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.
All forward-looking statements apply only as of the date of this Annual Report 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.
Item 1A. Risk Factors.
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.
failures, power or service outages, human error, terrorist attacks, natural disasters, government mandated business closures and shelter-in-place guidelines designed to contain the spread of epidemic or pandemic disease or other events. In addition, space provided to us by the DoD could be re-configured or reduced in the DoD's discretion.
necessary skills, we may not be able to grow our business and revenue as expected and we could experience increased turnover, decreased levels of buyer and seller service, low morale, inefficiency or internal control failures.
The seasonality of our business places increased strain on our operations.
We have seasonality in each portion of our business. We expect a disproportionate amount of transactions on our marketplaces to occur at certain times during the year. If we are unable to effectively manage increased demand, or the increased flow of goods that we typically experience during these times, it could significantly 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 GMV and the attractiveness of our value-added services. In addition, we may be unable to adequately staff our distribution centers during these peak periods.
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:
•local economic and political conditions, or civil unrest that may disrupt economic activity in affected countries;
•government regulation of ecommercee-commerce and other services, competition, and restrictive governmental actions (such as trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and restrictions on foreign ownership;
•restrictions on sales or distribution of certain productsassets or services and uncertainty regarding liability for productsassets and services, including uncertainty as a resultbecause of less Internet-friendly legal systems, local laws, lack of legal precedent, and varying rules, regulations, and practices regarding the enforcement of intellectual property rights;
•business licensing or certification requirements, such as for imports, exports, and web services;
•limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
•shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
•laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and restrictions on pricing or discounts;
•lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;
•lower levels of credit card usage and increased payment risk;
•different employee/employer relationships and the existence of works councils;
•compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting certain payments to government officials and other third parties;
•laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and
•geopolitical events, including war and terrorism.
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.expenses will result in increased U.S. dollar denominated revenues and expenses. These factors and others may harm our business and our results of operations. In addition, 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.
Due
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 international scopeoverall 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:
•actual or anticipated variations in quarterly operating results;
•changes in financial estimates by us or by a securities analyst who covers our stock;
•publication of research reports about our company or industry;
•conditions or trends in our industry;
•stock market price and volume fluctuations of other publicly traded companies and, in particular, those whose business involves the Internet and e-commerce;
•announcements by us or our competitors of significant contracts (or the amendment or loss of such contracts), acquisitions, commercial relationships, strategic partnerships or divestitures;
•announcements by us or our competitors of technological innovations, new services or service enhancements;
•announcements of investigations or regulatory scrutiny of our operations we are subject to or lawsuits filed against us;
•the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act and similar foreign anti-corruption laws. These laws generally prohibit companies and their intermediaries from making improper paymentspassage of legislation or providing anythingother regulatory developments that adversely affect us, our sellers or buyers, or our industry;
•additions or departures of value to improperly influence foreign government officials for the purposekey personnel;
•sales of obtaining or retaining business, or obtaining an unfair advantage. Global enforcementour common stock, including sales of these laws has increased substantially in recent years. Violations of anti-corruption laws or regulationsour common stock by our employeesdirectors and officers or by intermediaries acting on our behalfspecific stockholders;
•general economic conditions and slow or negative growth of related markets; and
•the continued global spread of COVID-19 and related measures to contain its spread (such as government mandated business closures and shelter in-place guidelines).
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 severe criminalsubstantial costs and divert our management's attention and resources.
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 civil sanctions,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 do not have a credit facility with third-party lenders from which we may draw funds. 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 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 and initiatives.
The global COVID-19 pandemic could disruptharm our business and resultresults of operations.
The global spread of COVID-19 (the “Pandemic”) and related measures to contain its spread (such as government mandated business closures and shelter in-place guidelines experienced in anQ2 and Q3 of FY2020) have created significant volatility, uncertainty and economic disruption. Although the Pandemic and the related measures to contain its spread have not had a material adverse effect on our reputation, business andconsolidated results of operations to date, they have adversely affected certain components of our business, particularly revenues during times and in places in which governments ordered business and governmental closures and issued the most restrictive shelter in-place guidelines. The extent to which the Pandemic impacts our business, results of operations, financial condition and liquidity in the future will depend on numerous evolving factors that we cannot predict, including the severity and duration of future mutations or financial condition.related variants of the virus in areas in which we operate for which there may not be an effective vaccine.
Global and regional economic conditions.
Our operations and performance depend significantly on global and economic conditions. Adverse economic conditions and events include, but are not limited to, uncertainties and instability due to the Pandemic and its impact on global macroeconomic economic trends. These conditions could have a material adverse effect on our business by reducing the ability of international buyers and sellers to conduct businesses 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.
Legal and Regulatory Risks
We face legal uncertainties relating to the Internetinternet 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 Internetinternet 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
property rights and information security. Laws governing issues such as property ownership, title registration, security interests in assets, copyrights and other intellectual property issues, taxation, libel and defamation, obscenity and personal privacy could also affect our business. Laws adopted prior to the advent of the Internetinternet may not contemplate or address the unique issues of the Internet and related technologies and it is not clear how they will apply. Current and future laws and regulations could increase our cost of doing business and/or decrease the demand for our services.
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 otherwisewhich 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.
Certain categories of merchandise sold on our marketplaces are subject to government restrictions.
We sell merchandise, such as scientific instruments, information technology equipment and aircraft parts, that is 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, among other things, selling property to (1) persons or entities that appear on lists of restricted or prohibited parties maintained by the United States or other governments or (2) countries, regimes, or nationals that are the target of applicable economic sanctions or other embargoes. 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.
We may incur significant costs or be required to modify our business to comply with these requirements. If we are alleged to have violated any of thesesellers violate laws or regulations, we may be subjector implement practices regarded as unethical, unsafe, or hazardous 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, wethe environment, it could suffer serious harm todamage our reputation, if allegations of impropriety are made against us, whether or not true.
We are exposed to risks related to cybersecuritylimit our growth, and protection of confidential information.
We retain highly confidential information on behalf of our buyers and sellers in our systems and databases. Although we maintain security features in our systems that are designed to protect user information and prevent data loss and other security breaches, such measures cannot provide absolute security and our operations may be susceptible to breaches, including from circumvention of security systems, denial of service attacks or other cyber-attacks, hacking, computer viruses or malware, technical malfunction, employee error, malfeasance, physical breaches, system disruptions or other disruptions. These disruptions may jeopardize the security of information stored in and transmitted through our systems. An increasing number of websites, including those owned by several other large Internet and offline companies, have disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their websites or infrastructure. The techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems, change frequently, may be difficult to detect for a long time, and often are not recognized until launched against a target. Certain efforts may be state sponsored and supported by significant financial and technological resources and therefore may be even more difficult to detect. As a result, we may be unable to anticipate these techniques or to implement adequate preventative measures. As the Department of Defense is one of our sellers, our systems may be especially targeted by such malicious attackers. We currently expend, and may be required to expend significant additional capital and other resources to protect against such security breaches or to alleviate problems caused by such breaches. These issues are likely to become more difficult as we expand our
operations. Any breach of our security measures, or even a perceived breach of our security measures, could cause us to lose sellers or buyers, suffer material harm tonegatively affect our business, prospects, financial condition operatingand results and reputation or be subject to regulatory actions, sanctions or other statutory penalties, litigation, liability for failure to safeguard our sellers’ and buyers’ information. Further, the loss of confidential seller or buyer information could also expose us to the risk of liability and costly litigation. In addition, if there is any perception that we cannot protect our users’ confidential information, we may lose the ability to retain existing, and attract new, sellers and buyers, and our revenue could decline.operations.
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 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 is 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 (1) persons or entities that appear on lists of restricted or prohibited parties maintained by the United States or other governments or (2) countries, regimes, or nationals that are the target of applicable economic sanctions or other embargoes.
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.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 economically 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 GMV, revenue and profitability. If onesuch an audit uncovers improper or more states successfully assertillegal activities, we could be subject to civil and criminal penalties, administrative sanctions and 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 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 employees or by intermediaries acting on our websites, our business could be harmed.
The application of indirect taxes (such as sales and use tax, value-added tax ("VAT"), goods and services tax, business tax and gross receipt tax) to ecommerce businesses is a complex and evolving issue. Many of the fundamental statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and ecommerce. In many cases, it is not clear how existing statutes apply to the Internetbehalf may result in severe criminal or ecommerce. In addition, governments around the world are increasingly looking for ways to increase revenues, which has resulted in discussions about tax reform and other legislative action to increase tax revenues, including through indirect taxes. There are many transactions that occur during the ordinary course of business for which the ultimate tax determination is uncertain.
We are currently required to collect and remit sales taxes in all states for shipment of goods from our DoD vendor contracts. We also collect and remit sales or other similar taxes in respect of shipments of other goods into states in which we have a substantial presence. In addition, as we grow our business, any new operation in states in which we currently do not collect and remit sales taxes could subject shipments into such states to state sales taxes under current or future laws.
U.S. Supreme Court decisions restrict the imposition of obligations to collect state and local taxes with respect to sales made over the Internet. However, a number of states have adopted or are considering laws that levy additional taxes on Internet access and electronic commerce transactions. Congress is also considering legislation allowing states to require out-of-state sellers to collect sales and use taxes for ecommerce transactions. It is not possible to predict with any degree of certainty the outcome of these initiatives or the impact of these initiatives oncivil sanctions, disrupt our business and marketing strategies that we are consideringadversely affect our reputation, business and results of operations or may consider in the future.financial condition.
An unfavorable change in U.S. Supreme Court guidance related to sales tax, or a successful assertion by one or more jurisdictions that our sale of merchandise in such jurisdiction is subject to sales or other taxes may result in material tax liabilities, interest and penalties. A change in state or federal laws, or our business model, business strategy, or marketing initiatives may require us to collect sales tax on transactions in which we do not currently collect such tax. These developments,
should they occur, may result in a decrease in future sales, may decrease our ability to compete, increase our compliance costs or otherwise harm our business.
Similar issues exist outside of the United States, where the application of VAT or other indirect taxes on ecommerce providers is complex and evolving. On January 1, 2015, changes to the rules determining the place of supply (and thus the country of taxation) for all European Union based providers of electronically supplied services were implemented that require that we pay VAT based on the residence or normal place of business of our buyers. These changes may result in our paying a higher rate of VAT or VAT on a higher number of transactions. Additionally, we pay input VAT on applicable taxable purchases within the various countries in which we operate. In most cases, we are entitled to reclaim this input VAT from the various countries. However, the application of the laws and rules that allow such reclamation is sometimes uncertain. A successful assertion by one or more countries that we are not entitled to reclaim VAT could harm our business. In certain jurisdictions, we collect and remit indirect taxes on our fees and pay taxes on our purchases of goods and services. However, tax authorities may raise questions about our calculation, reporting and collection of taxes and may ask us to remit additional taxes, as well as the proper calculation of such taxes. Should any new taxes become applicable or if the taxes we pay are found to be deficient, 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.
False or defamatory statements transmitted through our services could harm our reputation and affect our ability to attract sellers and buyers.
The law relating to the liability of online services companies for information carried on or disseminated through their services is currently unsettled. Claims could be made against online services companies under both the U.S. and foreign law for defamation, libel, invasion of privacy, negligence, copyright or trademark infringement, or other theories based on the nature and content of the materials disseminated through their services. Our website allows users to make comments regarding the online auction industry in general and other users and their merchandise in particular. Although all such comments are generated by users and not by us, we are aware that claims of defamation or other injury have been made against other companies operating auction services in the past and could be made in the future against us for comments made by users. If we are held liable for information provided by our users and carried on our service, we could be directly harmed and may be forced to implement measures to reduce our liability. This may require us to expend substantial resources or discontinue certain service offerings, which could negatively affect our operating results. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could harm our reputation and affect our ability to attract sellers and buyers.
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. The LiquidityOne Transformation initiative, as well as other changes in our business, including initiatives to invest in information systems or to transition particular functions to third party providers, will necessitate modifications to our internal controls. We cannot be certain that our current design for internal control over financial reporting, or any changes to be made, will be sufficient to enable management to determine that our internal controls are effective for any period, or on an ongoing basis. If we are unable to assert 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, agents or third parties with whom we work. Internal controls may become less effective over time as a result 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 of these policies 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. In some cases, our management must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may result in us reporting 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. For example, our operating results for the fourth quarter, and full fiscal year 2016 were affected by our recording of a valuation allowance against our deferred tax assets and by our recording of an impairment of goodwill.
The success of our business depends on our ability to market quality products that meet our buyers' needs.
Our business relies on continued demand for the products we offer. To compete effectively, we must offer products that appeal to our buyers. This is dependent on a number of factors, including our ability to acquire products that meet the quality, performance and price expectations of our buyers and our ability to develop effective sales, advertising and marketing programs. Failure to continue to offer competitive products to the marketplace, to supply products that meet applicable regulatory requirements, or to predict market demands for, or gain market acceptance of, such products, could have a negative impact on our business, results of operations and financial condition.
Our stock price has been volatile, and your investment in our common stock could suffer a decline in value.
The worldwide financial crisis led to an increase in the overall volatility of the stock market. Despite improved stock market performance, the 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:
actual or anticipated variations in quarterly operating results;
changes in financial estimates by us or by a securities analyst who covers our stock;
publication of research reports about our company or industry;
conditions or trends in our industry;
stock market price and volume fluctuations of other publicly traded companies and, in particular, those whose business involves the Internet and ecommerce;
announcements by us or our competitors of significant contracts (or the amendment or loss of such contracts), acquisitions, commercial relationships, strategic partnerships or divestitures;
announcements by us or our competitors of technological innovations, new services or service enhancements;
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
the passage of legislation or other regulatory developments that adversely affect us, our sellers or buyers, or our industry;
additions or departures of key personnel;
sales of our common stock, including sales of our common stock by our directors and officers or specific stockholders; and
general economic conditions and slow or negative growth of related markets.
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.
Some provisions of our charter, bylaws and Delaware law inhibit potential acquisition bids that yousome investors may consider favorable.favorable to management.
Our corporate documents and Delaware law contain provisions that may enable our board of directors to resist a change in control of our company even if a change in control were to be considered favorable by you and other stockholders. These provisions include:
a staggered board of directors;
a prohibition on actions by our stockholders by written consent;
limitations on persons authorized to call a special meeting of stockholders;
the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be issued without stockholder approval;
advance notice procedures required for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and
the requirement that board vacancies be filled by a majority of our directors then in office.
These provisions could discourage, delay or prevent a transaction involving a change in control of our 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.
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. We use internally developed systems and licensed technology to operate our online auction platform and related websites. Third parties could assert intellectual property infringement claims against us based on our internally developed systems or use of licensed third-party technology. Third parties also could assert intellectual property infringement claims against 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 Business Risks
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 and Machinio) have and will 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 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.
Item 1B. Unresolved Staff Comments.
None.
Not Applicable
Item 2. Properties.
We lease the following properties:
properties as of September 30, 2021: |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Purpose | | Location | | Segment | | Square Feet | | Lease Expiration Date |
Corporate Headquarters | | Bethesda, MD,Maryland, USA | | 18,412Corporate & Other |
| 18,412 | | | April 30, 2023 |
Warehouse | | Dallas, Texas, USA | | 127,144RSCG |
| 127,144 | December | | January 31, 20202026 |
Warehouse | | Plainfield, Indiana, USA | | 187,704RSCG |
| 187,704 | | | April 30, 20192024 |
Warehouse | | North Las Vegas, Nevada, USA | | 102,400RSCG |
| 102,400 | March 31, 2021 | | June 30, 2026 |
AdministrativeStorage Lot | | Scottsdale,West Sacramento, California, USA | | GovDeals | | 116,305 | | | February 28, 2023 |
Warehouse | | Phoenix, Arizona, USA | | 23,536RSCG |
| 84,690 | | | January 31, 2027 |
Warehouse | | Kenilworth, NJ, USA | | CAG | | 10,507 | | | December 31, 20202022 |
Administrative | | Plano, Texas USA | | 12,234Corporate & Other |
| 12,234 | | | December 31, 2021 |
Warehouse | | Obetz, Ohio,Lithia Springs, Georgia, USA | | 340,000GovDeals |
| 13,000 | February 28, 2019 | | November 24, 2021 |
WarehouseAdministrative | | Oklahoma City, Oklahoma, USA | | 319,000 |
| | June 30, 2021 |
Warehouse | | Columbus, Ohio, USA | | 516,174 |
| | December 31,2017 |
Storage Lot | | Oklahoma City, Oklahoma, USA | | 435,600 |
| | June 30, 2021 |
Administrative | | Montgomery, Alabama, USA | | 14,950GovDeals |
| 19,762 | September 30, 2019 | | December 31, 2023 |
Administrative | | Houston, Texas, USA | | 12,422 |
| | March 31, 2018 |
Storage Lot | | Fontana, California, USA | | 511,830GovDeals |
| 511,830 | | | May 31, 2022 |
Testing FacilityAdministrative | | Asheville, NC, USALondon, GBR | | 1,502,820CAG |
| 3,430 | December 31, 2017 | | June 6, 2022 |
Warehouse | | Hayward, California, USABrampton, Canada | | 24,600RSCG |
| 53,621 | October | | August 31, 20182025 |
Warehouse | | Hazelwood, Missouri,Las Vegas, Nevada, USA | | 21,368RSCG |
| 32,000 | December 31, 2017 | | November 30, 2022 |
Warehouse | | Atlanta, Georgia, USA | | 47,636 |
| | May 31, 2018 |
Administrative | | London, GBR | | 3,430 |
| | May 6, 2022 |
Warehouse | | Brampton, Canada | | 53,621 |
| | August 31, 2020 |
Warehouse | | E. Brunswick, NJ, USA | | 38,400CAG |
| 4,800 | | | December 31, 20202025 |
Administrative | | Berlin, Germany | | Machinio | | 3,143 | | | July 31, 2022 |
Administrative | | Chicago, Illinois, USA | | Machinio | | 4,298 | | | December 31, 2021 |
Warehouse | | Atlanta, Georgia, USA | | GovDeals | | 47,636 | | | May 31, 2024 |
In addition, we lease various administrative spaces in North America totaling 40,210 square feet, in Europe, 4,0008,445 square feet and in Asia, 9,0883,747 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.
