credit Fee, are included within Interest and other (income) expense, net in the Condensed Consolidated Statements of Operations.
The Company may draw upon the Line of Credit for general corporate purposes. Repayments of any borrowings under the Line of Credit shall become available for redraw at any time by the Company.
83
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of September 30, 2023, the Company was in full compliance with the terms and conditions of the Credit Agreement.
During the year ended September 30, 2023, the Company did not make any draws under the Credit Agreement. As of September 30, 2023, the Company had no outstanding borrowings under the Credit Agreement.
During the year ended September 30, 2023, interest expense incurred by the Company under the Credit Agreement was immaterial to the consolidated financial statements.
12. Equity Transactions
Stock Compensation Incentive Plan
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 Company's initial public offering, the board of directorsThird Amended and the Company's stockholders approved theRestated 2006 Omnibus Long-Term Incentive Plan, oras amended, and a plan and private placement issuances related to the 2006 Plan, on December 2, 2005. The 2005 Stock OptionCompany’s acquisition of Machinio and Incentive Plan was terminated whenBid4Assets. As of September 30, 2023, the 2006 Plan became effective, immediately after the closingCompany has reserved a total of the initial public offering.
Stock Compensation Expense
The table below presents the components of share-based compensation expense (in thousands):
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Equity-classified awards: |
|
|
|
|
|
|
|
|
| |||
Stock options |
| $ | 2,002 |
|
| $ | 2,673 |
|
| $ | 3,117 |
|
RSUs & RSAs |
|
| 6,233 |
|
|
| 5,912 |
|
|
| 2,977 |
|
Total Equity-classified award |
|
| 8,235 |
|
|
| 8,585 |
|
|
| 6,094 |
|
Liability-classified awards: |
|
|
|
|
|
|
|
|
| |||
SARs |
|
| (44 | ) |
|
| (104 | ) |
|
| 853 |
|
Total stock compensation expense: |
| $ | 8,191 |
|
| $ | 8,481 |
|
| $ | 6,947 |
|
The Company’s total liabilities for liability-classified stock compensation awards may vary from zero to 100%were $0 and $0.2 million as of an employee's target payout, based uponSeptember 30, 2023 and 2022, respectively.
The table below presents the Company's actual performance during the previous twelve months. components of share-based compensation expense by line item within our Consolidated Statements of Operations (in thousands):
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Stock Compensation Expense by Line Item |
|
|
|
|
|
|
|
|
| |||
Technology and operations |
| $ | 1,226 |
|
| $ | 1,307 |
|
| $ | 1,016 |
|
Sales and marketing |
|
| 2,363 |
|
|
| 2,148 |
|
|
| 1,541 |
|
General and administrative |
|
| 4,602 |
|
|
| 5,026 |
|
|
| 4,390 |
|
Total stock compensation expense: |
| $ | 8,191 |
|
| $ | 8,481 |
|
| $ | 6,947 |
|
Share-Based Award Activity
Stock Options
The performance-basedtable below presents stock options are also subject to vesting requirements and generally vest when the performance condition has been satisfied. The fairoption activity (aggregate intrinsic value for stock options granted during the period was estimated at the grant date using the Black-Scholes option pricing model, as described in Note 2, and the fair value of restricted shares granted is based on the closing price of the shares on the grant date. Compensation cost is recognized when the performance condition has been satisfied or when it becomes probable that the performance condition will be satisfied.
84
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
| Stock Options |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate Intrinsic Value |
| |||||
Outstanding as of September 30, 2022 |
|
| 2,705,436 |
|
| $ | 10.76 |
|
|
| 5.58 |
|
| $ | 18,397 |
|
Granted |
|
| 353,958 |
|
| $ | 14.43 |
|
|
|
|
| $ | — |
| |
Exercised |
|
| (372,362 | ) |
| $ | 7.34 |
|
|
|
|
| $ | 2,997 |
| |
Forfeited |
|
| (34,019 | ) |
| $ | 15.23 |
|
|
|
|
| $ | 143 |
| |
Expired |
|
| (23,816 | ) |
| $ | 40.11 |
|
|
|
|
| $ | — |
| |
Outstanding as of September 30, 2023 |
|
| 2,629,197 |
|
| $ | 11.41 |
|
|
| 5.12 |
|
| $ | 18,549 |
|
Vested and expected to vest as of September 30, 2023 |
|
| 2,614,187 |
|
| $ | 11.35 |
|
|
| 5.11 |
|
| $ | 18,549 |
|
Exercisable as of September 30, 2023 |
|
| 1,851,754 |
|
| $ | 9.59 |
|
|
| 4.05 |
|
| $ | 15,924 |
|
Of the 2006 Plan,777,443 stock options not yet exercisable as amended, 10,000,000 shares of common stock were available for issuance. At September 30, 2014, there were 772,227 shares remaining reserved for issuance in connection with awards under the 2006 Plan. In February 2015, at the Company's annual meeting of stockholders, the stockholders approved an amendment to the 2006 Plan which increased the shares available for issuance under the 2006 Plan2023, 449,438 can become exercisable by 3,000,000 sharessatisfying service conditions only, and established a fungible share pool so that awards other than328,005 can become exercisable by satisfying service and performance or market conditions.
Stock options or stock appreciation rights granted after January 9, 2015, would be counted as 1.5 shares from the shares reserved for issuance under the 2006 Plan. On February 23, 2017, at the Company's annual meeting of stockholders, the stockholders approved amendments to the 2006 Plan to increase the number of shares available for issuance under the 2006 Plan by 3,300,000, bringing the total number of shares issuable under the 2006 Plan since it was adopted to 16,300,000 shares. At September 30, 2017, there were 3,269,071 shares remaining reserved for issuance in connection with awards under the 2006 Plan.
The range of assumptions used to determine the fair value of stock options using the Black-Scholes option-pricing model during the years ended September 30, 2023, 2022, and 2021 were as follows:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Dividend yield |
|
| — |
|
|
| — |
|
|
| — |
|
Expected volatility |
| 56.9% - 62.2% |
|
| 57.0% - 62.2% |
|
| 51.0% - 55.9% |
| |||
Risk-free interest rate |
| 3.4% - 3.9% |
|
| 1.1% - 3.5% |
|
| 0.4% - 0.8% |
| |||
Expected term |
| 4.5- 7.6 years |
|
| 4.5- 7.4 years |
|
| 4.6 - 7.6 years |
|
The weighted-average grant date fair value of options granted during the year-ended September 30, 2023, 2022, and 2021 was $7.49, $10.70, and $4.81, respectively. The total intrinsic value of options exercised during 2023, 2022, and 2021 was $3.0 million, $3.8 million, and $15.0 million, respectively. Stock options containing performance conditions are discussed separately in the section below.