Howard v. Liquidity Services, Inc., et al.,Civ. No. 14-1183 (D. D. C. 2014).
On July 14, 2014, Leonard Howard filed a putative class action complaint Information regarding the Company's legal proceedings can be found in the United States District Court for the District of Columbia (the ‘‘District Court’’) against Liquidity Services and our chief executive officer, chief financial officer, and chief accounting officer, on behalf of stockholders who purchased our common stock between February 1, 2012, and May 7, 2014. The complaint alleged that the defendants violated Sections 10(b) and 20(a)Note 15 of the Securities Exchange Act of 1934 by, among other things, misrepresenting our growth initiative, growth potential, and financial and operating conditions, thereby artificially inflating our stock price, and sought unspecified compensatory damages and costs and expenses, including attorneys’ and experts’ fees. On October 14, 2014,accompanying Notes to the Court appointed Caisse de Dépôt et Placement du Québec and the Newport News Employees’ Retirement Fund as co-lead plaintiffs. The plaintiffs filed an amended complaint on December 15, 2014, which alleges substantially similar claims, but which does not name the chief accounting officer as a defendant. On March 2, 2015, we moved to dismiss the amended complaint for failure to state a claim or plead fraud with the requisite particularity. On March 31, 2016, the Court granted that motion in part and denied it in part. Only the claims related to our retail division were not dismissed. On May 16, 2016, we answered the amended complaint. Plaintiffs’ class certification motion was granted on September 6, 2017. The scheduling order in this action requires that fact discovery be completed by February 23, 2018, and that expert discovery be completed by July 27, 2018.Consolidated Financial Statements.
We believe the allegations in the amended complaint are without merit and cannot estimate a range of potential liability, if any, at this time.
Billard v. Angrick, et al.,Civ. No. 16-1612-BAH (D. D. C. 2016) andSlingerland v. Angrick, et al.,Civ. No. 16-1725-BAH (D. D. C. 2016).
On February 2, 2017, plaintiff David Girardi filed a putative derivative complaint in the Court of Chancery of the State of Delaware (the “Court of Chancery”), and on February 7, 2017, plaintiff Harold Slingerland filed a putative derivative complaint 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 our behalf. The consolidated complaint names as defendants our chief executive officer and chief financial officer, as well as certain other individuals who served on our Board of Directors between 2012 and 2014, and seeks recovery from those individuals, not from us. The complaint asserts that, among other things, the defendants breached their fiduciary duties to us and our stockholders by causing or allowing us to make the same misstatements that are alleged in the amended complaint in the Howard action, and for alleged trading in our securities while in possession of material non-public information. The defendants have filed a motion to dismiss the complaint in its entirety. On November 27, 2017, the Court of Chancery granted the defendants’ motion to dismiss.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Price Range of Common Stock
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 |
|
HoldersAs of November 21, 2017,December 3, 2020, there were approximately 1,7576,945 beneficial holders of our common stock and 1823 holders of record of our common stock.
Dividend PolicyDividends
Since becoming a public company on February 22, 2006, weWe 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.financial condition, operating results, current and anticipated cash needs and other relevant factors.
Stock Performance Graph
*$100 invested on 9/30/1216 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Copyright© 20172021 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 20172021 Russell Investment Group. All rights reserved.
Issuer Purchases of Equity Securities
The following table presents information about our repurchases of common stock that were made during the three months ended September 30, 2021 (in millions, except share and per 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, 2021 | | — | | | $ | — | | | — | | | $ | 15.0 | |
August 1 to August 31, 2021 | | 461,587 | | | 23.23 | | 461,587 | | | 4.3 | |
September 1 to September 30, 2021 | | 173,297 | | | 24.69 | | 173,297 | | | — | |
Total | | 634,884 | | | | | 634,884 | | | |
(1)At the beginning of the fourth quarter of fiscal 2021, there was $15 million available for share repurchases under our May 3, 2021 share repurchase program expiring June 30, 2023. During the fourth quarter fiscal year 2021, repurchased $15 million of shared and had no remaining authorization under the May 3, 2021 share repurchase program. On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $20 million of the Company's outstanding shares of common stock through December 31, 2023.
Item 6. Selected Financial Data.[Reserved]
You should read 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 years ended September 30, 2017, 2016 and 2015 and the consolidated balance sheet data as of September 30, 2017 and 2016 are derived from, and are qualified by reference 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 |
|
| |
(1) | The Company has reclassified certain prior year business realignment expenses to conform to the current year presentation. The reclassification had no effect on total operating expenses, net income, or cash flows. |
| |
(2) | EBITDA from continuing operations and adjusted EBITDA from continuing operations are supplemental non-GAAP financial measures. GAAP means generally accepted accounting principles in the United States. EBITDA is equal to net income plus (a) interest income (expense) and other income (expense), net; (b) provision for income taxes; (c) amortization of contract intangibles; and (d) depreciation and amortization. Our definition of adjusted EBITDA is different from EBITDA because we further adjust EBITDA for stock based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, goodwill and long-lived assets impairment, and business disposition loss. For a description of our use of EBITDA and adjusted EBITDA and a reconciliation of these non-GAAP financial measures to net income, see the discussion and related table below. |
| |
(3) | Gross merchandise volume is the total sales value of all merchandise sold through our marketplaces during a given period. |
| |
(4) | Completed transactions represent the number of auctions in a given period from which we have recorded revenue. |
| |
(5) | Total registered buyers as of a given date represent the aggregate number of persons or entities who have registered on one of our marketplaces. |
| |
(6) | For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times on that auction, and total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. |
| |
(7) | Working capital is defined as current assets minus current liabilities. |
We believe non-GAAP financial measures, such as EBITDA and adjusted EBITDA, are useful to an investor in evaluating our performance for the following reasons:
The amortization of contract intangibles relates to the amortization of the Scrap Contract beginning in June 2005, the Wal-Mart Agreement beginning in October 2011, and an assumed contract associated with the National Electronic Service Association (NESA) acquisition on November 1, 2012. Depreciation and amortization expense primarily relates to property and equipment. Both of these expenses are non-cash charges that have significantly fluctuated over the past five years. As a result, we believe that adding back these non-cash charges to net income is useful in evaluating the operating performance of our business on a consistent basis from year to year.
As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts net income for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values. We believe adjusting net income for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
We believe adjusting net income for acquisition and disposition related transaction expenses and changes in contingent consideration is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
We believe adjusting net income for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
We believe EBITDA and adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
We also believe that analysts and investors use EBITDA and adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry.
Our management uses EBITDA and adjusted EBITDA:
as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budget;
to allocate resources to enhance the financial performance of our business;
to evaluate the effectiveness of our operational strategies; and
to evaluate our capacity to fund capital expenditures and expand our business.
EBITDA and adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA and adjusted EBITDA: (a) do not represent net income 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, income from operations, cash provided by operating activities or our other financial information as determined under GAAP.
We prepare adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, adjusted EBITDA is subject to all of the limitations applicable to EBITDA. Our presentation of 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 income from continuing operations to EBITDA and adjusted EBITDA from continuing operations for the periods presented.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 | ) |
* Business realignment expenses, which are excluded from Adjusted EBITDA, are included in Other operating expenses on the Statement of Operations. See Note 14 to Notes to Consolidated Financial Statements for further detail.
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 is a leading global commerce company providing trusted marketplace platforms that power the circular economy. We manage,create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus. We connect millions of buyers and sell inventorythousands of sellers through our leading 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 clients by operating a network of leading ecommerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply 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.sellers.
We believe our ability to create liquid marketplaces for surplus and salvageidle assets generates a continuous flow of goods from our corporatesellers. This valuable and government sellers. Thisreliable flow of goods, in turn, attracts an increasing number of professional buyers to our marketplaces. During fiscal year 2017, the numberIncreasing numbers of registered buyers grew from approximately 2,986,000 to approximately 3,171,000, or 6.2%.our marketplaces, in turn, attracts more sellers to our marketplaces which, in turn, reinforces a valuable and reliable flow of surplus assets. During the past three fiscal years, we have conducted over 1,671,0001,863,000 online transactions generating approximately $2.1 billion in 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 of time.
During the year ended September 30, 2021, the number of registered buyers grew from 3,772,000 to 4,031,000, or 6.9%. 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 $886.7 million and revenue of $257.5 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. Our GMV has grown at a compound annual growth rate of 11.5% since 2006.
Our revenue.Machinio segment, which operates a global search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors, grew revenue 32.5% during the year ended September 30, 2021.
Results from our operations are organized into four reportable segments: Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. See Note 16 - Segment Information to the Consolidated Financial Statements for more information regarding our segments.
On November 1, 2021, we acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets auctions distressed real estate for the federal government, sheriffs, county tax-collectors, financial institutions and real estate funds. See Note 17 - Subsequent Events for more information regarding this transaction.
Impacts of the COVID-19 Pandemic
The Company has been closely monitoring the COVID-19 pandemic. In April 2020, the Company experienced the largest impacts on its operations thus far stemming from the initial actions taken by governments and the private sector to limit the spread of COVID-19. The restrictions on economic activity were caused, in part, by business closures, limitations on the operations of business activity and significant prioritization of essential business functions. Since May 2020, we have seen subsequent increases in GMV and revenues as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income for the third and fourth quarters of fiscal 2020, and continued throughout fiscal 2021. However, COVID-19 and its variants continue to impact the global economy and the ability to conduct cross-border commerce due to ongoing travel restrictions in various countries. At this time, the likelihood, magnitude and timing of business developments across our segments are difficult to predict given the current economic uncertainty, unknown duration and overall impact of the global pandemic. As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.
Throughout the COVID-19 pandemic, the Company has actively monitored its liquidity position and working capital needs. During each quarter of fiscal 2021 including during the three months ended September 30, 2021, the Company determined that its liquidity position and working capital were more than sufficient to meet its projected needs. As discussed in Note 11 - Equity Transactions, during the year ended September 30, 2021, the Company repurchased a total of 1,591,963 shares for $31.1 million.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to the COVID-19 pandemic.
Industry Trends
We believe there are several industry trends positively impacting the long-term growth of our business including: (1) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (3) the increase in outsourcing the disposition of surplus and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain; (4) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical; (5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets; and (6) the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.
Revenues
Substantially all of our revenue is earned through the following transaction models.models:
Purchase model. Under our purchase transaction model, we recognize revenue within the Revenue 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 our vendorssellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the primary obligor, and take general and physical inventory risks and credit risk under thisprincipal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. Also included in theThe proceeds paid by buyers arealso include transaction fees, charged to the buyers, referred to as buyer premiums. Revenue from our purchase transaction model accounted for approximately 69.8%56.8%, 73.8%,62.0% and 79.3% of our total revenue for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. Included in these amounts is revenue earned from the sale of property obtained via the Scrap contract, where the price we pay DoD for the property is based on a revenue share model, and which accounted for approximately 11.1%, 10.2%, and 15.3%65.3%, of our total revenue for the fiscal years ended September 30, 2017, 2016,2021, 2020 and 2015,2019, respectively. These amounts included sales of commercial merchandise sourced from multiple vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial merchandise we purchased under this contract represented 60.7%, 55.1% and 43.6%, of Cost of goods sold for the years ended September 30, 2021, 2020 and 2019, respectively. The merchandise sold under our purchase transaction model accounted for approximately 28.6%16.4%, 36.4%,20.9% and 40.3%23.0%, of our GMV for the fiscal years ended September 30, 2017, 20162021, 2020 and 2015, respectively. The revenue from our purchase transaction model is recognized within the Revenue line item on the Consolidated Statements of Operations.
2019.Consignment 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. ThisThe revenue from our consignment transaction model is recognized within the Fee Revenue line item on the Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to
facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to theirthe distribution to the seller after completion of the transaction. In addition to the seller commissions, we also collect transaction fees charged to buyers, referred to as buyer premiums. Revenue from our consignment transaction model accounted for approximately 24.4%36.0%, 20.9%, 20.6%31.8% and 29.4%, of our total revenue for the fiscal years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively, and for approximately 71.4%83.6%, 64.6%,79.1% and 59.7%77.0%, of our GMV for the fiscal years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively. The revenue from our consignment transaction model is recognized within the Fee Revenue line item on the Consolidated Statements of Operations.
Other — fee revenue.We also earn non-consignment fee revenue which is largely made upfrom Machinio Advertising sales listing subscription and Machinio System services, as well as other services including returns management, refurbishment of service revenue related to our Surplus contract. This revenue is recognized within the Fee revenue line item on our Consolidated Statements of Operations,assets, and is discussed in further detail in Note 3 - Significant Contracts of the Notes to our Consolidated Financial Statements.
We collect a buyer premium on substantially all transactions under the transaction models we offer to sellers. Buyer premiums are calculated as a percentage of the sale price of the merchandise soldasset valuation services. Other revenues accounted for 7.2%, 6.2% and are paid to us by the buyer. Buyer premiums are in addition to the price of the merchandise.
Industry trends. We believe there are several industry trends positively impacting the growth5.3% of our business including: (1)total revenue for the increase in the adoption of the Internet by businesses to conduct ecommerce both in the United Statesyears ended September 30, 2021, 2020 and abroad; (2) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (3) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (4) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain, which we expect to increase our seller base; (5) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical, and (6) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, the supply of surplus assets.2019, respectively.
Our Vendor Agreements
Our DoDCommercial agreements.We have twomultiple vendor contracts with the DoD pursuant to which we acquire, manage and sell excess property:
Surplus Contract. The Surplus contract is a competitive-bid contractAmazon.com, Inc. under which we acquire manage and sell usable DoD surplus personalcommercial merchandise. The property turned into the DLA. Surplus property generally consists of items determined by the DoD to be no longer needed, and not claimed for reuse by any federal agency, such as electronics, industrial
equipment, office supplies, scientific and medical equipment, aircraft parts, clothing and textiles. The Surplus contract requires us to purchase substantially all usable non-rolling stock surplus property offered by the DoD at 4.35% of the DoD’s original acquisition value (OAV). The current Surplus contract, which is the third such contract awarded to us since 2001, became effective in December 2014, covers only non-rolling stock and has a base term of two years with four one-year options to extend. The prior, or second, Surplus contract required us to purchase substantially all rolling and non-rolling usable surplus property offered by the DoD at 1.8% of the DoD’s OAV; the wind-down period under the second Surplus contract was in effect until January 2017 to allow for the continued processing of usable Recycling Control Point (RCP) non-rolling stock surplus property. The Surplus contract permits either party to terminate the contract for convenience. The initial two-year base period of the current Surplus contract ended in December 2016. On December 6, 2016, the DLA notified the Company that it was exercising the first one-year extension option. The Surplus contract now extends through December 14, 2017. There are three remaining one-year options to extend the current Surplus contract, exercisable by the DLA. Transactionswe purchased under this contract follow the purchase transaction model described above. Notwithstanding the options to extend, the DLA held a pre-proposal conference on August 2, 2017 in which the DLA explained a plan to conduct a solicitationrepresented 60.7%, 55.1% and 43.6%, of cost of goods sold for the disposal of surplus DoD assets in the near future. On October 11, 2017, the DLA published a Request for Technical Proposal ("RFTP") for the sale of surplus, useable non-rolling stock property. The DLA intends to award two term contracts which are intended to replace our current Surplus contract. The DLA has also reserved its right to renew our current Surplus contract. See Note 18 (Subsequent Event) in the Notes to the Consolidated Financial Statements for information about the bidding on the DLA’s Request for Technical Proposal, which was issued subsequent to September 30, 2017.
We currently earn fees for services provided under the Surplus contract. Service fees may vary month-to-month based on services rendered, agreed pricing and volume of goods. Pricing declines negatively affected revenue under the Surplus contract beginning in the quarter ended June 30, 2017, and we anticipate service fee revenue will continue to decline over several quarters due to anticipated additional pricing declines. Revenue under the Surplus contract was negatively affected for the twelve months ended September 30, 2017, as a result of an approximate $2.0 million decrease in service revenues due to lower pricing compared to the pricing in effect through the quarter ended March 31, 2017. Applying the additional lower pricing declines currently planned, revenue under the Surplus contract would have been lower by approximately $5.0 million for the twelve months ended September 30, 2017. Assuming the DoD exercises the next renewal option under the Surplus contract, we anticipate that the results of the second quarter of fiscal year 2018 will fully reflect the impact of the new reduced service fees.
Resale of surplus property that we purchased, as well as services we provided to the DoD under the Surplus Contract accounted for 27.6%, 31.0%, and 24.7%, of our revenue and 9.4%, 12.7%, and 12.3%, of our GMV for the fiscal years ended September 30, 2017, 20162021, 2020 and 2015,2019, respectively. This contract is included within our RSCG segment. Our agreements with our other sellers are generally terminable at will by either party.
DoD agreement. Historically, we had a material vendor contract with the DoD referred to as the Scrap Contract. This contract was included in the results of our CAG segment.
The DoD has broad discretion to determine what Under the Scrap Contract, which concluded on September 30, 2019, we acquired, managed and sold all non-electronic scrap property will be made available for sale to us under the Surplus Contract and may retrieve or restrict property previously sold to us for national security, public safety, or other reasons or if the property is otherwise needed to support the mission of the DoD.
Scrap Contract. On April 8, 2016, the DLA awarded us the second Scrap contract. Under the second Scrap contract, we acquire scrap property fromDoD turned into the DLA, and paypaid the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds. The Scrap contract is a competitive-bid contract under which we acquire, manage and sell substantially all scrap property of the DoD turned into the DLA. Scrap property generally consistsconsisted of items determined by the DoD to have no use beyond their base material content, such as metals, alloys, and building materials. We bearbore all of the costs for the sorting, merchandising and sale of the property. The second Scrap contract has a 36-month base term, commencing in the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA. Transactionsresale transactions for scrap property sourced under this contract followfollowed the purchase transaction model described above.
Under the first Scrap contract, we acquired scrap property at a per pound price and disbursed to the DLA a percentage of the profits, most recently 65% of the amount realized from the sale of the inventory, after deduction for allowable expenses. We refer to these disbursement payments to the DoD as profit-sharing distributions. We recognized as revenue the gross proceeds from these sales. The DoD reimbursed us for certain direct expenses deemed to be payable by the DoD rather than by us. During fiscal year 2015, if our buyer base met certain small business criteria as defined in the contract, we received an additional incentive payment which was withheld from payments to the DLA. The prior Scrap contract expired on September 30, 2016.
model.
Resale of scrap property that we purchased under the Scrap Contract accounted for 11.1%, 10.2%, and 15.3%,7.4% of our revenuetotal revenues and 4.7%, 5.0%, and 7.6%,2.6% of our GMV forin the fiscal yearsyear ended September 30, 2017, 2016 and 2015, respectively. This contract is included within our CAG segment.
Our Commercial Agreements
We have a vendor contract with Amazon.com, Inc. under which we acquire and sell commercial merchandise. The property we purchased under this contract represented approximately 21.8%, 12.1%, and 6.9% of cost of goods sold for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. This contract is included within our RSCG segment.
We have various vendor contracts with Wal-Mart Stores, Inc., under which we purchase certain consumer products from Wal-Mart that have been removed from the sales stream of its retail operations. All of these agreements have customary commercial terms, which generally expire within a year and allow both parties to terminate for convenience with reasonable notice. We also had a long-term contract with Wal-Mart that was terminated effective December 8, 2014. As part of a final settlement of claims Wal-Mart paid us $7.5 million in February 2015.
On September 30, 2015, we sold certain assets related to the Jacobs Trading Company to a buyer, Tanager Acquisitions, LLC. In connection with the disposition, the buyer assumed certain liabilities related to the Jacobs Trading Company. The buyer issued to us a promissory note in the amount of $12.3 million. The divestiture of the Jacobs Trading Company resulted in an $8.0 million loss. The sale generated a tax loss that resulted in a $30.9 million cash benefit from prior year income taxes. We received $30.1 million of the cash benefit in March 2016, and additional $0.7 million of the cash benefit during the three months ended June 30, 2017. We expect to receive the remaining $0.1 million in fiscal year 2018.
During fiscal year 2017, we had over 600 corporate sellers who each sold in excess of $10,000 of surplus and salvage assets in our marketplaces. Our agreements with these sellers are generally terminable at will by either party.2019.
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.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 $629.3ended September 30, 2021 was $886.8 million.
Total registered buyers. We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list.
Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of September 30, 2017,2021 and 2020, we had approximately 3,171,0004,031,000 and 3,772,000 registered buyers.buyers, respectively.
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. ForDuring the fiscal yearyears ended September 30, 2017, approximately 2,290,000 total auction2021, 2020, and 2019, 2,279,000, 1,899,000, and 2,085,000 participants participated in auctions on our marketplaces.marketplaces, respectively. Largely as a result of the wind-down of the Scrap Contract, there was a decrease in auction participants during 2020 compared with 2019.
Completed transactions. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the fiscal yearyears ended September 30, 2017,2021, 2020, and 2019, we completed approximately 530,000 transactions.703,000, 553,000 and 607,000 transactions, respectively.
Critical Accounting PoliciesNon-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 income, net excluding the non-service components of net periodic pension (benefit); provision for income taxes; and depreciation and amortization. Interest and other income, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our discussion and analysisdefinition of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue andNon-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 related disclosure of contingent assetschanges in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and liabilities. A “critical accounting estimate” is one which is both importantgoodwill and long-lived asset impairment.
We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to the portrayal ofan investor in evaluating our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result 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 basisperformance for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Revenue recognition. For transactions in our ecommerce marketplaces, which generate substantially all of our revenue, we recognize revenue when all of the following criteria are met:reasons:
a buyer submits the winning bid in an auction
•Depreciation and as a result, evidence of an arrangement exists,amortization expense primarily relates to property and equipment and the sale price has been determined;
amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the buyer has assumed risks and rewards of ownership; and
collection is reasonably assured.
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers and PayPal, an Internet based payment system, as methods of payments.past. As a result, we are not subject to significant collection risk, as goods are generally not shipped before paymentbelieve that adding back these non-cash charges is received.
Fee revenue is principally revenue earned underuseful in evaluating the consignment model, and is presented separately as it accounts for more than 10%operating performance of total revenue.
Transactions are also evaluated to determine whether we should report gross proceeds as revenue, for example, when we act as the principal in the arrangement, or if we should report revenue as our net commissions, for example, when we act as an agent. In arrangements in which we are deemed to be the primary obligor, bear physical and general inventory risk, and credit risk, we recognize as revenue the gross proceeds from the sale, including buyer’s premiums. In arrangements in which we act as an agent or brokerbusiness on a consignmentconsistent basis without taking general or physical inventory risk, revenue is recognized based on the sales commissions that are paid to us by the sellers for utilizing our services; in this situation, sales commissions represent a percentage of the gross proceeds from the sale that the seller pays to us upon completion of the transaction.year-to-year.
We have evaluated our revenue recognition policy related to sales under our purchase transaction model and determined it is appropriate to account for these sales on a gross basis. The following factors were most heavily relied upon in our determination:
We are the primary obligor in the arrangement.
We are the seller in substance and in appearance to the buyer; the buyer contacts us if there is a problem with the purchase. Only we and the buyer are parties to the sales contract and the buyer has no recourse to the supplier. If the buyer has a problem, he or she looks to us, not the supplier.
The buyer does not and cannot look to the supplier for fulfillment or for product acceptability concerns.
We have general inventory risk.
We take title to the inventory upon paying the amount set forth in the contract with the supplier. Such amount is generally a percentage of the supplier’s original acquisition cost and varies depending on the type of the inventory purchased or a fixed nominal amount under our Scrap contract.
We are at risk of loss for all amounts paid to the supplier in the event the property is damaged or otherwise becomes unsaleable. In addition, under the previous Scrap contract, as payments made for inventory were excluded from the calculation for the profit-sharing distribution under our DoD contracts, we effectively bore inventory risk for the full amount paid to acquire the property (i.e., there was no sharing of inventory risk).
In fiscal year 2017, approximately 11.1% of our revenue was generated outside of the U.S.
Inventory. Inventory consists of products available for sale and is valued at the lower of cost or market value. This valuation requires us to make judgments based on currently available information about expected recoverable value.
Business combinations. We recognize all 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. Generally, restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price (i.e., working capital adjustments) or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowances are recognized as a reduction or increase in income tax expense.
Valuation of goodwill and other intangible assets. We identify and value intangible assets that we acquire in business combinations, such as customer arrangements, customer relationships and non-compete agreements, that arise from contractual or other legal rights or that are capable of being separated or divided from the acquired entity and sold, transferred, licensed, rented or exchanged. The fair value of identified intangible assets is based upon an estimate of 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.
We test our goodwill for impairment annually or more frequently if events or circumstances indicate impairment may exist. Examples of such events or circumstances could include a significant change in business climate, a loss of significant sellers or buyers, or a significant decline in stock price. We make a qualitative evaluation about the likelihood of goodwill impairment to determine whether we should calculate the fair value of a reporting unit. If our evaluation indicates a likelihood of goodwill impairment, we apply a two-step fair value-based test to assess goodwill for impairment of our four reporting units, which are the same as our four operating segments (RSCG, CAG, GovDeals, and IronDirect). The first step compares the fair value of a reporting unit to its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, we perform the second step, which compares the carrying amount of the reporting unit’s goodwill to the implied fair value of the goodwill. If the fair value of the goodwill is less than the carrying amount, an impairment loss would be recorded in our statements of operations. Intangible assets with definite lives are amortized over their estimated useful lives and are also reviewed for impairment if events or changes in circumstances indicate that their carrying amount may not be realizable.
Our management makes certain estimates and assumptions in order to determine the fair value of net assets and liabilities, including, among other things, an assessment of market conditions, projected cash flows, cost of capital and growth rates, which could significantly impact the reported value of goodwill and other intangible assets. Estimating future cash flows requires significant judgment, and our projections may vary from cash flows eventually realized. The valuations employ a combination of present value techniques to measure fair value, corroborated by comparisons to estimated market multiples. These valuations are based on a discount rate determined by our management to be consistent with industry discount rates and the risks inherent in our current business model.
Determining the fair value of a reporting unit requires the exercise of significant judgment, including judgments about the appropriate discount rates, terminal growth rates, weighted average costs of capital, exit multiples, and the amount and timing of expected future cash flows. The judgments used in determining the fair value of our reporting units are based on significant unobservable inputs which causes the determination of the implied fair value of goodwill to fall within level three of the GAAP fair value hierarchy. The cash flows employed in the discounted cash flow analysis are based on the most recent budgets, forecasts, and business plans as well as various growth rate assumptions for years beyond the current business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future revenue streams and cash flows of the reporting unit. Various factors, including the failure to successfully implement our business plan for any of our reporting units, as well as other factors beyond our control, could have a negative effect on the fair value of such reporting unit, and increase the risk of further impairments of goodwill in the future.
A reporting unit represents a component of an operating segment that (a) constitutes a business, (b) has discrete financial information, and (c) its performance is reviewed by management. During fiscal year 2016 we concluded we had five reporting units-RSCG, CAG, GovDeals, TruckCenter, and IronDirect. On January 30, 2017, we decided to exit certain TruckCenter operations in order to focus our time and resources on our ecommerce marketplace strategy. As a result, as of September 30, 2017, we have four reporting units. We will continue to sell trucks and related equipment through our other ecommerce marketplaces.
We performed our annual goodwill and finite-lived intangible assets impairment assessment as of July 1, the first day of our fiscal fourth quarter. As a result, the annual goodwill impairment assessment was performed as of July 1, 2017, for fiscal
year 2017. We believed that changing the annual goodwill impairment assessment date allows for enhanced internal controls over financial reporting by providing additional time during the fiscal fourth quarter to perform necessary analyses and reviews.
During the three months ended December 31, 2014, we identified indicators of impairment, including the termination of the Wal-Mart Agreement on December 1, 2014, the significant decline in market capitalization during the quarter, and continued uncertainty in projections for fiscal year 2015 and beyond. As a result, we performed step one of our goodwill impairment test as of December 31, 2014. Based on step one of the goodwill impairment test as of the interim testing date, we determined that the carrying values of our two reporting units exceeded their fair values. Accordingly, step two of the goodwill impairment test was performed, where we determined the estimated fair values of the assets and liabilities of the reporting units. •As a result of the step two test,varying federal and state income tax rates, we recordedbelieve that presenting a goodwill impairment charge of $85.1 million during the first quarter of fiscal year 2015.
As part of our annual goodwill impairment assessment as of September 30, 2015, we identified indicators of impairment, including a decline in market capitalization and continued uncertainty in projectionsfinancial measure that adjusts for fiscal year 2016 and beyond. Based on the results of step one of our goodwill impairment analysis as of the fiscal year ended September 30, 2015, the carrying values of both of our two reporting units exceeded their fair value. Accordingly, we performed step two of the goodwill impairment test, where we determined the estimated fair value of the assets and liabilities of the impaired reporting units. As a result of the step two test, we recorded a goodwill impairment charge of $51.2 million during the fourth quarter of fiscal year 2015.
As part of our annual goodwill impairment assessment as of July 1, 2016, we identified indicators of impairment. Step one of our goodwill impairment analysis as of July 1, 2016, resulted in the carrying value exceeding fair value of one of our five reporting units that had goodwill. Accordingly, step two of the goodwill impairment test was performed, where we determined the estimated fair value of the assets and liabilities of the impaired reporting unit. As a result of the step two test, we recorded a goodwill impairment charge of $19.0 million during the fourth quarter of fiscal year 2016. The goodwill impairment was due to updated assumptions used in the fair value calculation.
As part of our fiscal year 2017 annual impairment assessment, we believed that certain events triggered moving to a step one evaluation of goodwill to identify potential impairment. As a result of the step one test, we determined that our remaining reporting units with goodwill had fair values as of September 30, 2017, that substantially exceeded their respective book values.
We recorded a $1.2 million impairment of a contract intangible associated with customer relationships in our IronDirect business. This impairment is included within Other Operating Expenses within the Consolidated Statement of Operations, and is mostly offset by an associated reversal of a liability under an earn-out provision. The net impact of these items on Other Operating Expenses is an expense of $0.2 million.
We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and other intangible assets, which totaled $45.8 million at September 30, 2017. Such events may include strategic decisions made in response to economic and competitive conditions, the impact of the economic environment on our base of buyers and sellers or material negative changes in our relationships with material buyers and sellers.
Income taxes. We accountprovision for income taxes usingis useful to investors when evaluating the 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 recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such determination, we consider all available positive and negative evidence to estimate whether future taxable income will be generated to permit use of the existing deferred tax asset. A significant piece of subjective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2017, and projected losses in the near-term future. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.
On the basis of the evaluation, we recorded a charge of $35.8 million to our valuation allowance during the fiscal year ended September 30, 2016. During the twelve months ended September 30, 2017, we recorded a charge of $10.1 million to our valuation allowance to recognize only the portionoperating performance of our deferred tax asset that is more likely than notbusiness on a consistent basis from year to be realized.year.
We apply the•The authoritative guidance related to accounting for uncertainty in income taxes. 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 the fiscal year ended September 30, 2017, we reduced our net operating loss carryforward by $3.0 million for unrecognized tax benefits related to federal and state exposures.
We provide for income taxes based on our estimate of federal and state tax liabilities. These estimates include, among other items, effective rates for state and local income taxes, estimates related to depreciation and amortization expense allowable for tax purposes, and the tax deductibility of certain other items. Our estimates are based on the information available to us at the time we prepare the income tax provision. We generally file our annual income tax returns several months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.
Stock-based compensation. We recognizestock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the statements of operationsincome statement based on their estimated fair values.values over the requisite vesting period. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
•The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.
•We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
•We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
•We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
•We also believe that analysts and investors use Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental measures to evaluate the Black-Scholes option pricing model overall operating performance of companies in our industry.
Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:
•as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget;
•to estimateallocate resources to enhance the fair valuesfinancial performance of share-based payments.our business;
•to evaluate the effectiveness of our operational strategies; and
•to evaluate our capacity to fund capital expenditures and expand our business.
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 adjusting Non-GAAP EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
The above listtable below reconciles net income (loss) to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30, |
| | 2021 | | 2020 | | 2019 |
| | |
Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | (19,260) | |
Interest and other income, net(1) | | (76) | | | (577) | | | (1,101) | |
Provision (benefit) for income taxes | | (23,370) | | | 801 | | | 1,200 | |
Depreciation and amortization | | 6,969 | | | 6,290 | | | 5,091 | |
EBITDA | | 34,472 | | | 2,740 | | | (14,070) | |
Stock compensation expense(2) | | 6,947 | | | 5,660 | | | 6,823 | |
Acquisition costs and impairment of goodwill and long-lived assets(3) | | 1,464 | | | 5 | | | 102 | |
| | | | | | |
Business realignment expenses(4) | | 5 | | | 405 | | | 1,578 | |
Fair value adjustment to acquisition earn-out liability(3) | | — | | | 200 | | | 3,500 | |
Deferred revenue purchase accounting adjustment | | — | | | 3 | | | 818 | |
| | | | | | |
Adjusted EBITDA | | $ | 42,888 | | | $ | 9,013 | | | $ | (1,249) | |
(1) Interest expense and other income, net excludes non-services pension and other postretirement benefit expense.
(2) Excludes the impact of forfeitures of stock awards by employees terminated by business realignment actions. That impact is not intendedincluded in the business realignment expense line.
(3) Acquisition costs and impairment of long-lived assets, and fair value adjustments to acquisition earn-out liability are included in Other operating expenses on the Statements of Operations.
(4) Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 14 to the Consolidated Financial Statements, and the related impacts of business realignment actions subject to other accounting guidance. Those related impacts were $317 thousand for the year ended September 30, 2019, due to forfeitures of stock awards by terminated employees. No related impacts were associated with the other periods presented.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements, included 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, which requires management of the Company to make assumptions, judgments and estimates that affect amounts reported in its consolidated financial statements. Accounting policies and estimates are considered to be "critical" when the nature of the estimate includes subjective or sensitive assumptions or judgments that can have a comprehensive listmaterial impact on the financial condition or operating performance of the Company. Actual results may differ from these estimates.