RSUs & RSAs
The table below presents RSU & RSA activity (aggregate fair value in thousands):
| RSU & RSA |
|
| Weighted- |
|
| Weighted- |
| Aggregate Fair Value |
| ||||
Outstanding as of September 30, 2022 |
|
| 1,102,039 |
|
| $ | 18.66 |
|
| 2.94 |
| $ | 17,919 |
|
Granted |
|
| 767,233 |
|
| $ | 15.16 |
|
|
|
| $ | 11,628 |
|
Vested |
|
| (252,228 | ) |
| $ | 14.56 |
|
|
|
| $ | 3,773 |
|
Forfeited |
|
| (59,703 | ) |
| $ | 17.22 |
|
|
|
| $ | 909 |
|
Outstanding as of September 30, 2023 |
|
| 1,557,341 |
|
| $ | 17.65 |
|
| 2.56 |
| $ | 27,440 |
|
Expected to vest as of September 30, 2023 |
|
| 1,487,341 |
|
| $ | 17.46 |
|
| 2.66 |
| $ | 26,207 |
|
Of the outstanding RSUs & RSAs as of September 30, 2023, 835,526 can vest by satisfying service conditions only, and 721,815 can vest by satisfying service and performance or market conditions.
85
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
RSUs containing only service conditions vest ratably each year over periods of one to four years. Stock compensation cost is expensed ratably over the entire service period. As of September 30, 2023, there was $10.3 million of unrecognized compensation cost related to RSUs containing only service conditions, which is expected to be recognized over a weighted-average period of 2.7 years. RSUs and RSAs containing performance conditions and market conditions are discussed separately in the section below.
SARs
The table below presents SAR award activity (aggregate intrinsic value in thousands):
| SARs |
|
| Weighted- |
|
| Weighted- |
| Aggregate Intrinsic Value |
| ||||
Outstanding as of September 30, 2022 |
|
| 24,150 |
|
| $ | 6.11 |
|
| 0.25 |
| $ | 245 |
|
Exercised |
|
| (24,150 | ) |
| $ | 6.11 |
|
|
|
| $ | 193 |
|
Forfeited |
|
| — |
|
| $ | — |
|
|
|
| $ | — |
|
Outstanding as of September 30, 2023 |
|
| — |
|
| $ | — |
|
|
|
| $ | — |
|
Vested and expected to vest as of September 30, 2023 |
|
| — |
|
| $ | — |
|
|
|
| $ | — |
|
Exercisable as of September 30, 2023 |
|
| — |
|
| $ | — |
|
|
|
| $ | — |
|
The Company made cash payments of $0.2 million, $0.2 million and $0.4 million to settle SARs exercised during the years ended September 30, 2023, 2022, and 2021, respectively. As of September 30, 2023, there were no SARs outstanding. No new SARs were awarded during the year ended September 30, 2023.
The fair value of outstanding SARs containing only service conditions is estimated using the Black-Scholes option-pricing model. The range of assumptions used to determine the fair value of outstanding SARs as of September 30, 2023, 2022, and 2021 were as follows:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Dividend yield |
|
| — |
|
|
| — |
|
|
| — |
|
Expected volatility |
|
| — |
|
|
| 71.7 | % |
|
| 78.3 | % |
Risk-free interest rate |
|
| — |
|
|
| 4.0 | % |
|
| 0.1 | % |
Expected term |
|
| — |
|
| 0.25 |
|
| 1.25 |
|
As of September 30, 2022, and 2021, the weighted-average fair value of SARs outstanding was $9.82 and $18.86 per award, respectively. SARs containing performance conditions and market conditions are discussed separately in the section below.
Stock Awards Containing Performance and Market Conditions
Stock awards containing performance conditions vest upon the achievement of specified financial targets of the Company recognizesor its business units. Vesting is generally measured on the first day of each fiscal quarter over the four-year terms of the awards, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing twelve months performance of the Company or its business units. When it is probable that the performance targets will be achieved, stock compensation expense is recognized ratably over the derived service period. If the Company determines that achievement of the performance targets is no longer probable, the Company no longer records expense and reverses all previously recognized expense. As of September 30, 2023, there was $0.9 million of unrecognized compensation costs related to stock options and RSUs & RSAs, containing performance conditions that are considered probable of being met, which is expected to be recognized over a weighted-average period of approximately 1 year.
86
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Stock awards containing market conditions vest upon the achievement of specified increases in the Company’s share price. Vesting is measured the first day of each fiscal quarter over the four-year terms of the award, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing 20-days average of the Company’s share price. Stock compensation cost is expensed on a straight-line basis over the explicitderived service period for each stock price target within the award. The Company accelerates expense when a stock price target is achieved prior to the derived service period. For equity-classified awards, with both performance and service conditions, the Company starts recognizingdoes not reverse expense recognized if the stock price target(s) are not ultimately achieved, but expense is reversed when such situations occur for liability classified awards. As of September 30, 2023, there was $1.4 million of unrecognized compensation cost over the remaining service period, when itcosts related to stock options, RSUs and SARs, containing market conditions, which is probable the performance condition willexpected to be met. The stock appreciation rights that include only service conditions generally vestrecognized over a weighted-average period of one1.6 years.
The fair value of stock options, RSUs and SARs containing market conditions is estimated using Monte Carlo simulations. The range of assumptions used to four years conditioned on continued employment fordetermine the incentive period.
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
Dividend yield |
|
| — |
|
|
| — |
|
|
| — |
|
Expected volatility |
|
| — |
|
| 57.2% - 62.9% |
|
| 51.6% - 54.6% |
| ||
Risk-free interest rate |
|
| — |
|
| 1.1% - 1.5% |
|
| 0.3% - 0.9% |
| ||
Expected holding period (% of remaining term) |
|
| — |
|
| 29.4% - 100.0% |
|
| 31.7% - 100.0% |
|
There were no awards containing market conditions for which to determine their fair value during the Company recorded stock-based compensation of $7.4 million, $12.3 million and $12.4 million, respectively. The total costs related to unvested awards with service vesting conditions, not yet recognized, as ofyear ended September 30, 2017 was $8.8 million, which will be recognized over the weighted average vesting period of 56.00 months. The total costs related to unvested awards with performance vesting conditions, not yet recognized, as of September 30, 2017 was $4.8 million.
Share Repurchase Program
From time to time, we may be authorized to repurchase issued and outstanding shares of itsour 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 the Company'sour available cash. The
On December 6, 2021, and May 13, 2022, the Company's Board of Directors reviews the shareauthorized new stock repurchase program periodically, the last such review having occurred in May 2016.plans of up to $20 million and $12 million, respectively. The Company did not repurchaserepurchased 408,211 shares under this programfor $5.4 million during the twelve months ended September 30, 2017. As of September 30, 2017, the Company may repurchase an additional $10.1 million shares under this program. A summary of the Company's share repurchase activity from fiscal year 2014 to the year ended September 30, 2017 is as follows:
Fiscal Year Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Cash Paid for Shares Purchased | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(1) | |||||||||
2014 | 2,962,978 | 16 | 44,873,000 | 5,127,000 | |||||||||
2015 | — | — | — | 5,127,000 | |||||||||
2016 | — | — | — | 10,127,000 | |||||||||
2017 | — | — | — | $ | 10,127,000 |
As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.
Other Share Repurchases
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 year ended September 30, 2023, and 2015 is as follows:September 30, 2022, participants surrendered 12,705 and 23,839 shares of common stock in the exercise of stock options, respectively. Any shares surrendered to the Company in this manner are not available for future grant.