We consider the following accounting policies to be critical: revenue recognition, business combinations, valuation of goodwill and other intangible assets, and income taxes. Refer to Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details on these accounting policies.
We consider the following accounting estimates to be critical: valuation of goodwill and other intangible assets (Notes 7 and 8), and 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 allowance. A valuation allowance is recorded against deferred tax assets for tax purposes if, based on the weight of all available evidence, in management's judgement it is more likely than not that some portion, or all, of our accounting policies. the deferred tax assets will not be realized. Due to years of pre-tax losses (a cumulative three-year pre-tax loss), the Company has recorded significant valuation allowances, primarily related to net operating losses for US Federal income tax purposes.
In many cases,its assessment as of September 30, 2021, the accounting treatmentCompany has cumulative income from the past three years in the US, including six consecutive fiscal quarters of income. The Company also expects its US income in future years to realize its deferred tax assets, including realizing substantially all of its US net operating losses prior to their expiration dates. The Company considered these factors the be the most relevant to its assessment when weighing all available evidence, and concluded that it is now more-likely-than-not that its US deferred tax assets would be realized. As a particular transaction is specifically dictated by GAAP, with little need for management’s judgmentresult, the Company recorded a net $27.9 million reduction to its US valuation allowance, to bring the total US valuation allowance down to $0.5 million as of September 30, 2021.
In addition, the Company’s remaining $13.3 million of valuation allowances are on the deferred tax assets of in their application. There are also areascertain international jurisdictions, as negative evidence, including cumulative losses in which management’s judgmentrecent years, continues to exist in selecting any available alternative would not produce a materially different result.those jurisdictions. See our audited financial statements and related notes, which contain accounting policies and other disclosures required by GAAP.additional discussion of the valuation allowance within Note 10 - Income Taxes.
Components of Revenue and Expenses
Revenue. We generate a large portion of our revenue from Refer to the proceeds of sales of merchandise held in inventory. We also generate commission revenue from sales in our marketplaces of merchandise that is owned by others. Our revenue recognition practices are discussed in more detaildiscussion in the Our revenuesection above, entitled “Criticaland to Note 2 - Summary of Significant Accounting Estimates.”Policies to the Company's consolidated financial statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for discussion of the Company's related accounting policies.
Cost of goods sold. Cost Refer to Note 2 - Summary of Significant Accounting Policies tothe Company's consolidated financial statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for discussion of the Company's costs of goods sold includes the costs of purchasing and transporting property for auction, as well as credit card transaction fees.related accounting policies.
Seller distributions. Under the current Scrap contract, we acquire scrap property from the DLA for resale and pay the DLA a revenue-sharing payment equal to 64.5% 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.
Technology and operations. Technology expenses consist primarily of the cost of technical staff who develop, deploy, and maintain our marketplaces and corporate infrastructure. These personnel also develop and upgrade the software systems that support our operations, such as sales processing. Technology expenses also includes certain costs associated with our LiquidityOnee-commerce platform.
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 seller and buyer management module of the LiquidityOnee-commerce 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.as well as other software development activities.
Operations expenses consist primarily of operating costs, including buyer relations, shipping logistics 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 marketing and promotional activities. These activities include online marketing campaigns such as paid search advertising.
General and administrative. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. Components of these expenses include executive management and staff salaries, bonuses and related taxes and employee benefits; travel; headquarters rent and related occupancy costs; and legal and accounting fees. The salaries, bonus and employee benefits costs included as general and administrativeThese expenses are generally more fixed in nature than our other operating expenses and do not significantly vary directly within response to the volume of merchandise sold through our marketplaces.
Depreciation and amortization. Depreciation and amortization expenses consist primarily of the depreciation of property and equipment, amortization of amounts recorded in connection with the purchase of furniture, fixtures and equipmentinternally developed software, and amortization of intangible assets from our acquisitions. Depreciation and amortization also 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.assets.
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets. Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets consist of expenses incurred to complete a business combination, adjustments to the value of an earn-out, and impairment of goodwill and long-lived assets. During fiscal year 2017, we reorganized our IronDirect business. As a result, we recorded approximately $0.9 million of net expense, comprised of a $1.2 million impairment of contract intangibles, and a $0.6 million impairment of fixed assets, partially offset by a $0.9 million reversal of an earn-out liability. In addition, as a result of exiting the TruckCenter land-based, live auction and retail business, we recorded a $0.1 million impairment of a covenant not to compete.
Other operating expense. expenses (income). Other operating expense includes the change in fair value of financial assetsinstruments and liabilities,contingent consideration, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.
Interest (income) expense and other expense,income, net. Interest (income) expense and other expense,income, net consists of interest income on short-term investments and the promissory note receivable relatedissued to JTC, the salecomponents of net periodic pension (benefit) other than the Jacobs Trading business, expenses related to our terminated credit facility,service component, and impacts of foreign currency fluctuations.
Income taxes. During fiscalthe years 2017, 2016ended September 30, 2021, 2020, and 2015, we2019, the Company had an effective income tax rate for continuing operations of approximately 1.1%(84.74)%, (82.1)(26.9)% and 27.4%(6.6)%, respectively, which included federal, state and foreign income taxes.
Results of Operations
The following table presents segment GMV, revenue, gross profit (which is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization)), and gross profit margin for the periods indicated ($ in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| | | 2021 | | 2020 | | 2019 |
GovDeals: | | | | | | |
| GMV | | $ | 498,742 | | | $ | 325,993 | | | $ | 327,455 | |
| Total revenue | | 49,579 | | | 32,806 | | | 32,936 | |
| Gross profit | | 47,030 | | | 30,721 | | | 30,386 | |
| Gross profit margin | | 94.9 | % | | 93.6 | % | | 92.3 | % |
| | | | | | | |
RSCG: | | | | | | |
| GMV | | 229,290 | | | 181,473 | | | 156,096 | |
| Total revenue | | 158,806 | | | 136,491 | | | 127,321 | |
| Gross profit | | 64,564 | | | 49,727 | | | 44,967 | |
| Gross profit margin | | 40.7 | % | | 36.4 | % | | 35.3 | % |
| | | | | | | |
CAG: | | | | | | |
| GMV | | 158,736 | | | 112,384 | | | 155,855 | |
| Total revenue | | 39,645 | | | 29,481 | | | 60,242 | |
| Gross profit | | 29,324 | | | 22,714 | | | 32,679 | |
| Gross profit margin | | 74.0 | % | | 77.0 | % | | 54.2 | % |
| | | | | | | |
Machinio: | | | | | | |
| GMV | | — | | | — | | | — | |
| Total revenue | | 9,559 | | | 7,213 | | | 5,598 | |
| Gross profit | | 8,992 | | | 6,813 | | | 5,196 | |
| Gross profit margin | | 94.1 | % | | 94.4 | % | | 92.8 | % |
| | | | | | | |
Corporate & Other, including elimination adjustments: | | | | | | |
| GMV | | — | | | — | | | 469 | |
| Total revenue | | (57) | | | (51) | | | 428 | |
| Gross profit | | (57) | | | (51) | | | 52 | |
| Gross profit margin | | NM | | NM | | 12.2 | % |
| | | | | | | |
Consolidated: | | | | | | |
| GMV | | 886,768 | | | 619,850 | | | 639,876 | |
| Total revenue | | 257,531 | | | 205,940 | | | 226,525 | |
| Gross profit | | 149,853 | | | 109,924 | | | 113,280 | |
| Gross profit margin | | 58.2 | % | | 53.4 | % | | 50.0 | % |
NM = not meaningful
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Segment Results
GovDeals. Revenue from our GovDeals segment increased 51.1%, or $16.8 million, due to a 53.0%, or $172.7 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate, and an increase in recovery rates on assets sold, driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. The fiscal year ended September 30, 2020 also contained the negative impact of the economic restrictions put in place at the onset of the COVID-19 pandemic. As a result of the increase in revenues, gross profit increased 53.1%, or $16.3 million, and gross profit margin increased from 93.6% to 94.9%.
RSCG. Revenue from our RSCG segment increased 16.3%, or $22.3 million due to a 26.3%, or $47.8 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with large and mid-sized and large retailers looking to capitalize on the secular growth in online retail. Revenues did not increase at the same rate as GMV due to an increase in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 29.8%, or $14.8 million. Gross profit margin increased from 36.4% to 40.7% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold.
CAG. Revenue from the CAG segment increased by 34.5%, or $10.2 million due to a 41.2%, or $46.4 million increase in GMV due to continued growth of our industrial and heavy equipment categories, increases in principal transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally. Revenues did not increase at the same rate as GMV due to increases in transactions using partner organizations and in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 29.1%, or $6.6 million. Gross profit margin decreased from 77.0% to 74.0%.
Machinio. Revenue from our Machinio segment increased 32.5%, or $2.3 million, due to an increase in subscription activity. As a result of the increase in revenues, gross profit increased 32.0%, or $2.2 million.
Consolidated Results
The following table sets forth, for the periods indicated, selected statementour operating results (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | |
| | 2021 | | 2020 | | $ Change | | % Change |
Revenue | | $ | 146,151 | | | $ | 127,580 | | | $ | 18,571 | | | 14.6 | % |
Fee revenue | | 111,380 | | | 78,360 | | | 33,020 | | | 42.1 | % |
Total revenue | | 257,531 | | | 205,940 | | | 51,591 | | | 25.1 | % |
Costs and expenses from operations: | | | | | | | | |
Cost of goods sold (excludes depreciation and amortization) | | 107,678 | | | 96,016 | | | 11,662 | | | 12.1 | % |
| | | | | | | | |
Technology and operations | | 47,673 | | | 42,158 | | | 5,515 | | | 13.1 | % |
Sales and marketing | | 37,635 | | | 35,629 | | | 2,006 | | | 5.6 | % |
General and administrative | | 28,938 | | | 29,166 | | | (228) | | | (0.8) | % |
Depreciation and amortization | | 6,969 | | | 6,290 | | | 679 | | | 10.8 | % |
Acquisition costs and impairment of goodwill and long-lived assets | | 1,464 | | | 5 | | | 1,459 | | | NM |
Other operating expenses | | 6 | | | 573 | | | (567) | | | (99.0) | % |
Total costs and expenses | | 230,363 | | | 209,837 | | | 20,526 | | | 9.8 | % |
Income (loss) from operations | | 27,168 | | | (3,897) | | | 31,065 | | | NM |
Interest and other income, net | | (411) | | | (924) | | | 513 | | | (55.5) | % |
Income (loss) before income taxes | | 27,579 | | | (2,973) | | | 30,552 | | | NM |
(Benefit) provision for income taxes | | (23,370) | | | 801 | | | (24,171) | | | NM |
Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | 54,723 | | | NM |
NM = not meaningful
Revenue.Total consolidated revenue increased $51.6 million, or 25.1%. Refer to the discussion of operations data expressed asSegment 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 12.1%, 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 | )% |
The following table presents segmentlower rate than revenue gross profit, and gross profit margin for the periods indicated: |
| | | | | | | | | | | | | |
| | | 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 | % |
Year Ended September 30, 2017 Compared to Year Ended September 30, 2016
Segment Results
GovDeals. Revenue from our GovDeals segment increased 17.8%, or $4.1 million,primarily due to additionallower cost of sales volumeassociated with principal transactions, which benefited from existing sellershigher recovery rates during the period, and an increase in the numbermix of new sellers. GMV from our GovDeals segmenttransactions conducted under the consignment model.
Technology and operations expenses. Technology and operations expenses increased 17.5%$5.5 million, or 13.1%, to support the increased transaction volumes in the RSCG and CAG segments.
Sales and marketing expenses. Sales and marketing expenses increased $2.0 million, or $39.5 million, also5.6%, primarily due to additional sales volume from existing sellers and an increase in the number of new sellers. Gross profit within this segment increased 17.5%, or $3.8 million,marketing expenses to $25.2 million forpromote our consolidated marketplace and expand market share in key verticals.
General and administrative expenses. General and administrative expenses were consistent between the year ended September 30, 2017,2021 and 2020.
Depreciation and amortization. Depreciation and amortization expense increased $0.7 million, or 10.8%, due to an increase in amortization of capitalized software related to the continued development and enhancement of our marketplace platform and tools.
Interest and other income, net. Interest and other income, net increased $0.5 million, due the effect of changes in foreign exchange rates.
Provision (benefit) for income taxes. Provision for income taxes decreased $24.2 million to a benefit of $23.4 million from $21.4an expense of $0.8 million due to a release of $27.9 million of valuation allowance netted against $3.3 million deferred tax expense and $1.2 million state and foreign income taxes. The Company's effective income tax rate was (84.7%) for the yeartwelve months ended September 30, 2016, due to higher sales volume. As a percentage of revenue, gross profit slightly decreased to 93.7%, from 93.9%.
CAG. Revenue2021. The 2021 effective tax rate differed from the CAG segment decreased 24.3%, or $46.6 million, mostly due to lower volume related to our Surplus contract, a shift to lower value commodities sold within our Scrap contract, as well as a decrease in revenue within our industrial and energy verticals resulting from lower than expected volume and sales activity within those verticals. GMV from our CAG segment decreased 18.2%, or $53.9 million, due to lower volume related to our Surplus contract, a shift to lower value commodities sold within our Scrap contract, as well as a decrease in GMV within our industrial and energy verticals. Gross profit within the CAG segment decreased 34.2%, or $37.4 million, to $71.9 million for the year ended September 30, 2017, from $109.4 million for the year ended September 30, 2016. This decrease can be attributed to the overall lower revenue, and shift in mixstatutory federal rate of property under our Surplus contract to lower valued property, and the increase in the amount of distributions payable to the DLA under the new terms of the current Scrap contract. As a percentage of revenue, gross profit decreased to 49.6%, from 57.0%.
RSCG. Revenue from our RSCG segment increased 0.9%, or $0.8 million for the year ended September 30, 2017. GMV from our RSCG segment increased 11.0%, or $11.5 million for the year ended September 30, 2017, due to growth in both existing and new accounts. Gross profit within the RSCG segment increased 0.5%, or $0.1 million, to $30.1 million for the year ended September 30, 2017, from $29.9 million for the year ended September 30, 2016. As a percentage of revenue, gross profit slightly decreased to 31.6%, from 31.7%.
Corporate & Other. Revenue from Corporate & Other primarily relates to IronDirect and certain TruckCenter operations. The decrease in revenue of $4.7 million, is largely from declines in Truckcenter related to our decision earlier in the year to exit certain TruckCenter operations. Gross profit within Corporate & Other decreased $4.1 million over the prior year, mostly attributable to the exit of certain Truckcenter operations and a $3.1 million inventory valuation reserve within IronDirect during fiscal 2017.
Consolidated Results
Total Revenue. Total consolidated revenue decreased $46.4 million, or 14.7%, to $270.0 million for the year ended September 30, 2017, from $316.5 million for the year ended September 30, 2016, due to a $46.6 million decrease in revenue from our CAG segment, and a $4.7 million decrease in revenue primarily related to exiting certain TruckCenter operations, partially offset by a $4.1 million increase in revenue from our GovDeals segment, and a $0.8 million increase in revenue from our RSCG segment. Total consolidated GMV decreased $12.7 million, or 2.0%, to $629.3 million for the 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, 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.
Cost of goods sold. Cost of goods sold decreased $16.9 million, or 11.8%, to $126.2 million, for the year ended September 30, 2017, from $143.1 million for the year ended September 30, 2016. A decrease of approximately $17.3 million is attributed to a decrease in transactions within our CAG segment, a $2.2 million decrease in cost of goods sold related to exiting certain TruckCenter operations, partially offset by a $0.7 million increase from our RSCG segment, and a $0.3 million increase from our GovDeals segment. Cost of goods sold increased to 46.7% of revenue, from 45.2% in the prior year, resulting from lower margins under the Surplus contract, as well as of the decrease in revenue described above.
Seller distributions. Seller distributions increased $8.1 million, or 72.3%, to $19.3 million for the year ended September 30, 2017, from $11.2 million for the year ended September 30, 2016 due to the increase in the amount of distributions payable to the DLA under the new terms of the current Scrap contract. As a percentage of revenue, distributions increased to 7.1% from 3.5%, which is due to the increases described above.
Technology and operations expenses. Technology and operations expenses decreased $10.4 million, or 11.1%, to $83.0 million for the year ended September 30, 2017, from $93.4 million for the year ended September 30, 2016. The decrease can be attributed to lower operational costs within our CAG industrial and energy verticals due to lower volume, less technology related consulting costs, higher capitalized labor costs, less reimbursable expenses under our Scrap contract, a decrease in staff costs due to lower volume related to both our Surplus and Scrap contracts, as well as the exit of certain TruckCenter operations.
As a percentage of revenue, technology and operations expenses increased to 30.7%, from 29.5%,21.0% primarily as a result of the decrease in revenue described above.
Sales and marketing expenses. Sales and marketing expenses decreased $2.4 million, or 6.4%, to $35.2 million for the year ended September 30, 2017, from $37.6 million for the year ended September 30, 2016, due to a decrease in staff related costs. As a percentage of revenue, sales and marketing expenses increased to 13.0%, from 11.9% in the prior year, primarily as a resultrelease of the decrease in revenue described above.
General and administrative expenses. General and administrative expenses decreased $3.9 million, or 9.8%, to $35.8 million for the year ended September 30, 2017, from $39.7 million for the year ended September 30, 2016, due to a decrease of insurance costs, as well as lower non-income tax regulatory costs. As a percentage of revenue, general and administrative expenses increased to 13.3%, from 12.6% in the prior year, primarily as a result of the decrease in revenue described above.