Options | Weighted- Average Exercise Price | ||||||
Options outstanding at September 30, 2014 | 1,465,907 | $ | 19.50 | ||||
Options granted | 310,177 | 9.92 | |||||
Options exercised | (14,869 | ) | 7.09 | ||||
Options canceled | (288,572 | ) | 20.26 | ||||
Options outstanding at September 30, 2015 | 1,472,643 | 17.46 | |||||
Options granted | 583,228 | 6.68 | |||||
Options exercised | (1,251 | ) | 7.48 | ||||
Options canceled | (346,133 | ) | 16.99 | ||||
Options outstanding at September 30, 2016 | 1,708,487 | 13.91 | |||||
Options granted | 232,845 | 9.18 | |||||
Options exercised | (12,421 | ) | 7.41 | ||||
Options canceled | (223,938 | ) | 13.00 | ||||
Options outstanding at September 30, 2017 | 1,704,973 | 13.43 | |||||
Options exercisable at September 30, 2017 | 1,270,781 | 14.99 |
87
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Options Outstanding | |||||||||
Range of Exercise Price | Number Outstanding | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | ||||||
$5.53 - $6.96 | 366,151 | 8.30 | $ | 6.42 | |||||
$6.97 - $9.09 | 289,049 | 6.19 | 7.83 | ||||||
$9.10 - $10.82 | 359,597 | 6.92 | 9.78 | ||||||
$10.83 - $19.27 | 330,321 | 1.85 | 13.04 | ||||||
$19.28 - $46.72 | 359,855 | 5.55 | 29.06 |
Options Exercisable | |||||||||
Range of Exercise Price | Number Exercisable | Weighted- Average Remaining Contractual Life | Weighted- Average Exercise Price | ||||||
$5.53 - $6.96 | 282,064 | 8.30 | $ | 6.36 | |||||
$6.97 - $9.09 | 138,533 | 3.43 | 7.81 | ||||||
$9.10 - $10.82 | 182,613 | 6.30 | 9.99 | ||||||
$10.83 - $19.27 | 322,201 | 1.70 | 13.08 | ||||||
$19.28 - $46.72 | 345,370 | 5.52 | 29.35 |
Year ended September 30 | |||||||||
2017 | 2016 | 2015 | |||||||
Dividend yield | — | — | — | ||||||
Expected volatility | 54.22% - 54.93% | 51.5% - 58.6% | 71.9% - 77.9% | ||||||
Risk-free interest rate | 1.65% - 2.17% | 0.5% - 1.5% | 0.26% - 1.4% | ||||||
Expected forfeiture rate | 21.4 | % | 23.5 | % | 22.2% - 22.8% |
Restricted Shares | Weighted- Average Fair Value | ||||||
Unvested restricted shares at September 30, 2014 | 1,897,827 | $ | 24.96 | ||||
Restricted shares granted | 1,298,604 | 10.04 | |||||
Restricted shares vested | (343,204 | ) | 27.50 | ||||
Restricted shares canceled | (486,040 | ) | 26.54 | ||||
Unvested restricted shares at September 30, 2015 | 2,367,187 | 16.08 | |||||
Restricted shares granted | 1,504,655 | 5.54 | |||||
Restricted shares vested | (715,188 | ) | 16.09 | ||||
Restricted shares canceled | (495,409 | ) | 20.25 | ||||
Unvested restricted shares at September 30, 2016 | 2,661,245 | 9.34 | |||||
Restricted shares granted | 849,352 | 8.78 | |||||
Restricted shares vested | (748,266 | ) | 11.04 | ||||
Restricted shares canceled | (571,900 | ) | 9.81 | ||||
Unvested restricted shares at September 30, 2017 | 2,190,431 | 8.42 |
13. Fair Value Measurement
The Company measures and records in the accompanying consolidated financial statements certain assets and liabilities at fair value on a recurring basis. Authoritative guidance issued by the FASB establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company's assumptions (unobservable inputs). The hierarchy consists of three levels:
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 had $51.4 million and $22.0 million of money market funds considered cash equivalents as of September 30, 2017,2023, and 2016, the Company had no Level 1 or Level 22022, respectively. These assets or liabilities measured at fair value. As of September 30, 2017, and September 30, 2016, the Company had financial assets that arewere measured at fair value as of September 30, 2023, and are2022, and were classified as Level 1 assets within the fair value hierarchy. There were no transfers between levels during the periods presented.
Contingent consideration. During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $28.0 million on its Consolidated Balance Sheets as of the acquisition date. The contingent consideration is based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022. The liability for this consideration is included in Accrued expenses and other current liabilities within the Consolidated Balance Sheets.
The Company's initial estimate of the fair value of the earn-out consideration was informed by the Monte Carlo valuation method and considered potential outcomes based upon the terms and conditions of the merger agreement. The fair value measurements utilized were classified as Level 3 assets within the fair value hierarchy.hierarchy under the provisions of ASC 820, Fair Value Measurements, and ASC 805, Business Combinations. The Company records the financial assets usingsignificant unobservable inputs used in the fair value option under ASC 825,
The changes in financial assetsearn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value forduring the year ended September 30, 2017, are2022, was as follows ($ in(in thousands):
Contingent Consideration | ||||
Balance at September 30, 2021 | $ | — | ||
Earn-out from business acquisition | 26,900 | |||
Measurement period adjustment | 1,100 | |||
Payment of achieved earn-out threshold | (3,500 | ) | ||
Change in fair value | (24,500 | ) | ||
Balance at September 30, 2022 | $ | — |
Level 3 Assets | |||
Balance at September 30, 2016 | $ | 2,200 | |
Acquisition of financial assets | 2,662 | ||
Settlements | (4,944 | ) | |
Change in fair value of financial assets | 573 | ||
Balance at September 30, 2017 | $ | 491 |
During the year ended September 30, 2017,2022, the Company recognizedrecorded a measurement period adjustment of $1.1 million for the preliminary 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. Based on results as of March 31, 2022, Bid4Assets achieved a trailing twelve-month EBITDA threshold resulting in a $3.5 million payment made by the Company to the former shareholders of Bid4Assets.
88
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
During the twelve months ended September 30, 2022, the fair value of the earn-out liability was reduced by $24.5 million, such that no amount of fair value was determined present as of September 30, 2022. This reduction was due to a decline in the auction events and transactions that were expected to be completed during the earn-out period ended December 31, 2022, which included 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. These changes resulted from events occurring subsequent to the November 1, 2021, acquisition date and therefore, were not known nor knowable at that time. These changes in fair value were recorded as a gain within Fair value adjustment of approximately $0.6 million on its financial assets.
Other Information. When valuing its Level 3 assets, the Company considers asset condition, economic and/or market events, and other pertinent information that would impact its estimate of the expected generated proceeds. The valuation procedures are primarily based onliability, management's projection of the value of the assets securing the financial investment. Management’s estimation of the fair value of these assets is based on the best information available in the circumstances and may incorporate management's own assumptions regardingaround market demand for these assets. Such assumptionswhich could involve management'sa level of judgment, taking into consideration a combination of internal and external factors. Changes in fair value of the Company's Level 3 assets are recorded in Other operating expense in the Consolidated Statements of Operations.
The Company’s financial assets and liabilities not measured at fair value are cash, short-term investments, accounts receivable, and cash equivalents (which includes cash and commercial paper with original maturities of less than 90 days).accounts payable. The Company believes the carrying valuevalues of these instruments approximatesapproximate fair value.
As of September 30, 2023, the Company had no non-financial instruments measured at fair value due to their short-term maturities.on a non-recurring basis. As of September 30, 2023, and 2022, the Company did not have any material assets or liabilities measured at fair value on a non-recurring basis.
14. Defined Benefit Pension Plan
Certain employees of Liquidity Services UK Limited ("GoIndustry")(GoIndustry), which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme (the "Scheme")Scheme), a qualified defined benefit pension plan.
The Company recognizes the funded status of its postretirement benefit plans, with a corresponding noncash adjustment to accumulated other comprehensive loss, net of tax, in stockholders' equity. The funded status is measured as the difference between the fair value of the plan'sScheme's assets and the benefit obligation of the plan.
The net periodic benefit cost is recognized within Interest and other income, net in the Consolidated Statements of Operations, and for the years ended September 30, 2017, 20162023, 2022, and 2015,2021, included the following components:
| Year Ended September 30, |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2021 |
| ||||
| (in thousands) |
| ||||||||||
Interest cost |
| $ | 794 |
|
| $ | 446 |
|
| $ | 438 |
|
Expected return on plan assets |
|
| (876 | ) |
|
| (775 | ) |
|
| (793 | ) |
Amortization of prior service cost |
|
| 26 |
|
|
| 19 |
|
|
| 21 |
|
Settlement loss recognized |
|
| — |
|
|
| 61 |
|
|
| — |
|
Total net periodic benefit |
| $ | (56 | ) |
| $ | (249 | ) |
| $ | (334 | ) |
89
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
(in thousands) | ||||||||||||
Interest cost | $ | 582 | $ | 814 | $ | 964 | ||||||
Expected return on plan assets | (826 | ) | (1,066 | ) | (1,186 | ) | ||||||
Total net periodic benefit | $ | (244 | ) | $ | (252 | ) | $ | (222 | ) |
The following table provides a reconciliation of benefit obligations, plan assets, and funded status related to the Company's qualified defined benefit pension plan for the years ended September 30, 20172023, and September 30, 2016:2022:
| Year Ended September 30, |
| ||||||
| 2023 |
|
| 2022 |
| |||
| (in thousands) |
| ||||||
Change in benefit obligation |
|
|
|
|
|
| ||
Beginning balance |
| $ | 13,329 |
|
| $ | 26,955 |
|
Interest cost |
|
| 794 |
|
|
| 446 |
|
Benefits paid |
|
| (761 | ) |
|
| (634 | ) |
Actuarial gain |
|
| (786 | ) |
|
| (7,613 | ) |
Foreign currency exchange rate changes |
|
| 1,271 |
|
|
| (5,825 | ) |
Ending balance |
| $ | 13,847 |
|
| $ | 13,329 |
|
| Year Ended September 30, |
| ||||||
| 2023 |
|
| 2022 |
| |||
| (in thousands) |
| ||||||
Change in plan assets |
|
|
|
|
|
| ||
Beginning balance at fair value |
| $ | 16,554 |
|
| $ | 28,208 |
|
Actual return on plan assets |
|
| (1,344 | ) |
|
| (5,056 | ) |
Benefits paid |
|
| (761 | ) |
|
| (634 | ) |
Employer's contributions |
|
| 293 |
|
|
| 134 |
|
Plan Settlements |
|
| — |
|
|
| (1,182 | ) |
Foreign currency exchange rate changes |
|
| 1,590 |
|
|
| (4,916 | ) |
Ending balance at fair value |
| $ | 16,332 |
|
| $ | 16,554 |
|
Overfunded status of the Scheme |
| $ | 2,485 |
|
| $ | 3,225 |
|
Year Ended September 30, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Change in benefit obligation | ||||||||
Beginning balance | $ | 26,321 | $ | 24,069 | ||||
Interest cost | 582 | 814 | ||||||
Benefits paid | (718 | ) | (1,246 | ) | ||||
Actuarial loss/(gain) | (1,861 | ) | 5,999 | |||||
Foreign currency exchange rate changes | 761 | (3,315 | ) | |||||
Ending balance | $ | 25,085 | $ | 26,321 |
Year Ended September 30, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Change in plan assets | ||||||||
Beginning balance at fair value | $ | 25,767 | $ | 24,537 | ||||
Actual return on plan assets | 569 | 4,831 | ||||||
Benefits paid | (718 | ) | (1,246 | ) | ||||
Employer's contributions | 552 | 1,482 | ||||||
Foreign currency exchange rate changes | 773 | (3,837 | ) | |||||
Ending balance at fair value | $ | 26,943 | $ | 25,767 | ||||
Overfunded (underfunded) status of the plan | $ | 1,859 | $ | (554 | ) |
The accrued pension asset of $1.9$2.5 million is recorded in Other long-term assets in the Consolidated Balance Sheet.Sheets. Because the planScheme is closed to new participants, the accumulated benefit obligation is equal to the projected benefit obligation, and totals $25.1which was $13.8 million and $26.3$13.3 million at September 30, 20172023 and 2022, respectively.
During the year ended September 30, 2016, respectively.
The amountamounts recognized in otherOther comprehensive lossincome (loss) related to the Company's qualified defined benefit pension plan, net of tax,taxes, and the related foreign currency translation adjustments, for the yearyears ended September 30, 20172023, and September 30, 2016,2022, is shown in the following table:
| Year Ended September 30, |
| ||||||
| 2023 |
|
| 2022 |
| |||
| (in thousands) |
| ||||||
Accumulated other comprehensive income (loss) at beginning of year |
| $ | 278 |
|
| $ | (1,885 | ) |
Net actuarial loss |
|
| (334 | ) |
|
| (328 | ) |
Foreign currency translation adjustments |
|
| (1,038 | ) |
|
| 2,491 |
|
Accumulated other comprehensive (loss) income at end of year |
| $ | (1,094 | ) |
| $ | 278 |
|
Year Ended September 30, | ||||||||
2017 | 2016 | |||||||
(in thousands) | ||||||||
Accumulated Other Comprehensive Loss (Income) | ||||||||
Accumulated Other Comprehensive Loss (Income) at beginning of year | $ | 1,226 | $ | (1,321 | ) | |||
Net actuarial (gains)/losses | (1,589 | ) | 2,547 | |||||
Foreign currency exchange rate changes | 240 | — | ||||||
Accumulated Other Comprehensive (Income) loss at end of year | $ | (123 | ) | $ | 1,226 |
The plan complies with the funding provisions of the UKU.K. Pensions Act 2004 and the Occupational Pension Schemes Regulations Act 2005. The Company does not plan to make contributions to the plan in the near future.