Depreciation and amortization expenses. Depreciation and amortization expenses decreased $0.7 million, or 10.8%, to $5.8 million for the year ended September 30, 2017, from $6.5 million for the year ended September 30, 2016.
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets. Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets amounted to approximately $1.0 million, for the year ended September 30, 2017, compared to $19.0 million for the year ended September 30, 2016. During fiscal 2017, the Company recorded $1.9 million of long-lived assets impairment charges, partially offset by a $0.9 million reversal of an earn-out liability. During fiscal 2016 the Company recorded a goodwill impairment charge of $19.0 million related to one of its reporting units.
Other operating expense. Other operating expense of $3.7 million represents $4.2 million related to business restructuring costs, partially offset by an approximate $0.6 million increase in the fair value of a right the Company holds from its participation in certain principal transactions in the Company's CAG business, for the year ended September 30, 2017. The Company did not incur other operating expense during the year ended September 30, 2016.
Interest (income) expense and other expense, net. Interest (income) expense and other expense, net, decreased $0.9 million, to $0.4 million of income for the year ended September 30, 2017, from $1.2 million of income for the year ended September 30, 2016, primarily resulting from foreign exchange rate fluctuations.
(Benefit) provision for income taxes. Income taxes decreased $27.5 million, to a benefit of ($0.5 million) for the year ended September 30, 2017, from a provision of $27.0 million for the year ended September 30, 2016 due to a valuation allowance chargeon deferred tax assets and the impact of foreign, state, and local taxes and permanent tax adjustments.
Year Ended September 30, 2020 Compared to Year Ended September 30, 2019
Segment Results
GovDeals. Revenue from our GovDeals segment decreased 0.4%, or $0.1 million, due to a 0.4%, or $1.5 million, decrease in GMV primarily resulting from decreased activity due to limitations on government facility operations in response to the COVID-19 pandemic. These declines were mostly offset by increasing transaction activity as those facilities re-opened, as well as increased recovery rates on vehicles sales. Gross profit within this segment increased 1.1%, or $0.3 million, and gross profit margin increased from 92.3% to 93.6%, as fewer of the vehicles sold during the year ended September 30, 2020 required transportation costs to arrive at the point of sale.
RSCG. Revenue from our RSCG segment increased 7.2%, or $9.2 million due to a 16.3%, or $25.4 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with large and mid-sized retailers. As a result of the increase in revenues, gross profit increased 10.6%, or $4.8 million. Gross profit margin increased from 35.3% to 36.4% due the improved margins on certain retail programs.
CAG. Revenue and GMV from the CAG segment decreased 51.1%, or $30.8 million, and 27.9%, or $43.5 million, respectively. The conclusion of the Scrap Contract caused revenue and GMV to each decline by $16.8 million. Excluding the impact of the completed Scrap Contract, revenue decreased by 32.3%, or $14.0 million, and GMV decreased by 19.2%, or $26.7 million. These declines were primarily driven by lower activity due to limitations on commercial facility operations and global travel restrictions in response to the COVID-19 pandemic. These restrictions had a larger impact on principal transactions than on transactions using our lower-touch consignment model. The declines were also influenced by a strong prior year performance with principal transactions in the Asia-Pacific region. Gross profit within the CAG segment decreased 30.5%, or $10.0 million, due to a $5.9 million impact from the completion of the Scrap Contract and the reduction in revenues. Gross profit margin increased from 54.2% to 77.0% due the completion of the Scrap Contract, which had lower gross profit margins than the remaining business, and due to the larger impact of the COVID-19 pandemic on principal transactions.
Machinio. Revenue from our Machinio segment increased 28.8%, or $1.6 million, due to an increase in subscription activity, and due to revenue earned from deferred revenues no longer containing effects from purchase accounting. As a result of the increase in revenues, gross profit increased 31.1%, or $1.6 million.
Corporate & Other. The changes in revenue, GMV, gross profit and gross profit margin are primarily due to the Company's exit from the IronDirect business in January 2019. The activity for the year ended September 30, 2020 represents elimination adjustments.
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, | | | | |
| | 2020 | | 2019 | | $ Change | | % Change |
Revenue | | $ | 127,580 | | | $ | 147,889 | | | $ | (20,309) | | | (13.7) | % |
Fee revenue | | 78,360 | | | 78,636 | | | (276) | | | (0.4) | |
Total revenue | | 205,940 | | | 226,525 | | | (20,585) | | | (9.1) | |
Costs and expenses from operations: | | | | | | | | |
Cost of goods sold (excludes depreciation and amortization) | | 96,016 | | | 102,414 | | | (6,398) | | | (6.2) | |
Seller distributions | | — | | | 10,831 | | | (10,831) | | | (100.0) | |
Technology and operations | | 42,158 | | | 51,594 | | | (9,436) | | | (18.3) | |
Sales and marketing | | 35,629 | | | 36,703 | | | (1,074) | | | (2.9) | |
General and administrative | | 29,166 | | | 34,249 | | | (5,083) | | | (14.8) | |
Depreciation and amortization | | 6,290 | | | 5,091 | | | 1,199 | | | 23.6 | |
Acquisition costs and impairment of goodwill and long-lived assets | | 5 | | | 102 | | | (97) | | | (95.1) | |
Other operating expenses | | 573 | | | 5,049 | | | (4,476) | | | (88.7) | |
Total costs and expenses | | 209,837 | | | 246,033 | | | (36,196) | | | (14.7) | |
Income (loss) from operations | | (3,897) | | | (19,508) | | | 15,611 | | | (80.0) | |
Interest and other income, net | | (924) | | | (1,448) | | | 524 | | | (36.2) | |
Loss before income taxes | | (2,973) | | | (18,060) | | | 15,087 | | | (83.5) | |
Provision for income taxes | | 801 | | | 1,200 | | | (399) | | | NM |
Net loss | | $ | (3,774) | | | $ | (19,260) | | | $ | 15,486 | | | (80.4) | % |
NM = not meaningful
Total Revenue. Total consolidated revenue decreased $20.6 million, or 9.1%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold. Cost of goods sold decreased $6.4 million, or 6.2%, primarily due to revenue declines in CAG, partially offset by the revenue increases in RSCG.
Seller distributions. Seller distributions decreased $10.8 million, or 100.0%, due to the completion of the Scrap Contract.
Technology and operations expenses. Technology and operations expenses decreased $9.4 million, or 18.3%. The decrease included $5.2 million due to the conclusion of the Scrap Contract in fiscal year 2019, $5.7 million reductions in Corporate and CAG (excluding the Scrap Contract) driven by benefits from restructuring and other organizational changes performed in fiscal 2019, and actions taken to reduce operating expenses in response to the COVID-19 pandemic. However, the impact of the actions taken to reduce our operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover. These decreases were partially offset by a $1.5 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued growth in those segments.
Sales and marketing expenses. Sales and marketing expenses decreased $1.1 million, or 2.9%, due to actions taken to reduce operating expenses in response to the COVID-19 pandemic in the year ended September 30, 2020, partially offset by increased marketing expenses to promote our new e-commerce technology platform and consolidated marketplace. However, the impact of the action taken in response to COVID-19 on our operating expense levels will lessen as business conditions continue to recover.
General and administrative expenses. General and administrative expenses decreased $5.1 million, or 14.8%, and was impacted by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the year ended September 30, 2020, benefits from restructuring and other organizational changes performed in fiscal 2019, and the completion of the Scrap Contract in fiscal 2019. The impact of the actions taken to reduce operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.
Depreciation and amortization expenses. Depreciation and amortization expenses increased $1.2 million, or 23.6%, primarily due the launch of our new e-commerce technology platform and related change of useful lives of internally developed software for internal-use, both occurring in the fourth quarter of fiscal 2019.
Acquisition costs and impairment of goodwill and long-lived assets. Acquisition costs and impairment of goodwill and long-lived assets were not significant for the years ended September 30, 2020 and 2019.
Other operating expense. Other operating expense of $0.6 million represents $0.4 million of business realignment expenses that were incurred related to the elimination of certain positions in response to the COVID-19 pandemic, and a $0.2 million increase in fair value of the Machinio earn-out liability. Other operating expense of $5.0 million during the year ended September 30, 2019 includes $1.6 million of business realignment expenses, and a $3.5 million increase in the fair value of the Machinio earn-out liability.
Interest and other income, net. Interest and other income, net, declined $0.5 million, primarily due to a decline in the holdings of short-term investments and also in their interest rates.
Provision for income taxes. Income taxes decreased $0.4 million, to an expense of $0.8 million for the year ended September 30, 2020, from an expense of $1.2 million for the year ended September 30, 2019 due to lower state tax expense and the release of $0.2 million of unrecognized tax benefits related to foreign operations. The Company’s effective income tax rate was 1.1%(26.9)% for the twelve months ended September 30, 2017.2020. The 2017fiscal 2020 effective tax rate differed from the statutory federal rate of 35.0%21.0% primarily as a result of the valuation allowance chargeon deferred tax assets, state taxes, and the impact of foreign, state, and local income taxes and permanent tax adjustments.
Net loss. Net loss for the year ended September 30, 2017, improved $20.72020, decreased $15.5 million, to $39.2$3.8 million, compared to a loss of $59.9 million for the year ended September 30, 2016, due to the reasons described above.
Year Ended September 30, 2016 Compared to Year Ended September 30, 2015
Segment Results
GovDeals. Revenue from our GovDeals segment increased 10.8%, or $2.2 million, due 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 for the year ended September 30, 2016, from $19.3 million for the year ended September 30, 2015,2019, due to the new business. As a percentage of revenue, gross profit slightly decreased to 93.9%, from 94.0%.
CAG. Revenue from the CAG segment decreased 9.5%, or $20.2 million, due to lower commodity prices and a shift in property mix to lower valued property provided under the Scrap and Surplus Contracts. GMV from our CAG segment decreased 19.3%, or $71.0 million, due to lower commodity prices and a shift in property mix to lower valued property provided under the Scrap and Surplus Contracts. Gross profit within the CAG segment decreased 19.5%, or $26.5 million, to $109.4 million for the year ended September 30, 2016, from $135.8 million for the year ended September 30, 2015. This decrease can primarily be attributed to the changes in revenuereasons described above. As a percentage of revenue, gross profit decreased to 57.0%, from 64.1%.
RSCG. Revenue from our RSCG segment decreased 41.8%, or $67.6 million for the year ended September 30, 2016, due to the sale of the Jacobs Trading Company in September 2015, the wind down of the NESA refurbishment business in Canada, and reduced product flows within our retail vertical. GMV from our RSCG segment decreased 52.4%, or $115.5 million for the year ended September 30, 2016, due to the sale of the Jacobs Trading Company in September 2015, the wind down of the NESA refurbishment business in Canada, and reduced product flows within our retail vertical. Gross profit within the RSCG segment decreased 35.9%, or $16.8 million, to $29.9 million for the year ended September 30, 2016, from $46.7 million for the year ended September 30, 2015. As a percentage of revenue, gross profit increased to 31.7%, from 28.8%.
Corporate & Other. Revenue from Corporate & Other primarily relates to IronDirect and certain TruckCenter operations. The increase in revenue of $4.9 million, is primarily the result of increases in revenue from IronDirect, which is a business that began operations in late fiscal 2015. Gross profit within Corporate & Other increased $0.2 million over the prior year, mostly attributable to the IronDirect business.
Consolidated Results
Total Revenue. Total consolidated revenue decreased $80.7 million, or 20.3%, to $316.5 million for the year ended September 30, 2016, from $397.1 million for the year ended September 30, 2015, due to a $67.6 million decrease in revenue from our RSCG segment, and a $20.2 million decrease in revenue from our CAG segment, partially offset by a $2.2 million increase in revenue from our GovDeals segment, and a $4.9 million increase in revenue related to Corporate & Other. Total consolidated GMV decreased $156.9 million, or 19.6%, to $642.1 million for the year ended September 30, 2016, from $799.0 million for the year ended September 30, 2015, due to a $115.5 million decrease in GMV from our RSCG segment, and a $71.0 million decrease in GMV from our CAG segment, partially offset by a $27.7 million increase in GMV from our GovDeals segment, and a $1.9 million increase in GMV related to Corporate & Other.
Cost of goods sold. Cost of goods sold (excluding amortization) decreased $22.9 million, or 13.8%, to $143.1 million for the year ended September 30, 2016 from $166.0 million for the year ended September 30, 2015. This decrease is primarily attributed to the sale of the Jacobs Trading Company, as well as the wind down of the NESA refurbishment business in Canada, both of which are in our RSCG segment. This decrease was partially offset by an increase in our CAG segment, specifically driven by the price we pay for inventory under the current Surplus Contract as well as a greater mix of deals in our CAG commercial marketplace in which we act as principal and incur greater transaction costs. In line with these changes, and the decrease in revenue, cost of goods sold increased as a percentage of revenue to 45.2%, from 41.8%.
Profit-sharing distributions. Profit-sharing distributions decreased $16.9 million, or 60.1%, to $11.2 million for the year ended September 30, 2016 from $28.1 million for the year ended September 30, 2015. As a percentage of revenue, profit-sharing distributions decreased to 3.5% from 7.1%. This is due to lower commodity prices and decreases in property flow from the DoD in our scrap business.
Technology and operations expenses. Technology and operations expenses decreased $6.3 million, or 6.4%, to $93.4 million for the year ended September 30, 2016 from $99.7 million for the year ended September 30, 2015, due to the sale of the Jacobs Trading Company, the wind down of the NESA business, and reduction in staff. As a percentage of revenue, technology and operations expenses increased to 29.5% from 25.1% primarily as a result of the decrease in revenue described above.
Sales and marketing expenses. Sales and marketing expenses decreased $3.9 million, or 9.4%, to $37.6 million for the year ended September 30, 2016 from $41.5 million for the year ended September 30, 2015, primarily due to bad debt expense related to the Jacobs Trading Company in fiscal 2015, as well as staff reductions. As a percentage of revenue, sales and marketing expenses increased to 11.9% from 10.4% primarily as a result of the decrease in revenue described above.
General and administrative expenses. General and administrative expenses decreased $1.7 million, or 4.1%, to $39.7 million for the year ended September 30, 2016 from $41.4 million for the year ended September 30, 2015 due to the wind down of the NESA refurbishment business in Canada and the sale of the Jacobs Trading Company in fiscal 2015. As a percentage of revenue, general and administrative expenses increased to 12.6% from 10.4% primarily as a result of the decrease in revenue described above.
Depreciation and amortization expenses. Depreciation and amortization expenses decreased $2.7 million, or 29.6%, to $6.5 million for the year ended September 30, 2016 from $9.2 million for the year ended September 30, 2015. The decrease also relates to certain capitalized software becoming full amortized, and the sale of the Jacobs Trading Company in September 2015 and its related depreciable assets.
Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets. Acquisition costs and related fair value adjustments and impairment of goodwill and long-lived assets decreased $128.4 million, or 87.1% to $19.0 million for the year ended September 30, 2016 from $147.4 million for the year ended September 30, 2015. During fiscal
2016 the Company recorded an impairment charge of $19.0 million of goodwill related to one of its reporting units. During fiscal 2015 the Company recorded $147.4 million of goodwill and long-lived assets impairment charges.
Other operating expense. The Company did not incur other operating expense during the year ended September 30, 2016. The Company incurred approximately $0.3 million in other operating expense related to business realignment initiatives during the year ended September 30, 2015.
Business disposition loss. Business disposition loss was $8.0 million for the year ended September 30, 2015, due to the disposal of the Jacobs Trading Company.
Interest and other income (expense), net. Interest and other income (expense), net increased $1.4 million, to $1.2 million of income for the year ended September 30, 2016 from an expense of ($0.2) million for the year ended September 30, 2015. Interest and other income (expense), net included the impacts of foreign currency fluctuations and interest income.
Provision (benefit) for income taxes. Provision for income taxes increased $66.6 million, or 168.2%, to $27.0 million for year ended September 30, 2016 from ($39.6) million of benefit for the year ended September 30, 2015, primarily due to the valuation allowance against deferred taxes.
Net loss. Net loss decreased $44.9 million, or 42.8%, to $59.9 million for the year ended September 30, 2016 from $104.8 million for the year ended September 30, 2015, primarily as a result of the larger impairment of goodwill in the twelve months ended September 30, 2015.
Liquidity and Capital Resources
Historically, our primaryOur operational cash needs have beenprimarily relate to working capital, (includingincluding staffing costs, technology expenses, leases of real estate and equipment used in our operations, and capital used for inventory purchases),purchases, which we have funded primarily through existing cash balances and cash generated from operations. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases and acquisitions. As of September 30, 2017,2021, we had approximately $94.0$106.3 million in cash and cash equivalents. Effective March 25, 2016,
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we terminatedare not subject to significant collection risk, as goods are generally not shipped before payment is received.
The COVID-19 pandemic has caused the Company's GMV and revenues to fluctuate, and the Company initially implemented cost control measures to protect against the uncertainties created by the severe economic restrictions in its initial phases. From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions, which continue to be a factor in certain countries, causing some buyer delays in their ability to pick up purchased assets. As a result of our $75actions taken in response to these headwinds, the Company’s cash and cash equivalents balance is $106.3 million senior credit facility. Termination as of September 30, 2021, which we believe is sufficient to meet the senior credit facility has not had,Company’s anticipated cash needs one year from issuance of these financial statements.
We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities and wetools for data-driven product recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.