90
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at September 30, 20172023 and September 30, 2016,2022, and to determine the net periodic (benefit) cost for the year were as follows:
| September 30, 2023 |
|
| September 30, 2022 |
| |||
Discount rate to determine net periodic (benefit) cost |
|
| 5.50 | % |
|
| 2.00 | % |
Expected return on plan assets |
|
| 6.45 | % |
|
| 4.82 | % |
Discount rate to determine benefit obligations |
|
| 5.70 | % |
|
| 5.50 | % |
Rate of increases to deferred CPI linked benefits |
|
| 3.20 | % |
|
| 3.40 | % |
Rate of increases to deferred RPI linked benefits |
|
| 3.80 | % |
|
| 3.80 | % |
2017 | 2016 | |||||
Discount rate | 2.70 | % | 2.30 | % | ||
Expected return on plan assets | 3.80 | % | 3.20 | % | ||
Increases to non-GMP pensions in payment accrued pre 4/6/97 | — | % | — | % | ||
Increases to non-GMP pensions in payment accrued post 4/6/97 | 2.10 | % | 2.00 | % | ||
Rate of increases to deferred CPI linked benefits | 2.10 | % | 2.00 | % | ||
Rate of increases to deferred RPI linked benefits | 3.20 | % | 3.10 | % |
Mortality—100%101% for males and 105%98% for females of S2PxA "light"S3PMA mortality tables, projected in line with the 20162021 Continuous Mortality Investigation projection model and a 1.5%1.3% per annum long-term rate of improvement.
Estimated Future Benefit Payments
The Company's pension plan expects to make the following benefit payments to participants over the next 10 years:
| Pension Benefits |
| ||
| (in thousands) |
| ||
Year ending September 30, |
|
|
| |
2023 |
| $ | 1,126 |
|
2024 |
|
| 931 |
|
2025 |
|
| 858 |
|
2026 |
|
| 888 |
|
2027 |
|
| 823 |
|
2028 through 2033 |
|
| 4,924 |
|
Total |
| $ | 9,550 |
|
Pension Benefits | ||||
(in thousands) | ||||
Year ending September 30, | ||||
2018 | $ | 751 | ||
2019 | 767 | |||
2020 | 791 | |||
2021 | 687 | |||
2022 | 749 | |||
2023 through 2027 | 4,362 | |||
Total | $ | 8,107 |
Fair Value Measurements
The investment policy and strategy of the plan assets, as established by the Trustees (the "Trustees") of the plan, strive to maximize the likelihood of achieving primary objectives of the investment policy established for the plan.plan, which are:
91
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The assets are allocated among equity investmentsgovernment bonds, corporate bonds, and fixed income securities.diversified funds. The assets are not rebalanced, but the allocation between equities and bonds is reviewed on a periodic basis to ensure that the investments are appropriate to the Scheme's circumstances. The Trustees review the investment policy on an ongoing basis, to determine whether a change in the policy or asset allocation targets is necessary. The basis of the Trustees’ strategy is to divide the Scheme’s assets between a “growth” portfolio, comprising assets such as multi-asset / diversified growth funds, and a “stabilizing” portfolio, comprising assets such as government bonds (both fixed and inflation-linked) and corporate bonds. The Trustees recognize the benefits of diversification across asset classes, as well as within them, in reducing the risk that results from investing in any one particular market. The Company has elected to use a bid value of Scheme assets to calculate the expected return on assets in the net periodic benefit cost. The assets consisted of the following as of September 30, 2017:
| September 30, 2023 |
|
| September 30, 2022 |
| |||
Government bonds |
|
| 59.7 | % |
|
| 0.0 | % |
Equity securities |
|
| 0.0 | % |
|
| 21.6 | % |
Corporate bonds |
|
| 29.8 | % |
|
| 51.1 | % |
Diversified fund |
|
| 10.1 | % |
|
| 27.0 | % |
Cash |
|
| 0.4 | % |
|
| 0.3 | % |
Total |
|
| 100.0 | % |
|
| 100.0 | % |
The expected long-term rate of return for the plan's total assets is based on the expected returns of each of the above categories, weighted based on the current target allocation for each class. The Trustees evaluate whether adjustments are needed based on historical returns to more accurately reflect expectations of future returns.
The Company is required to present certain fair value disclosures related to its postretirement benefit plan assets, even though those assets are not included onin the Company's Consolidated Balance Sheets. The following table presents the fair value of the assets of the Company's qualified defined benefit pension plan by asset category and their level within the fair value hierarchy, which has three levels based on reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.hierarchy.
Balance as of September 30, 2023 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
| (in thousands) |
| ||||||||||||||
Government bonds |
| $ | — |
|
| $ | 9,757 |
|
| $ | — |
|
| $ | 9,757 |
|
Corporate bonds |
|
| — |
|
|
| 4,860 |
|
|
| — |
|
|
| 4,860 |
|
Diversified fund |
|
| — |
|
|
| 1,653 |
|
|
| — |
|
|
| 1,653 |
|
Cash |
|
| 61 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Total |
| $ | 61 |
|
| $ | 16,270 |
|
| $ | — |
|
| $ | 16,331 |
|
Balance as of September 30, 2022 |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
| (in thousands) |
| ||||||||||||||
Equity securities |
| $ | — |
|
| $ | 3,582 |
|
| $ | — |
|
| $ | 3,582 |
|
Corporate bonds |
|
| — |
|
|
| 8,462 |
|
|
| — |
|
|
| 8,462 |
|
Diversified fund |
|
| — |
|
|
| 4,467 |
|
|
| — |
|
|
| 4,467 |
|
Cash |
|
| 43 |
|
|
| — |
|
|
| — |
|
|
| 43 |
|
Total |
| $ | 43 |
|
| $ | 16,511 |
|
| $ | — |
|
| $ | 16,554 |
|
Balance as of September 30, 2016 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(in thousands) | ||||||||||||||||
Equity securities | $ | — | $ | 10,087 | $ | — | $ | 10,087 | ||||||||
Fixed-income securities | — | 15,149 | — | 15,149 | ||||||||||||
Cash equivalents | 531 | — | — | 531 | ||||||||||||
Total | $ | 531 | $ | 25,236 | $ | — | $ | 25,767 |
Balance as of September 30, 2017 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(in thousands) | ||||||||||||||||
Equity securities | $ | — | $ | 11,778 | $ | — | $ | 11,778 | ||||||||
Fixed-income securities | — | 14,795 | — | 14,795 | ||||||||||||
Cash equivalents | 371 | — | — | 371 | ||||||||||||
Total | $ | 371 | $ | 26,573 | $ | — | $ | 26,944 |
Valuation Techniques
The Company relies on pricing inputs from investment fund managers to value investments. The fund manager prices the underlying securities using independent external pricing sources.
15. Legal Proceedings
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.
92
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Former Employee Matters
In May 2021, the second quarter of 2015, the Company issued a guarantee to GoIndustry (the "Subsidiary") and the Trustees (the "Trustees") of the Henry Butcher Pension Fund and Life Assurance Scheme (the "Scheme"). Under the arrangement, the Company irrevocably and unconditionally (a) guarantees to the Trustees punctual performance by the Subsidiary of all its Guaranteed Obligations, defined as all present and future obligations and liabilities (whether actual or contingent and whether owed jointly or severally in any capacity whatsoever) of the Company to make payments to the Scheme up to a maximum of 10 million British pounds, (b) undertakes with the Trustees that, whenever the Subsidiary does not pay any amount when due in respect of its Guaranteed Obligations, it must immediately on demand by the Trustees pay that amount as if it were the principal obligor; and (c) indemnifies the Trustees as an independent and primary obligation immediately on demand against any cost, charge, expense, loss or liability suffered or incurred by the Trustees if any payment obligation guaranteed by it is or becomes unenforceable, invalid or illegal; the amount of the cost, charge, expense, loss or liability under this indemnity will be equal to the amount the Trustees would otherwise have been entitled to recover on the basis of a guarantee. The guarantee is a continuing guarantee that will extend to the ultimate balance of all sums payable by the Company in respect of its Guaranteed Obligations.
(in thousands) | Liability Balance at September 30, 2016 | Business Realignment Expenses | Cash Payments | Liability Balance at September 30, 2017 | ||||||||||||
Employee severance and benefit costs: | ||||||||||||||||
CAG | — | 1,037 | (244 | ) | 793 | |||||||||||
Corporate & Other | — | 570 | (171 | ) | 399 | |||||||||||
Total employee severance and benefit costs | — | $ | 1,607 | $ | (415 | ) | $ | 1,192 | ||||||||
Occupancy costs: | ||||||||||||||||
CAG | — | — | — | — | ||||||||||||
Corporate & Other | — | 2,616 | (628 | ) | 1,988 | |||||||||||
Total occupancy costs | $ | — | $ | 2,616 | $ | (628 | ) | $ | 1,988 | |||||||
Total business realignment | $ | — | $ | 4,223 | $ | (1,043 | ) | $ | 3,180 |
On February 2, 2017, plaintiff David GirardiDecember 28, 2022, the Company’s former Chief Marketing Officer (the “Former CMO”) filed a putative derivative complaint (the “Original Complaint”) in the District Court, alleging wrongful termination on the basis of Chancery ofrace and age and that the State of Delaware (the “Court of Chancery”), and on February 7, 2017, plaintiff Harold SlingerlandCompany retaliated against him. On April 26, 2023, the Former CMO filed a putative derivativean amended complaint with the District Court, alleging the same claims made in the Court of Chancery. On March 9, 2017, plaintiffs Girardi and Slingerland filed a consolidated putative derivative complaint in the Court of Chancery, purportedly on the Company’s behalf.Original Complaint. The consolidated complaint names as defendants the Company’s chief executive officer and chief financial officer, as well as certain other individuals who served on the Company’s Board of Directors between 2012 and 2014, and seeks recovery from those individuals, not the Company. The complaint asserts that, among other things, the defendants breached their fiduciary duties to the Company and its stockholders by causing or allowing the Company to make the same misstatements that are alleged in the amended complaint in the Howard action, and for alleged trading in the Company's securities while in possession of material non-public information. The defendants have filed a motion to dismiss certain of the complaint in its entirety. On November 27, 2017,Former CMO’s claims on September 1, 2023. The District Court has not yet ruled on the Courtmotion. The Company asserts substantial defenses and cannot estimate a range of Chancery granted the defendants’ motion to dismiss.potential liability, if any, at this time. CNA has accepted tender of these claims as well.
16.
Segment InformationThe Company provides operating results in threefour reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Retail Supply Chain Group (RSCG). These three segments constitute 99%Machinio. Descriptions of the Company's revenue as of September 30, 2017, and each offers separately branded marketplaces to enable sellers to achieve channel marketing objectives to reach buyers. Across its segments, the Company offers its sellers two primary transaction models as well as a suite of services, and its revenues vary depending upon the models employed and the level of service required. This change in segment presentation does not affect consolidated statements of operations and comprehensive loss, balance sheets or statements of cash flows. A description of theour reportable segments are as follows:
93
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
We also report results of Corporate & Other, primarily consists of the Company's TruckCenter and IronDirect operating segments that are not individually significant, as well asincluding elimination adjustments. The TruckCenter business consisted of land-based, live auctions for fleet and transportation equipment. On January 30, 2017, the Company exited its TruckCenter land-based, live auction business in order to focus its time and resources on its ecommerce marketplace strategy. IronDirect offers buyers access to construction equipment, parts and services through a single ecommerce marketplace.
Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker ("CODM")(CODM), which is the Company's chief executive officer,Chief Executive Officer, with oversight by the Board of Directors. The Company reports reportable segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period. In connection with that assessment, the CODM uses segment grossdirect profit to evaluate the performance of each segment. GrossSegment direct profit, ispreviously referred to as segment gross profit, continues to be calculated as total revenue less cost of goods sold (excludes depreciation and seller distributions.
The following table sets forth certain financial information for the Company's reportable segments.segments:
|
|
| Year Ended September 30, |
| |||||||||
(in thousands) | 2023 |
|
| 2022 |
|
| 2021 |
| |||||
GovDeals: |
|
|
|
|
|
|
|
|
|
| |||
| Purchase revenue |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| Consignment and other fee revenues |
|
| 62,010 |
|
|
| 59,352 |
|
|
| 49,579 |
|
| Total revenue |
|
| 62,010 |
|
|
| 59,352 |
|
|
| 49,579 |
|
| Segment direct profit |
| $ | 58,810 |
|
| $ | 56,408 |
|
| $ | 47,030 |
|
|
|
|
|
|
|
|
|
|
| ||||
RSCG: |
|
|
|
|
|
|
|
| |||||
| Purchase revenue | $ | 161,780 |
|
| $ | 134,092 |
|
| $ | 130,790 |
| |
| Consignment and other fee revenues |
| 38,438 |
|
|
| 32,007 |
|
|
| 28,016 |
| |
| Total revenue |
| 200,218 |
|
|
| 166,100 |
|
|
| 158,806 |
| |
| Segment direct profit | $ | 68,068 |
|
| $ | 63,704 |
|
| $ | 64,564 |
| |
|
|
|
|
|
|
|
|
|
| ||||
CAG: |
|
|
|
|
|
|
|
| |||||
| Purchase revenue | $ | 10,309 |
|
| $ | 17,179 |
|
| $ | 15,361 |
| |
| Consignment and other fee revenues |
| 28,167 |
|
|
| 25,396 |
|
|
| 24,284 |
| |
| Total revenue |
| 38,476 |
|
|
| 42,575 |
|
|
| 39,645 |
| |
| Segment direct profit | $ | 32,215 |
|
| $ | 29,120 |
|
| $ | 29,324 |
| |
|
|
|
|
|
|
|
|
|
| ||||
Machinio: |
|
|
|
|
|
|
|
| |||||
| Purchase revenue | $ | — |
|
| $ | — |
|
| $ | — |