As incentive for Company and employee performance as based on certain management objectives, the Company may pay a cash bonus to its employees at management's discretion. Further, as described in Note 9 - 401(k) Benefit Plan, our 401(k) Plan also allows the Company to make discretionary matching contributions. We do not expect itthese matters to have a material effectimpact on our liquidity or financial position. Throughout the fiscal year, we continued to advance the design and development of our LiquidityOne platform, services and analytical tools to empower our sellers 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 throughout the duration of this initiative to implement the new platform and educate our employees and our buyers and seller about the initiative. As part of this process, we have invested in new business ventures, such as our IronDirect marketplace in the construction vertical.liquidity.
We did not record a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries because we intend to indefinitely reinvest the earnings of these foreign subsidiaries outside the U.S.United States. The amount of such undistributed foreign earnings was approximately $8.0$6.9 million as of September 30, 2017.2021. As of September 30, 2017,2021, and September 30, 2016, approximately $14.92020, $22.4 million and $21.5$19.5 million, respectively, of cash and cash equivalents was held overseas and not available to fund domestic operations without incurring taxes upon repatriation.outside of the U.S.
We arehave 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.
As of the fiscal year ended September 30, 2020, we had $6.1 million of remaining share repurchase authorization. On March 8, 2021, our Board of Directors authorized an additional $10 million of share repurchases of the Company's outstanding shares of common stock through March 31, 2023. We did not repurchaserepurchased 957,079 shares for $16.1 million under this program during the yearssix months ended September 30, 2017 or 2016. AsMarch 31, 2021.
On May 3, 2021, the Company's Board of September 30, 2017, we areDirectors authorized toa new stock repurchase plan (the “May 3, 2021 Stock
Repurchase Plan”) of up to an additional $10.1$15 million inof our outstanding shares of common stock through June 30, 2023. We repurchased 634,884 shares for $15.0 million under this program. A summary of our share repurchase activity from fiscal year 2014 toprogram during the year ended September 30, 2017, is as follows:2021. As of September 30, 2021, we had no share repurchase authorization remaining. On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $20.0 million of the Company's outstanding shares of common stock through December 31, 2023.
|
| | | | | | | | | | | | | |
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 |
|
| |
(1) | On February 5, 2014, our Board of Directors approved the expenditure of up to an additional $19.0 million under the share repurchase program. On May 5, 2016, our Board of Directors approved the expenditure of up to an additional $5.0 million in shares under the program, raising the current amount that may yet be expended up to $10.1 million. |
Senior credit facility. Effective March 25, 2016, On November 1, 2021, the Company terminated its $75entered into a definitive agreement to purchase all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a pioneer in internet-based public auctions of real property. Upon closing, the Company paid $15 million senior credit facility. Borrowings underin cash, including the Agreement bore interest at an annual rate equalassumption of a minimum working capital amount of $0.3 million. Shareholders of Bid4Assets are eligible to the 30 day LIBOR rate plus 1.25%, due monthly. There were no outstanding borrowings under the Facilityreceive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets' achievement of certain EBITDA targets measured as of each trailing twelve-month period and determined at the timeend of its termination.each calendar quarter, for the period from October 1, 2021 until the quarter ended December 31, 2022. See Note 17 - Subsequent Events for more information regarding this transaction.
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.
Changes in Cash Flows: 20172021 Compared to 2016
Net cash used in operating activities was $31.7 million for the year ended September 30, 2017, and net cash provided by operating activities was $45.8 million for the year ended September 30, 2016. The $77.5 million decrease 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 investing activities was $7.9 million for the year ended September 30, 2017, and $6.2 million for the year ended September 30, 2016. Net cash used in investing activities for both periods consisted primarily of expenditures for capitalized software, purchases of equipment and leasehold improvements.
Net cash used in financing activities was $1.1 million for the year ended September 30, 2017, and net cash used in financing activities was $0.2 million for the year ended September 30, 2016. Net cash provided by financing activities for fiscal year 2017 consisted primarily of proceeds from the exercise of stock options.
Changes in Cash Flows: 2016 Compared to 20152020
Net cash provided by operating activities was $45.8$65.4 million and $16.5 million for the year ended September 30, 2016, up from $43.5 million for the year ended September 30, 2015.2021 and 2020, respectively. The $2.3$48.9 million increase in cash provided by operations between periods resulted from an overall decreasewas attributable to $33.2 million of approximately $59.3 million in profitability after adjustinghigher net income as adjusted for non-cash items,items; changes in payables to sellers, driven by increasing transaction volumes; changes to accounts payable, accrued expenses and other liabilities driven by increasing transaction volumes and management of working capital; and partially offset by ana $7.0 million increase in cash flows from changesinventory driven by the continued growth in our RSCG and CAG segments. Our working capital accounts are subject to natural variations depending on the rate of approximately $61.7 million. Forchange of our transaction volumes, the year ended September 30, 2016,timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. However, there have been no significant changes to the working capital changes increased cash from operating activities, and primarily consisted of $34.0 million related torequirements for the recovery of prior year income taxes. This cash benefit resulted from the tax loss on the fiscal 2015 sale of the Jacobs Trading Company. For fiscal 2015, working capital changes decreased cash from operating activities by $23.0 million.
Net cash used inprovided by (used in) investing activities was $6.2$(1.0) million for the year ended September 30, 20162021, and $9.8$28.6 million for the year ended September 30, 2015. Net2020. The $(29.7) million decrease in cash used inprovided by investing activities forwas driven by a $30.0 million net impact of maturities of Short-term investments as the Company transitioned to using cash equivalent money market funds in its treasury strategy. This activity was partially offset by a $1.5 million increase in proceeds of principal payments from the JTC promissory note during the year ended September 30, 2016 consisted primarily2021 due to receipt of expenditures$3.5 million from the First Amendment to the Forbearance Agreement with JTC as discussed in Note 2 - Summary of $6.1 million for capitalized software, purchases of equipment and leasehold improvements. Significant Accounting Policies.
Net cash used in investing activities for the year ended September 30, 2015 consisted primarily of capital expenditures of $7.3 million for purchases of equipment and leasehold improvements, and $2.4 million related to net cash paid for a business disposition.
Net cash used by financing activities was $0.2$(34.7) million for the year ended September 30, 20162021, and net cash provided by financing activities was $0.1$(5.7) million for the year ended September 30, 2015. 2020. The $29.0 million increase in cash used by financing activities primarily driven by $27.2 million to repurchase common stock and a $3.3 million increase in taxes paid associated with net settlement of stock compensation awards, primarily from the vesting of awards with market conditions due to the achievement of increases in the Company's share price.
Changes in Cash Flows: 2020 Compared to 2019
Net cash provided by financing(used in) operating activities was $16.5 million and $(6.2) million for the year ended September 30, 20152020 and 2019, respectively. The $22.7 million increase in cash provided by operations between periods was to attributable changes in accounts payable and payables to sellers driven by timing of payments, including an increase in the seller settlement cycle for sellers being paid by check due to the COVID-19 pandemic; and $12.5 million of lower net loss as adjusted for non-cash items, including the impact of temporary cost control measures. These changes were partially offset by the $3.8 million portion of the Machinio earn-out payment associated with its increase in value post-acquisition, and the final payments of seller distributions associated with the completion of the Scrap Contract. Our working capital accounts are subject to natural variations depending on the timing of cash receipts and payments, and our variations in our transaction volumes are related to settlements between
our buyers and sellers. However, the Company expects to use working capital in the near-term as activity in payables to seller normalizes, and as the Company makes its annual bonus payments in the first quarter of fiscal 2021.
Net cash provided by (used in) investing activities was $28.6 million for the year ended September 30, 2020, and $(15.7) million for the year ended September 30, 2019. The $44.4 million increase in cash provided by investing activities was driven by a $40.0 million increase in activity related to short-term investments which are used to manage the Company's excess cash balances, and $2.8 million of principal payments on the promissory note issued to JTC. The Company continued to monitor for changes that could impact the recoverability of the promissory note, which was dependent upon JTC's subsequent operating performance and ability to make the payments required by the new repayment schedule. JTC made all of its scheduled payments during the year ended September 30, 2020.
Net cash (used in) provided by financing activities was $(5.7) million for the year ended September 30, 2020, and $0.5 million for the year ended September 30, 2019. The $6.2 million increase in cash used by financing activities consisted primarily of proceeds from the exercise of$4.0 million to repurchase common stock, options.$1.2 million as the portion of the Machinio earn-out payment that represented its fair value at the date of acquisition, and a $0.6 million increase in taxes paid associated with net settlement of stock compensation awards.
Capital Expenditures.Expenditures
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 twelve monthsyear ended September 30, 20172021 were $7.8$5.4 million. As of September 30, 2017,2021, we had no significant outstanding commitments for capital expenditures.
We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next 12 months.
Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. Although we are currently not a partyWe may seek to any definitive agreemententer agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the
future, 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.
Contractual and Commercial Commitments
The table below represents our significant commercial commitments as of September 30, 2017. Operating leases represent commitments to rent office and warehouse space in the United States. Other contractual cash obligations represent information technology commitments related to licensing fee, hardware maintenance and other. These items are not reflected on our balance sheets.
|
| | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
Off-Balance Sheet Arrangements
We do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.
Inflation
Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that inflation had any material effect on our results of operations during the fiscal years ended September 30, 2015, 2016 and 2017.
New Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements—Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity's ability to continue as a going concern and to provide disclosures in certain circumstances. The new guidance was issued to reduce diversity in the timing and content of footnote disclosures. This guidance is effective for fiscal years, and interim reporting periods ending after December 15, 2016. OurInformation regarding our adoption of this new standard foraccounting and reporting standards is discussed in Note 2 to the year ended September 30, 2017, had no impact on our consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). The new standard will change certain aspects of accounting for share-based payments to employees. Under the new standard, we will no longer record excess tax benefits and certain tax deficienciesincluded in additional paid-in capital (“APIC”). Instead, we will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The APIC pools will be eliminated. For interim reporting purposes, we will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. The new standard will also allow us to repurchase more of an employee’s shares than we can currently for income tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new guidance will require us to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. This guidance will become effective for us beginning on October 1, 2017. AdoptionPart IV, Item 15(a)(1) of this standard will not have a material effect upon our consolidated financial statements.Annual Report on Form 10-K.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance will become effective for us beginning on October 1, 2018 and will be applied prospectively on or after the effective date. No disclosures are required at transition. We do not expect the adoption of this standard to have a material effect upon our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance under GAAP. The new standard will change the way we recognize revenue and significantly expand the disclosure requirements for revenue arrangements. The guidance may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new and existing arrangements with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to retained
earnings at the effective date for existing arrangements with remaining performance obligations. During our fiscal year ended September 30, 2017, we initiated a formal project to assess the new standard, which is being completed in phases: the assessment phase followed by the implementation phase. We have substantially completed the assessment phase of its project. The assessment phase consisted of reviewing a representative sample of contracts, discussions with key stakeholders, and cataloging potential impacts on our accounting policies, financial statements, and systems and processes. The implementation team has apprised both management and the audit committee of project status on a recurring basis. We are continuing to evaluate the accounting impacts, and have identified some areas of the accounting guidance which will require more detailed analysis by us, including the principal-agent guidance, the transfer of control guidance, and the guidance on when certain services that we provide would be considered separate performance obligations. Because this assessment is preliminary and the accounting for revenue recognition is subject to significant judgment, this could change as we finalize the implementation of the new standard. We do not yet know and cannot reasonably estimate the quantitative impact on our consolidated financial statements. This guidance will become effective for us beginning October 1, 2018, which is when we intend to adopt. We intend to adopt the new standard on a modified retrospective basis. This determination is subject to change based on finalization of our implementation work.
In April 2015, the FASB issued ASU 2015-5, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-5 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the software license element of the arrangement must be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement must be accounted for as a service contract. ASU 2015-5 does not change the accounting for service contracts. ASU 2015-5 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. We adopted this standard beginning in fiscal year 2017, and it had no impact on our financial statements.
In February 2016, the FASB issued ASU 2016-2, Leases. ASU 2016-2 will change the way we recognize leased assets. ASU 2016-2 will require organizations that lease assets—referred to as "lessees"—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASU 2016-2 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for the Company beginning on October 1, 2019. We are currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on our consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). Under ASU 2017-04 an entity is required to perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity must recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds the reporting unit's fair value; however, the loss recognized may not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance will become effective for us beginning on October 1, 2020. We are currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on our consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of the benefits in the income statement. Under this standard, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers will present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. This guidance will become effective for us beginning on October 1, 2018. We are currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on our consolidated financial statements and related disclosures.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest rate sensitivity. We did As of September 30, 2021, we do not have any debt, asand we are not holding any short-term investments, but we do hold $40.0 million of September 30, 2017,cash and thus docash equivalents in money market funds. Changes in yields on the money market funds are not expected to have any related interest rate exposure.a significant impact to our consolidated results of operations. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss.
Exchange rate sensitivity. We consider our exposure to foreign Because of the number of countries and currencies we operate in, movements in currency exchange rate fluctuations to be minimal, as approximately 11.1% percentrates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency. When we translate the results and net assets of these operations into U.S. dollars for reporting purposes, movements in exchange rates will affect reported results and net assets. Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates, which could affect our revenue was generated outsideresults of theoperations expressed in U.S. We have not engaged in any hedging or other derivative transactions to date.dollars.
Item 8. Financial Statements and SupplementalSupplementary Data.
Annual Financial Statements and Selected Financial 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.10-K.
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 (Exchange Act). This "Controls and Procedures" section includes information concerning the controls and controls evaluation referred to in the certifications. The report of Ernst & Young 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 Ernst & Young LLP report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
WeManagement 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.
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) 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) 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) provide reasonable assurance regarding authorization to effect the acquisition, use or disposition of company assets, as well as the prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of September 30, 2017,2021, 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.GAAP.
Our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of the company's internal control over financial reporting. Ernst & Young 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.
Changes in Internal Control over Financial Reporting
On a quarterly basis we evaluate any changes to our internal control over financial reporting to determine if material changes occurred. There wereDuring the three months ended September 30, 2021, 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.
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
TheTo the Stockholders and the Board of Directors and Stockholders of
Liquidity Services, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Liquidity Services, Inc. and subsidiaries'Subsidiaries’ internal control over financial reporting as of September 30, 2017,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Liquidity Services, Inc. and subsidiaries'Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Liquidity Services, Inc. as of September 30, 2021 and 2020, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended September 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated December 9, 2021 expressed an unqualified opinion thereon.
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 are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
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.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.
In our opinion, Liquidity Services, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Liquidity Services, Inc. and subsidiaries as of September 30, 2017 and 2016, and the related consolidated statements of operations, comprehensive (loss) income, changes in stockholders' equity, and cash flows for each of the three years in the period ended September 30, 2017 of Liquidity Services, Inc. and subsidiaries and our report dated December 6, 2017 expressed an unqualified opinion thereon.
/s/ ERNSTErnst & YOUNGYoung LLP
Tysons, Virginia
December 9, 2021
Item 9B. Other Information.
None.On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $20.0 million of the Company's outstanding shares of common stock through December 31, 2023. The timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and the existence of alternative investment opportunities. The repurchase program will be executed consistent with the Company's capital allocation strategy of prioritizing investment to grow the business over the long term.
Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases, all in compliance with the rules of the United States Securities and Exchange Commission (the “SEC”) and other applicable legal and regulatory requirements.
The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Incorporated by reference from the Company's Proxy Statement relating to its 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.2021.
Code of Ethics, Governance Guidelines and Committee Charters
We have adopted a Code of Business Conduct and Ethics that applies to all Liquidity Services employees.of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. The Code of Business Conduct and Ethics is available on our website.website at http://investors.liquidityservices.com. We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
Item 11. Executive Compensation.
Incorporated by reference from the Company's Proxy Statement relating to its 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.2021.
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 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.2021.
Item 13. Certain RelationshipRelationships and Related Transactions, and Director Independence.
Incorporated by reference from the Company's Proxy Statement relating to its 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.2021.
Item 14. Principal AccountingAccountant Fees and Services.
Incorporated by reference from the Company's Proxy Statement relating to its 20182022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after September 30, 2017.2021.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
|
| | | | | | | |
(a) | | Page |
(a)(1) | The following documents related to the financial statements are filed as part of this report: | |
|
| | 64 |
|
| Financial Statements covered by the Report of Independent Registered Public Accounting Firm: | |
|
| | 65 |
|
| | 66 |
|
| | 67 |
|
| | 68 |
|
| | 69 |
|
| | 70 |
|
(a)(2) | | |
(2) | The following financial statement schedule is filed as part of this report: | |
|
| Schedules for the three years ended September 30, 2017, 20162021, 2020 and 2015:2019: | |
|
| | 101 |
| 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. | |
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.
(a)(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.
Report of Independent Registered Public Accounting Firm
The
To the Stockholders and the Board of Directors and Stockholders of
Liquidity Services, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc. and subsidiariesSubsidiaries (the Company) as of September 30, 20172021 and 2016, and2020, the related consolidated statements of operations, comprehensive (loss) income changes in(loss), stockholders' equity and cash flows for each of the three years in the period ended September 30, 2017. Our audits also included2021, and the related notes and financial statement schedule listed in the Index at Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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). 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
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 subsidiariesthe Company at September 30, 20172021 and 2016,2020, and the consolidated results of theirits operations and theirits cash flows for each of the three years in the period ended September 30, 2017,2021, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), Liquidity Services, Inc. and subsidiaries'the Company’s internal control over financial reporting as of September 30, 2017,2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated December 6, 20179, 2021 expressed an unqualified opinion thereon.