| |
| Consignment and other fee revenues |
| 13,821 |
|
|
| 12,083 |
|
|
| 9,559 |
| |
| Total revenue |
| 13,821 |
|
|
| 12,083 |
|
|
| 9,559 |
| |
| Segment direct profit | $ | 13,110 |
|
| $ | 11,471 |
|
| $ | 8,992 |
| |
|
|
|
|
|
|
|
|
|
| ||||
Corporate & Other, including elimination adjustments: |
|
|
|
|
|
|
|
| |||||
| Purchase revenue | $ | — |
|
| $ | — |
|
| $ | — |
| |
| Consignment and other fee revenues |
| (62 | ) |
|
| (60 | ) |
|
| (57 | ) | |
| Total revenue |
| (62 | ) |
|
| (60 | ) |
|
| (57 | ) | |
| Segment direct profit | $ | (62 | ) |
| $ | (60 | ) |
| $ | (57 | ) | |
|
|
|
|
|
|
|
|
|
| ||||
Consolidated: |
|
|
|
|
|
|
|
| |||||
| Purchase revenue | $ | 172,089 |
|
| $ | 151,271 |
|
| $ | 146,151 |
| |
| Consignment and other fee revenues |
| 142,373 |
|
|
| 128,779 |
|
|
| 111,380 |
| |
| Total revenue |
| 314,462 |
|
|
| 280,050 |
|
|
| 257,531 |
| |
| Total Segment direct profit | $ | 172,140 |
|
| $ | 160,643 |
|
| $ | 149,853 |
|
Year Ended September 30, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
GovDeals: | |||||||||||||
Revenue | $ | — | $ | — | $ | — | |||||||
Fee revenue | 26,853 | 22,802 | 20,577 | ||||||||||
Total revenue | 26,853 | 22,802 | 20,577 | ||||||||||
Gross profit | 25,172 | 21,422 | 19,342 | ||||||||||
Depreciation and amortization | 245 | 241 | 256 | ||||||||||
Other operating expenses | — | — | — | ||||||||||
CAG: | |||||||||||||
Revenue | 100,160 | 140,210 | 177,770 | ||||||||||
Fee revenue | 44,971 | 51,555 | 34,178 | ||||||||||
Total revenue | 145,131 | 191,765 | 211,949 | ||||||||||
Gross profit | 71,934 | 109,373 | 135,829 | ||||||||||
Depreciation and amortization | 1,222 | 1,837 | 2,107 | ||||||||||
Other operating expenses | 465 | — | 84 | ||||||||||
RSCG: | |||||||||||||
Revenue | 85,766 | 88,986 | 138,037 | ||||||||||
Fee revenue | 9,265 | 5,232 | 23,776 | ||||||||||
Total revenue | 95,032 | 94,218 | 161,813 | ||||||||||
Gross profit | 30,050 | 29,903 | 46,656 | ||||||||||
Depreciation and amortization | 1,134 | 974 | 1,372 | ||||||||||
Other operating expenses | — | — | 145 | ||||||||||
Corporate & Other: | |||||||||||||
Revenue | 2,644 | 4,632 | (139 | ) | |||||||||
Fee revenue | 356 | 3,037 | 2,925 | ||||||||||
Total revenue | 2,999 | 7,669 | 2,786 | ||||||||||
Gross profit | (2,666 | ) | 1,415 | 1,197 | |||||||||
Depreciation and amortization | 3,195 | 3,449 | 5,500 | ||||||||||
Other operating expenses | 3,187 | — | 44 | ||||||||||
Consolidated: | |||||||||||||
Revenue | 188,570 | 233,828 | 315,668 | ||||||||||
Fee revenue | 81,445 | 82,626 | 81,457 | ||||||||||
Total revenue | 270,015 | 316,454 | 397,125 | ||||||||||
Gross profit | 124,490 | 162,113 | 203,023 | ||||||||||
Depreciation and amortization | 5,796 | 6,502 | 9,235 | ||||||||||
Other operating expenses | $ | 3,651 | $ | — | $ | 273 |
94
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents a reconciliation betweenreconciles segment direct profit used in the reportable segments andto the Company's consolidated results:
Year Ended September 30, | |||||||||||||
2017 | 2016 | 2015 | |||||||||||
Reconciliation: | |||||||||||||
Total revenue | $ | 270,015 | $ | 316,454 | $ | 397,125 | |||||||
Gross profit | 124,490 | 162,113 | 203,023 | ||||||||||
Operating expenses | 160,839 | 196,231 | 346,965 | ||||||||||
Other operating expenses | 3,651 | — | 273 | ||||||||||
Interest (income) expense and other expense, net | (362 | ) | (1,217 | ) | 171 | ||||||||
(Benefit) provision for income taxes | (451 | ) | 27,025 | (39,571 | ) | ||||||||
Net loss | $ | (39,187 | ) | $ | (59,926 | ) | $ | (104,815 | ) |
|
| Year Ended September 30, |
| |||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Reconciliation: |
|
|
|
|
|
|
|
|
| |||
Total segment direct profit |
| $ | 172,140 |
|
| $ | 160,643 |
|
| $ | 149,853 |
|
Other costs and expenses from operations (1) |
|
| 145,850 |
|
|
| 137,350 |
|
|
| 121,215 |
|
Fair value adjustment of acquisition earn-outs |
|
| — |
|
|
| (24,500 | ) |
|
| — |
|
Interest and other (income) expense, net |
|
| (2,726 | ) |
|
| 140 |
|
|
| 1,058 |
|
Income before provision for income taxes |
| $ | 29,016 |
|
| $ | 47,653 |
|
| $ | 27,579 |
|
(1) Other operatingcosts and expenses includes changesfrom operations is defined as Total costs and expenses from operations per the Consolidated Statements of Operations, less Cost of goods sold (which is included in the fair valuecalculation of the Company's financialSegment direct profit).
Total segment assets and business realignment expenses, which can be seen in more detail in Note 14.
|
| September 30, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Segment Assets: |
|
|
|
|
|
| ||
GovDeals |
| $ | 256,215 |
|
| $ | 237,697 |
|
RSCG |
|
| 110,592 |
|
|
| 99,430 |
|
CAG |
|
| 96,828 |
|
|
| 96,393 |
|
Machinio |
|
| 36,362 |
|
|
| 32,771 |
|
Corporate & Other |
|
| (211,026 | ) |
|
| (178,188 | ) |
Total Segment Assets: |
| $ | 288,970 |
|
| $ | 288,104 |
|
Revenue attributed to countries that represent a significant portion of consolidated revenues are as follows:
|
| Year Ended September 30, |
| |||||||||
(in thousands) |
| 2023 |
|
| 2022 |
|
| 2021 |
| |||
Revenue by geographic area |
|
|
|
|
|
|
|
|
| |||
United States |
| $ | 278,734 |
|
| $ | 237,720 |
|
| $ | 214,162 |
|
Rest of the world |
|
| 35,729 |
|
|
| 42,330 |
|
|
| 43,369 |
|
Consolidated |
| $ | 314,462 |
|
| $ | 280,050 |
|
| $ | 257,531 |
|
Year Ended September 30, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
United States | 240,102 | 281,328 | 366,149 | |||||||||
Rest of the world | 29,913 | 35,126 | 30,976 | |||||||||
Consolidated | $ | 270,015 | $ | 316,454 | $ | 397,125 |
September 30, | September 30, | |||||
2017 | 2016 | |||||
Segment Assets: | ||||||
GovDeals | 43,262 | 38,828 | ||||
CAG | 115,514 | 121,352 | ||||
RSCG | 39,766 | — | ||||
Corporate & Other | 16,687 | 99,929 | ||||
Total Segment Assets: | 215,229 | 260,109 |
Total long-lived assets by geographic areas are presented as follows:
|