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 audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the 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, 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 regarding the amounts and disclosures in the financial statements. Our audits 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 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 the critical audit matter does not alter in any way our opinion on the consolidatedfinancial 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 account or disclosure to which it relates.
| | | | | | | | |
| | Valuation Allowance |
Description of the Matter | | As described in Note 10 to the consolidated financial statements, at September 30, 2021, the Company had deferred tax assets related to deductible temporary differences and carryforwards of $54.3 million, net of a $13.8 million valuation allowance. Deferred tax assets are reduced by a valuation allowance if, based on the weight of all available evidence, in management’s judgment it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. During the year ended September 30, 2021, the Company reduced its valuation allowance by $27.9 million as a result of a change in its estimate of forecasted future taxable income.
Auditing management’s assessment of the realizability of its deferred tax assets involved complex auditor judgment because management’s estimate of future taxable income is highly judgmental as it requires the evaluation of positive and negative evidence of realization, including the consideration of historical operating losses, and is based on assumptions that may be affected by future performance, market or economic conditions. |
| | | | | | | | |
| | |
How We Addressed the Matter in Our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risks of material misstatement relating to the realizability of deferred tax assets. This included controls over management’s scheduling of the future reversal of existing taxable temporary differences, identification and use of available tax planning strategies and projections of future taxable income.
To test the Company’s assessment of the realizability of its deferred tax assets, our substantive audit procedures included, among others, testing the Company’s scheduling of the reversal of existing temporary taxable differences. We evaluated the assumptions used by the Company to develop projections of future taxable income by jurisdiction and tested the completeness and accuracy of the underlying data used in its projections. For example, we compared the projections of future taxable income with the actual results of prior periods, as well as management’s consideration of current industry and economic trends. We also assessed the historical accuracy of management’s projections and compared the projections of future taxable income with other forecasted financial information prepared by the Company. We further evaluated management’s sensitivity analyses of the significant assumptions to consider the changes in realizability of deferred tax assets that would result from changes in the assumptions. In addition, we evaluated the adequacy of the Company’s financial statement disclosures. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2001.
Tysons, Virginia
December 9, 2021
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)Thousands, Except Par Value)
| | | September 30, | | September 30, |
| 2017 | | 2016 | | 2021 | | 2020 |
Assets | |
| | |
| Assets | | | |
Current assets: | |
| | |
| Current assets: | | | |
Cash and cash equivalents | $ | 94,348 |
| | $ | 134,513 |
| Cash and cash equivalents | $ | 106,335 | | | $ | 76,036 | |
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 |
| |
| Accounts receivable, net of allowance for doubtful accounts of $490 and $389 | | Accounts receivable, net of allowance for doubtful accounts of $490 and $389 | 5,866 | | | 5,322 | |
Inventory, net | | Inventory, net | 12,468 | | | 5,607 | |
Prepaid taxes and tax refund receivable | | Prepaid taxes and tax refund receivable | 1,713 | | | 1,652 | |
Prepaid expenses and other current assets | 9,774 |
| | 9,063 |
| Prepaid expenses and other current assets | 5,460 | | | 5,962 | |
Total current assets | 138,922 |
| | 184,912 |
| Total current assets | 131,842 | | | 94,579 | |
Property and equipment, net | 16,793 |
| | 14,376 |
| Property and equipment, net | 17,634 | | | 17,843 | |
Operating lease assets | | Operating lease assets | 13,478 | | | 10,561 | |
Intangible assets, net | 427 |
| | 2,650 |
| Intangible assets, net | 3,453 | | | 4,758 | |
Goodwill | 45,388 |
| | 45,134 |
| Goodwill | 59,872 | | | 59,839 | |
Net deferred long-term tax assets | 962 |
| | 1,021 |
| |
Deferred tax assets | | Deferred tax assets | 23,822 | | | 806 | |
Other assets | 12,737 |
| | 12,016 |
| Other assets | 5,475 | | | 8,248 | |
| |
| | |
| |
Total assets | $ | 215,229 |
| | $ | 260,109 |
| Total assets | $ | 255,576 | | | $ | 196,634 | |
Liabilities and stockholders' equity | |
| | |
| Liabilities and stockholders' equity | | | |
Current liabilities: | |
| | |
| Current liabilities: | | |
Accounts payable | $ | 13,099 |
| | $ | 9,732 |
| Accounts payable | $ | 40,611 | | | $ | 21,957 | |
Accrued expenses and other current liabilities | 30,193 |
| | 45,133 |
| Accrued expenses and other current liabilities | 25,975 | | | 19,124 | |
Distributions payable | 3,081 |
| | 1,722 |
| |
Current portion of operating lease liabilities | | Current portion of operating lease liabilities | 4,250 | | | 3,818 | |
| Deferred revenue | | Deferred revenue | 4,624 | | | 3,255 | |
Payables to sellers | 24,383 |
| | 28,901 |
| Payables to sellers | 33,713 | | | 26,170 | |
Total current liabilities | 70,756 |
| | 85,488 |
| Total current liabilities | 109,173 | | | 74,324 | |
Operating lease liabilities | | Operating lease liabilities | 10,098 | | | 7,499 | |
Deferred taxes and other long-term liabilities | 11,837 |
| | 12,010 |
| Deferred taxes and other long-term liabilities | 1,290 | | | 2,996 | |
Total liabilities | 82,593 |
| | 97,498 |
| Total liabilities | 120,561 | | | 84,819 | |
Commitments and contingencies (Notes 7 and 15) | — |
| | — |
| |
Commitments and contingencies (Note 15) | | Commitments and contingencies (Note 15) | 0 | | 0 |
Stockholders' equity: | |
| | |
| 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 |
| |
Common stock, $0.001 par value; 120,000,000 shares authorized; 35,457,095 shares issued and outstanding at September 30, 2021; 34,082,406 shares issued and outstanding at September 30, 2020 | | Common stock, $0.001 par value; 120,000,000 shares authorized; 35,457,095 shares issued and outstanding at September 30, 2021; 34,082,406 shares issued and outstanding at September 30, 2020 | 35 | | | 34 | |
Additional paid-in capital | 227,264 |
| | 220,192 |
| Additional paid-in capital | 252,017 | | | 247,892 | |
Treasury stock, at cost; 2,222,083 shares at September 30, 2021 and 547,508 shares at September 30, 2020 | | Treasury stock, at cost; 2,222,083 shares at September 30, 2021 and 547,508 shares at September 30, 2020 | (36,628) | | | (3,983) | |
Accumulated other comprehensive loss | (6,431 | ) | | (8,571 | ) | Accumulated other comprehensive loss | (9,011) | | | (9,782) | |
Retained earnings (accumulated deficit) | (88,226 | ) | | (49,039 | ) | |
Accumulated deficit | | Accumulated deficit | (71,398) | | | (122,346) | |
Total stockholders' equity | 132,636 |
| | 162,611 |
| Total stockholders' equity | 135,015 | | | 111,815 | |
Total liabilities and stockholders' equity | $ | 215,229 |
| | $ | 260,109 |
| Total liabilities and stockholders' equity | $ | 255,576 | | | $ | 196,634 | |
|
See accompanying notes to the consolidated financial statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Data)
| | | | Year Ended September 30, | | | Year Ended September 30, |
| | 2017 | | 2016 | | 2015 | | | 2021 | | 2020 | | 2019 |
Revenue | | $ | 188,570 |
| | $ | 233,828 |
| | $ | 315,668 |
| Revenue | | $ | 146,151 | | | $ | 127,580 | | | $ | 147,889 | |
Fee revenue | | 81,445 |
| | 82,626 |
| | 81,457 |
| Fee revenue | | 111,380 | | | 78,360 | | | 78,636 | |
Total revenue from operations | | 270,015 |
| | 316,454 |
| | 397,125 |
| |
Total revenue | | Total revenue | | 257,531 | | | 205,940 | | | 226,525 | |
Costs and expenses from operations: | | |
| | |
| | |
| Costs and expenses from operations: | | | | | | |
Cost of goods sold | | 126,227 |
| | 143,127 |
| | 166,009 |
| |
Cost of goods sold (excludes depreciation and amortization) | | Cost of goods sold (excludes depreciation and amortization) | | 107,678 | | | 96,016 | | | 102,414 | |
Seller distributions | | 19,298 |
| | 11,214 |
| | 28,093 |
| Seller distributions | | — | | | — | | | 10,831 | |
Technology and operations | | 82,988 |
| | 93,405 |
| | 99,550 |
| Technology and operations | | 47,673 | | | 42,158 | | | 51,594 | |
Sales and marketing | | 35,211 |
| | 37,570 |
| | 41,465 |
| Sales and marketing | | 37,635 | | | 35,629 | | | 36,703 | |
General and administrative | | 35,835 |
| | 39,717 |
| | 41,338 |
| General and administrative | | 28,938 | | | 29,166 | | | 34,249 | |
Depreciation and amortization | | 5,796 |
| | 6,502 |
| | 9,235 |
| Depreciation and amortization | | 6,969 | | | 6,290 | | | 5,091 | |
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 |
| |
Acquisition costs and impairment of goodwill and long-lived assets | | Acquisition costs and impairment of goodwill and long-lived assets | | 1,464 | | | 5 | | | 102 | |
Other operating expenses | | 3,651 |
| | — |
| | 273 |
| Other operating expenses | | 6 | | | 573 | | | 5,049 | |
Total costs and expenses | | 310,015 |
| | 350,572 |
| | 541,340 |
| Total costs and expenses | | 230,363 | | | 209,837 | | | 246,033 | |
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 | ) | |
Income (loss) from operations | | Income (loss) from operations | | 27,168 | | | (3,897) | | | (19,508) | |
Interest and other income, net | | Interest and other income, net | | (411) | | | (924) | | | (1,448) | |
Income (loss) before income taxes | | Income (loss) before income taxes | | 27,579 | | | (2,973) | | | (18,060) | |
(Benefit) provision for income taxes | | (451 | ) | | 27,025 |
| | (39,571 | ) | (Benefit) provision for income taxes | | (23,370) | | | 801 | | | 1,200 | |
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 |
| |
Net income (loss) | | Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | (19,260) | |
Basic income (loss) per common share | | Basic income (loss) per common share | | $ | 1.53 | | | $ | (0.11) | | | $ | (0.58) | |
Diluted income (loss) per common share | | Diluted income (loss) per common share | | $ | 1.45 | | | $ | (0.11) | | | $ | (0.58) | |
Basic weighted average shares outstanding | | Basic weighted average shares outstanding | | 33,333,557 | | | 33,612,263 | | | 33,062,976 | |
Diluted weighted average shares outstanding | | Diluted weighted average shares outstanding | | 35,024,108 | | | 33,612,263 | | | 33,062,976 | |
See accompanying notes to the consolidated financial statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (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, |
| | 2021 | | 2020 | | 2019 |
Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | (19,260) | |
Other comprehensive (loss) income: | | | | | | |
Defined benefit pension plan—unrecognized amounts, net of taxes | | 170 | | | (2,293) | | | (540) | |
Foreign currency translation, net of taxes | | 601 | | | 484 | | | (984) | |
Other comprehensive income (loss), net of taxes | | 771 | | | (1,809) | | | (1,524) | |
Comprehensive income (loss) | | $ | 51,720 | | | $ | (5,583) | | | $ | (20,784) | |
See accompanying notes to the consolidated financial statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
(Dollars In Thousands Except Share Data)Thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 Paid-in Capital | | Shares | | Amount | | Accumulated Other Comprehensive Loss | | Accumulated Deficit | | Total | |
Balance at September 30, 2018 | 32,774,118 | | | $ | 33 | | | $ | 236,115 | | | — | | | — | | | $ | (6,449) | | | $ | (100,045) | | | $ | 129,654 | | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | (19,260) | | | (19,260) | | |
Exercise of common stock options and vesting of restricted stock | 953,066 | | | 1 | | | 589 | | | — | | | — | | | — | | | — | | | 590 | | |
Tax settlements associated with stock compensation expense | (6,906) | | | — | | | (44) | | | — | | | — | | | — | | | — | | | (44) | | |
Forfeiture of restricted stock awards | (33,163) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Stock compensation expense | — | | | — | | | 6,026 | | | — | | | — | | | — | | | — | | | 6,026 | | |
Cumulative adjustment related to adoption of ASC 606 | — | | | — | | | — | | | — | | | — | | | — | | | 730 | | | 730 | | |
Defined benefit pension plan—unrecognized amounts, net of taxes | — | | | — | | | — | | | — | | | — | | | (540) | | | — | | | (540) | | |
Foreign currency translation and other | — | | | — | | | — | | | — | | | — | | | (984) | | | 3 | | | (981) | | |
Balance at September 30, 2019 | 33,687,115 | | | $ | 34 | | | $ | 242,686 | | | — | | | — | | | $ | (7,973) | | | $ | (118,572) | | | $ | 116,175 | | |
Net Loss | — | | | — | | | — | | | — | | | — | | | — | | | (3,774) | | | (3,774) | | |
Exercise of common stock options and vesting of restricted stock | 494,683 | | | — | | | 111 | | | — | | | — | | | — | | | — | | | 111 | | |
Tax settlements associated with stock compensation expense | (84,392) | | | — | | | (594) | | | — | | | — | | | — | | | — | | | (594) | | |
Forfeiture of restricted stock awards | (15,000) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Common stock repurchases | — | | | — | | | — | | | (547,508) | | | (3,983) | | | — | | | — | | | (3,983) | | |
Stock compensation expense | — | | | — | | | 5,689 | | | — | | | — | | | — | | | — | | | 5,689 | | |
Defined benefit pension plan—unrecognized amounts, net of taxes | — | | | — | | | — | | | — | | | — | | | (2,293) | | | — | | | (2,293) | | |
Foreign currency translation and other | — | | | — | | | — | | | — | | | — | | | 484 | | | — | | | 484 | | |
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, grants of restricted stock awards, and vesting of restricted stock units | 1,605,618 | | | 1 | | | 444 | | | — | | | — | | | — | | | — | | | 445 | | |
Taxes paid associated with net settlement of stock compensation awards | (217,196) | | | — | | | (3,915) | | | — | | | — | | | — | | | — | | | (3,915) | | |
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) | | | — | | | — | | | — | | |
Forfeiture of restricted stock awards | (13,733) | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | |
Stock compensation expense | — | | | — | | | 6,094 | | | — | | | — | | | — | | | — | | | 6,094 | | |
Defined benefit pension plan—unrecognized amounts, net of taxes | — | | | — | | | — | | | — | | | — | | | 170 | | | — | | | 170 | | |
Foreign currency translation | — | | | — | | | — | | | — | | | — | | | 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 | | |
See accompanying notes to the consolidated financial statements.
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, |
| | 2021 | | 2020 | | 2019 |
Operating activities | | | | | | |
Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | (19,260) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization | | 6,969 | | | 6,290 | | | 5,091 | |
Change in fair value of earn-out liability | | — | | | 200 | | | 3,500 | |
Stock compensation expense | | 6,947 | | | 5,660 | | | 6,508 | |
Inventory adjustment to net realizable value | | 174 | | | 300 | | | 331 | |
Provision for doubtful accounts | | 297 | | | 200 | | | 178 | |
Deferred tax (benefit) expense | | (24,510) | | | 106 | | | 136 | |
| | | | | | |
Impairment of long-lived and other non-current assets | | 1,338 | | | — | | | — | |
| | | | | | |
| | | | | | |
Loss (gain) on disposal of property and equipment | | 80 | | | (29) | | | (15) | |
Gain on disposal of lease assets | | (23) | | | — | | | — | |
Changes in operating assets and liabilities: | | | | | | |
Accounts receivable | | (843) | | | 1,182 | | | (2,012) | |
Inventory | | (7,035) | | | (64) | | | 3,948 | |
Prepaid taxes and tax refund receivable | | (61) | | | 878 | | | (811) | |
Prepaid expenses and other assets | | (2,022) | | | 1,375 | | | 1,554 | |
Operating lease assets and liabilities | | (79) | | | (187) | | | — | |
Accounts payable | | 18,554 | | | 6,907 | | | 1,191 | |
Accrued expenses and other current liabilities | | 6,060 | | | (8,198) | | | 1,999 | |
Distributions payable | | — | | | (1,675) | | | (453) | |
Deferred revenue | | 1,369 | | | 207 | | | 906 | |
Payables to sellers | | 7,543 | | | 5,917 | | | (8,716) | |
Other liabilities | | (290) | | | 1,183 | | | (317) | |
Net cash provided by (used in) operating activities | | 65,417 | | | 16,478 | | | (6,242) | |
Investing activities | | | | | | |
Increase in intangibles | | (33) | | | (62) | | | (23) | |
Purchases of property and equipment, including capitalized software | | (5,419) | | | (4,186) | | | (5,938) | |
Proceeds from note receivable | | 4,343 | | | 2,824 | | | — | |
Proceeds from sale of property and equipment | | 105 | | | 71 | | | 247 | |
Purchase of short-term investments | | — | | | (25,000) | | | (70,000) | |
Maturities of short-term investments | | — | | | 55,000 | | | 60,000 | |
| | | | | | |
Net cash (used in) provided by investing activities | | (1,004) | | | 28,647 | | | (15,714) | |
Financing activities | | | | | | |
| | | | | | |
Payments of the principal portion of finance lease liabilities | | (42) | | | (34) | | | — | |
Proceeds from exercise of common stock options (net of tax) | | 445 | | | 111 | | | 590 | |
Taxes paid associated with net settlement of stock compensation awards | | (3,915) | | | (594) | | | (44) | |
| | | | | | |
Payment of earn-out liability related to business acquisition | | — | | | (1,200) | | | — | |
Common stock repurchases | | (31,143) | | | (3,983) | | | — | |
Net cash (used in) provided by financing activities | | (34,655) | | | (5,700) | | | 546 | |
Effect of exchange rate differences on cash and cash equivalents | | 541 | | | 114 | | | (541) | |
Net increase (decrease) in cash and cash equivalents | | 30,299 | | | 39,539 | | | (21,951) | |
Cash and cash equivalents at beginning of year | | 76,036 | | | 36,497 | | | 58,448 | |
Cash and cash equivalents at end of year | | $ | 106,335 | | | $ | 76,036 | | | $ | 36,497 | |
Supplemental disclosure of cash flow information | | | | | | |
| | | | | | |
| | | | | | |
Cash paid (received for) for income taxes, net of refunds | | 1,442 | | | (1,519) | | | 1,008 | |
Non-cash: Common stock surrendered in the exercise of stock options | | 1,502 | | | — | | | — | |
See accompanying notes to the consolidated financial statements.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Liquidity Services, Inc. (the “Company”) operatesCompany) is a networkleading global commerce company providing trusted marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of leading ecommerce marketplaces that enablesurplus. We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.