| September 30, |
| |||||
(in thousands) |
| 2023 |
|
| 2022 |
| ||
Assets by geographic area |
|
|
|
|
|
| ||
United States |
| $ | 17,039 |
|
| $ | 18,867 |
|
Rest of the world |
|
| 117 |
|
|
| 227 |
|
Total Long-lived Assets |
| $ | 17,156 |
|
| $ | 19,094 |
|
September 30, | September 30, | |||||
2017 | 2016 | |||||
United States | 16,142 | 14,159 | ||||
Rest of the world | 650 | 217 | ||||
Consolidated | 16,793 | 14,376 |
95
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
September 30, | September 30, | |||||
2017 | 2016 | |||||
GovDeals | 223 | 242 | ||||
CAG | 938 | 39 | ||||
RSCG | 733 | — | ||||
Corporate & Other | 5,911 | 5,809 | ||||
Consolidated | 7,805 | 6,090 |
Three months ended | ||||||||||||||||||||||||||||||||
Dec. 31, 2015 | Mar. 31, 2016 | June 30, 2016 | Sept. 30, 2016 | Dec. 31, 2016 | Mar. 31, 2017 | June 30, 2017 | Sept. 30, 2017 | |||||||||||||||||||||||||
(in thousands, except share and per share data) | ||||||||||||||||||||||||||||||||
Revenue from operations | $ | 65,875 | $ | 86,878 | $ | 85,188 | $ | 78,513 | $ | 70,796 | $ | 72,335 | $ | 65,520 | $ | 61,364 | ||||||||||||||||
Loss before provision for income taxes from operations | $ | (7,351 | ) | $ | (1,117 | ) | $ | (141 | ) | $ | (24,291 | ) | $ | (8,294 | ) | $ | (8,305 | ) | $ | (8,573 | ) | $ | (14,466 | ) | ||||||||
Net loss from operations | $ | (5,197 | ) | $ | (850 | ) | $ | (124 | ) | $ | (53,755 | ) | $ | (8,397 | ) | $ | (8,252 | ) | $ | (8,614 | ) | $ | (13,924 | ) | ||||||||
Basic and diluted loss per common share | $ | (0.17 | ) | $ | (0.03 | ) | $ | 0.00 | $ | (1.75 | ) | $ | (0.27 | ) | $ | (0.26 | ) | $ | (0.27 | ) | $ | (0.44 | ) | |||||||||
Basic and diluted weighted average shares outstanding | 30,490,670 | 30,594,940 | 30,726,554 | 30,740,977 | 31,261,603 | 31,361,122 | 31,485,599 | 31,503,349 |
LIQUIDITY SERVICES, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(dollarsDollars in thousands)Thousands)
| Balance at |
|
| Charged |
|
| Reductions |
|
| Balance at |
| |||||
Deferred tax valuation allowance (deducted from net deferred tax assets) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended September 30, 2021 |
| $ | 41,788 |
|
|
| (27,975 | ) |
|
| — |
|
| $ | 13,813 |
|
Year ended September 30, 2022 |
|
| 13,813 |
|
|
| (1,554 | ) |
|
| — |
|
|
| 12,259 |
|
Year ended September 30, 2023 |
| $ | 12,259 |
|
|
| 3,770 |
|
|
| — |
|
| $ | 16,029 |
|
Allowance for doubtful accounts (deducted from accounts receivable) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended September 30, 2021 |
| $ | 389 |
|
|
| 297 |
|
|
| (196 | ) |
| $ | 490 |
|
Year ended September 30, 2022 |
|
| 490 |
|
|
| 136 |
|
|
| (177 | ) |
|
| 449 |
|
Year ended September 30, 2023 |
| $ | 449 |
|
|
| 1,392 |
|
|
| (417 | ) |
| $ | 1,424 |
|
Provision for inventory allowance (deducted from inventory) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Year ended September 30, 2021 |
| $ | 300 |
|
|
| 174 |
|
|
| (300 | ) |
| $ | 174 |
|
Year ended September 30, 2022 |
|
| 174 |
|
|
| 96 |
|
|
| (174 | ) |
|
| 96 |
|
Year ended September 30, 2023 |
| $ | 96 |
|
|
| 1,048 |
|
|
| (100 | ) |
| $ | 1,044 |
|
Balance at beginning of period | Charged (credited) to expense | Reductions | Balance at end of period | |||||||||
Deferred tax valuation allowance (deducted from net deferred tax assets) | ||||||||||||
Year ended September 30, 2015 | 7,216 | 1,258 | — | 8,474 | ||||||||
Year ended September 30, 2016 | 8,474 | 35,783 | — | 44,257 | ||||||||
Year ended September 30, 2017 | 44,257 | 10,122 | — | 54,379 | ||||||||
Allowance for doubtful accounts (deducted from accounts receivable) | ||||||||||||
Year ended September 30, 2015 | 1,042 | 1,243 | (1,814 | ) | 471 | |||||||
Year ended September 30, 2016 | 471 | 247 | — | 718 | ||||||||
Year ended September 30, 2017 | 718 | 357 | (407 | ) | 668 | |||||||
Inventory allowance (deducted from inventory) | ||||||||||||
Year ended September 30, 2015 | 1,723 | (575 | ) | (378 | ) | 770 | ||||||
Year ended September 30, 2016 | 770 | 2,709 | (33 | ) | 3,446 | |||||||
Year ended September 30, 2017 | 3,446 | 10,381 | (9,255 | ) | 4,572 |
96
EXHIBIT INDEX
Exhibit No. | Description | |
2.1 | ||
2.2 | ||
2.3 | ||
2.4 | ||
3.1 | ||
3.1.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
10.1.1 | ||
10.2# | ||
10.3# | ||
10.4# | ||
10.5# |
97
10.8# | ||
10.8.1# | ||
10.9# | ||
10.10# | ||
10.11# | Form of Notice of Time-Based Restricted Stock | |
10.12# | ||
10.13# | Form of Notice of Performance-Based Restricted Stock Units Grant. | |
10.14# | ||
16.1 | ||
21.1 | ||
23.1 | ||
23.2 | ||
24.1 | ||
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
99.1 | ||
101 | The following materials from the Registrant's Annual Report on Form 10-K for the year ended September 30, | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
# DesignatesIndicates management contract or compensation plans.
Item 16. Form 10-K Summary.
None.
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 6, 2017.
LIQUIDITY SERVICES, INC. | ||||||
By: | /s/ WILLIAM P. ANGRICK, III | |||||
William P. Angrick, III | ||||||
Chairman of the Board of Directors | ||||||
and Chief Executive Officer |
We, the undersigned directors and officers of Liquidity Services, Inc., hereby severally constitute William P. Angrick, III, Jorge A. Celaya, and Mark A. Shaffer, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 6, 2017.
Signature | Title | |
/s/ WILLIAM P. ANGRICK, III William P. Angrick, III | Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | |
/s/ JORGE A. CELAYA Jorge A. Celaya | Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |
/s/ PHILLIP A. CLOUGH Phillip A. Clough | Director | |
/s/ KATHARIN S. DYER Katharin S. Dyer | Director | |
/s/ GEORGE H. ELLIS George H. Ellis | Director | |
/s/ Thierno A. Fall | Director | |
/s/ BEATRIZ V. INFANTE Beatriz V. Infante | Director | |
/s/ EDWARD J. KOLODZIESKI Edward J. Kolodzieski | Director | |
/s/ JAIME MATEUS-TIQUE Jaime Mateus-Tique | Director |
99