We believe our ability to create liquid marketplaces for surplus and idle assets generates a continuous flow of goods from our sellers. This valuable and reliable flow of goods, in turn, attracts an increasing number of buyers to our marketplaces. Increasing numbers of buyers to our marketplaces, in turn, attracts more sellers to transactour marketplaces which, in an efficient, automated environment offering over 500 product categories. The Company’s marketplaces provide professional buyers access toturn, reinforces a global, organized supply of new, surplus,valuable 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 salereliable flow 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
Results from our operations are organized 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. 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 three4 reportable segments,segments: Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and GovDeals.Machinio. See Note 16 in the Notes to the Consolidated Financial Statements for Segment Information.
We were incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
On November 1, 2021, we acquired Bid4Assets. Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets auctions distressed real estate for the federal government, sheriffs, county-tax collectors, financial institutions, and real estate funds. See Note 17 - Subsequent Events for more information regarding this transaction.
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 the extent and duration of the COVID-19 pandemic; 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.
The Company has evaluated subsequent events through the date that these financial statements were issued and filed with the Securities and Exchange Commission. See Note 18 in the 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 requires management to make estimates and assumptions that affect amounts in the consolidated financial statements and accompanying notes. For the year ended September 30, 2021, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations. As there remains uncertainty associated with the Pandemic, the Company will continue to update its assumptions as conditions change. 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 ("U.S. GAAP"). 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.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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 (i.e., working capital adjustments) or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill, with the exception of contingent consideration, which is recognized in the statement of operations in the period it is modified. All subsequent changes to a valuation allowance or uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an adjustment to goodwill. All other changes in valuation allowances are recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.
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.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables. Allowances 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, and an assessment of general economic conditions.
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. 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 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, 2017,2021 and 2016, September 30, 2020, the Company's inventory reserve was approximately $4.6reflects write-downs of $0.2 million and $3.4$0.3 million, respectively.
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 (described in "Other Assets"), 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 million 5-year interest bearingfive-year interest-bearing promissory note to the Company. Of
On October 10, 2019, the Company 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 in principal, plus $0.4 million of accrued interest. As of March 31, 2021, JTC had repaid $7.7 million of the $12.3 million $1.0owed 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 has been repaidpayment 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 Statement of Operations during the year ended September 30, 2017, and another $1.5 million was repaid in October 2017. Of2021, representing the $11.3difference between the $4.6 million outstanding at September 30, 2017, $8.3balance of principal and accrued interest and the $3.5 million was recorded in Other assets, and $3.0 million in Prepaid expenses and other current assets as of September 30, 2017.payment received.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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 |
OfficeOffice/operational equipment | | Three to five years |
Furniture and fixtures | | Five to seven years |
Internally developed software for internal-use | | Five years |
Leasehold improvements | | Shorter of lease term or useful life |
Buildings | | Thirty-nine years |
LandVehicles | | Five years |
Land | | Not depreciated |
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 finance leases are included with Other assets (finance lease assets), Accrued expenses and other liabilities (current portion of finance lease liabilities), and Deferred taxes and other long-term liabilities (non-current portion of finance lease liabilities).
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, the Company recorded a $1.2 million impairment of a contract intangible associated with its IronDirect business,2021, 2020, and a $0.6 million impairment2019.
Liquidity Services, Inc. and Subsidiaries
Notes to leasehold improvements, also within its IronDirect business. No impairment was recorded during the fiscal year ended September 30, 2016.Consolidated Financial Statements (Continued)
Goodwill
Goodwill is reviewedrepresents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. The Company reviews goodwill for impairment annually on July 1, or more frequently if events or circumstances indicate impairment may exist. Examples of such events or circumstances could include a significant change in business climate or the loss of a significant buyer. contract.
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-step fair value-based test to assesstest.
The Company generally tests its goodwill for impairment. The first step comparesimpairment using a fair-value based test, where the 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 from one to forty months. Subscription fees are recognized ratably over the implied fair valueterm of the goodwill. If the implied fair value of the goodwill is less than the carrying amount, an impairment loss would be recorded in the statement of operations.
The annual goodwill impairment assessment was performed as of July 1, 2017, for fiscal year 2017.agreements.
Revenue Recognition
In the Consolidated Statements of Operations, revenue from the resale of inventory that the Company purchases from sellers is recognized within Revenue. Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-consignment fee revenue, which includes Machinio's sales listing subscription service as well as other services including returns management and refurbishment of assets, is recognized within Fee Revenue.
The Company adopted the Financial Accounting Standard Board's (FASB) Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (ASC 606) effective October 1, 2018.
The Company recognizes revenue when all ofor as performance obligations are satisfied and control is transferred to the following criteria are met:customer. Revenue is recognized in the amount that reflects the consideration to which the Company expects to be entitled.
a buyer submits the winning bid in an auction and, as a result, evidence of an arrangement exists, and the sale price has been determined;
the buyer has assumed the risks and rewards of ownership; and
collection is reasonably assured.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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: (1) whether the Company is deemedprimarily responsible for fulfilling the promise to beprovide the primary obligor, bears physical and generalasset or assets; (2) whether the Company has inventory risk of the asset or assets before they are transferred to the buyer; and credit risk,(3) 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 revenueRevenue 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.
In arrangements in which the Company actsis acting as an agent (a “consignment” arrangement), its performance obligation is to arrange for the seller to sell an asset or broker on a consignment basis, without taking physical or general inventory risk, revenue is recognizedassets to the buyer directly. The Company recognizes Fee Revenue based on the sales commissions that are paid to the Company by the sellers for utilizing the Company's services; in this situation, sales commissions represent a percentage of the gross proceeds from the sale that the seller pays to the Company upon completion of the transaction. Such revenue
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In both purchase and consignment contracts, the Company sometimes provides distinct services to the seller, such as wellreturns management, refurbishment of assets, or valuation services. These services are distinct because the seller could benefit from the services separately from the asset sale, and as such they are treated as separate performance obligations. Some services provided to sellers are not 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 the asset or assets.
The consideration received from buyers and sellers includes (1) buyer’s premiums, (2) seller’s commissions, and (3) fees for services, including reimbursed expenses. Consideration is variable based on units, final auction prices, or other feefactors, 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 results 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's consolidated revenues. The total transaction price is allocated to each distinct performance obligation and revenue is presentedrecognized when or as Fee Revenue in the Consolidated Statementsperformance obligation is satisfied. Variable consideration is allocated to individual performance obligations when the variable consideration is related to satisfying that performance obligation and consistent with the allocation objective. The Company's revenue is generally recorded subsequent to receipt of Operations.payment authorization, utilizing credit cards, wire transfers and PayPal, an Internet-based payment system, as methods of payments. Goods are generally not shipped before payment is received. For certain transactions, payment is due upon invoice and the payment terms vary depending on the business segment.
The Company collects and remits sales taxes on merchandise that it purchases and sells and reportshas elected the practical expedient to report such amounts under the net method in its Consolidated Statements of Operations. The Company also provides shipping and handling services in some arrangements and has elected the practical expedient to treat those activities as a fulfillment cost. If the Company is acting as a principal for the combined obligation, amounts received from customers for shipping are recognized as Revenue, and amounts paid for shipping are recognized as costs of goods sold. If the Company is acting as an agent for the combined obligation, shipping revenue and costs will be netted and recognized within costs of goods sold.
The Company’s performance obligations are satisfied 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: (1) whether the Company has a present right to payment for the asset or assets; (2) whether the buyer has legal title to the asset; (3) whether the buyer has physical possession of the asset or assets; (4) whether the buyer has the significant risks and rewards of ownership; and (5) whether the buyer has accepted the asset or assets.
For the Company's Machinio business segment, the performance obligation is satisfied over time as the Company provides the services over the term of the subscription. At September 30, 2021, the Machinio business segment had a remaining performance obligation of $4.6 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 the 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
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 $0.4 million as of September 30, 2020 and handling costs.$0.6 million as of September 30, 2021 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 up-front payments received in connection with Machinio's subscription services. The contract liability balance was $3.3 million as of September 30, 2020, and $4.6 million as of September 30, 2021 and is included in the line item Deferred revenue on the consolidated balance sheets. Of the September 30, 2020 contract liability balance, $3.2 million was earned as Fee Revenue during the year ended September 30, 2021.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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 $1.6 million as of September 30, 2021 and $0.7 million as of September 30, 2020 and is included in the line item Prepaid expenses and other current assets and Other assets on the consolidated balance sheet. Amortization expense was $0.7 million during the year ended September 30, 2021 and was $0.4 million during the year ended September 30, 2020.
Risk Associated with Certain Concentrations
The Company does not perform credit evaluations forFor the majority of its buyers.buyers that receive goods before payment to the Company is made, credit evaluations are performed. However, substantially all salesfor the remaining buyers, goods are recorded subsequent tonot 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.from those buyers.
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 in the consolidated financial statements. The Company releases the funds to the seller, less the Company's commission and other fees due, 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 in banks and cash equivalentsequivalent money market funds in banks over FDICaccounts which may at times exceed federally insured limits (FDIC and/or SIPC), and accountsAccounts receivable. The Company deposits its cash and acquires cash equivalent money market funds with financial institutions that the Company considers to be of high credit quality.
TheAdditionally, the Company has two materialmultiple 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.
Additionally, we have a vendor contract with Amazon.com, Inc. under which we acquireit acquires and sellsells commercial merchandise. The property we purchased under this contract represented approximately 21.8%60.7%, 12.1%55.1%, and 6.9%43.6% of cost of goods sold for the fiscal years ended September 30, 2017, 20162021, 2020, and 2015,2019, respectively. This contract is included within ourthe RSCG segment.
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. TheHowever, 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 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.
The Company issues restricted stock units where restrictions lapse upon either the passage of time (service vesting conditions), achievement of performance targets (performance vesting conditions), or some combination thereof. For those restricted stock units with only service vesting conditions, the Company recognizes compensation costexpense on a straight-line basis over the explicit service period.period, which is generally a period one to four years. For restrictedperformance-based stock units with both performance and service vesting conditions,awards, the Company starts recognizing compensation costrecognizes expense on a straight-line basis over the remainingderived service period when it is probableexpected to be required to achieve the performance condition will be met.
condition. The Company excludes stock options and restricted stock units that contain performance vesting conditions from diluted earnings per share computations until the contingency is met as of the end of that reporting period.
The Company presents the cash flows from the tax benefits resulting from tax deductions in excess of therecords a cumulative adjustment to compensation cost recognized for those options (excess tax benefits) as a financing activity with a corresponding operating cash outflow in the Consolidated Statements of Cash Flows when it is considered probable that those tax benefits will be realized.
Advertising Costs
Advertising expenditures are expensed as incurred. Advertising costs charged to expense were $5.2 million, $6.0 million and $5.3 million for the years ended September 30, 2017, 2016 and 2015, respectively.
Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, profit-sharing distributions payable, and payables to sellers reported in the Consolidated Balance Sheets approximate their fair values. The Company holds financial assets that 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.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
expense for performance-based awards if there is a change in determination of whether it is probable that the performance condition will be achieved.
Market-based stock awards are measured at fair value on their grant date using a Monte Carlo simulation. The Monte 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 option and restricted stock awards, the Company recognizes expense on a straight-line basis over the derived service period determined by the Monte Carlo simulation, 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. The Company, however, does not reverse expense recognized if the stock price target(s) are not ultimately achieved, as required by equity accounting for market-based awards. For market-based stock appreciation rights, because they are cash settled, they are measured at fair value in each reporting period. The Company recognized expense on a straight-line basis over the derived service period determined by the Monte Carlo simulation in each reporting 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, and reverses expense recognized if the stock price target(s) are not ultimately achieved, as required by liability accounting for market-based awards.
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.
Excess tax benefits realized from stock awards are reported as cash flows from operating activities on the consolidated statement of cash flows.
Advertising Costs
Advertising expenditures are expensed as incurred. Advertising costs charged to expense were $3.2 million, $2.6 million and $2.7 million for the years ended September 30, 2021, 2020, and 2019, respectively.
Treasury Stock
Treasury stock is presented at cost, including any applicable commissions and fees, as a reduction of stockholders’ equity in the consolidated balance sheets and statements of equity. Treasury stock held by us may be retired or reissued in the future.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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)Loss
The following table shows the changes in accumulated other comprehensive income (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, 2018 | | $ | (7,585) | | | $ | 1,136 | | | $ | (6,449) | |
Current-period other comprehensive (loss) income | | (984) | | | (540) | | | (1,524) | |
Balance at September 30, 2019 | | (8,569) | | | 596 | | | (7,973) | |
Current-period other comprehensive (loss) income | | 484 | | | (2,293) | | | (1,809) | |
Balance at September 30, 2020 | | (8,085) | | | (1,697) | | | (9,782) | |
Current-period other comprehensive (loss) income | | 601 | | | 170 | | | 771 | |
Balance at September 30, 2021 | | $ | (7,484) | | | $ | (1,527) | | | $ | (9,011) | |
Net Income (Loss) Per Share (EPS)
See discussion of our Net income (loss) per share (EPS) determination and related calculations below at Note 3 Earnings Per Share.
Recent Accounting Pronouncements
Accounting Standards Adopted
On October 1, 2020, the Company adopted ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This accounting standard has not had a material impact on the Company's consolidated financial statements as no significant implementations of cloud computing arrangements have occurred since adoption.
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 and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable and money market funds. While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 seeks to improve the consistent application of, and simplify the guidance for, the accounting for income taxes. The ASU removes certain exceptions to the general principals in ASC 740, Income Taxes, and clarifies and amends other existing guidance. The ASU will become effective for the Company beginning October 1, 2021. The Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.
|
| | | | | | | | | |
| | 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 | ) |
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. Earnings perPer Share
The Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (FASB) Topic 260 Earnings Per Share (“ASC 260”). Under ASC 260, 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 dilutive effect of unexercised stock options and unvested restricted stock units was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of 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 when stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock units are not included in the computation ofcalculates diluted net income (loss) per share whenby dividing net income (loss) by the weighted-average number of common shares and potentially dilutive common shares outstanding during the reporting period using the treasury stock method.
The Company's potentially dilutive common shares include stock options, restricted stock units, and restricted stock awards. For such awards that have performance- or market-conditions, they are antidilutive.
The Company has not includedconsidered dilutive only when those performance- or market-conditions have been satisfied as of the following stock optionsreporting date. However, in periods of a net loss, the Company'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 per share because the option exercise prices were greater than the average market prices for the applicable periods:will exclude all anti-dilutive common shares.
(a) for the fiscal year ended September 30, 2017 1,023,072 options;
(b) for the fiscal year ended September 30, 2016 1,284,689 options; and
(c) for the fiscal year ended September 30, 2015 1,256,345 options.
For the fiscal years ended September 30, 2017, 2016 and 2015, theThe computation of basic and diluted weighted average common shares were the same because the inclusion of dilutive securities would have been anti-dilutive. Diluted net income attributable to common stockholders per share includes the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. See Note 10 in the Notes to the Consolidated Financial Statements for outstanding stock options and unvested restricted stock, all of which are anti-dilutiveis as of September 30, 2017.follows:
Liquidity Services, Inc. and Subsidiaries | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 | | 2019 |
Numerator: | | | | | | |
Net income (loss) | | $ | 50,949 | | | $ | (3,774) | | | $ | (19,260) | |
Denominator: | | | | | | |
Basic weighted average shares outstanding | | 33,333,557 | | | 33,612,263 | | | 33,062,976 | |
Dilutive impact of stock options, RSUs and RSAs | | 1,690,551 | | | — | | | — | |
Diluted weighted average shares outstanding | | 35,024,108 | | | 33,612,263 | | | 33,062,976 | |
Basic income (loss) per common share | | $ | 1.53 | | | $ | (0.11) | | | $ | (0.58) | |
Diluted income (loss) per common share | | $ | 1.45 | | | $ | (0.11) | | | $ | (0.58) | |
Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive | | 420,454 | | | 3,526,055 | | | 4,621,199 | |
Notes to Consolidated Financial Statements (Continued)
4. DoD Contract with DLA Disposition Services
The following summarizes the potential outstanding common stock of the Company as of the dates set forth below:
|
| | | | | | | | | | | | |
| | 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 | ) |
Recent Accounting Pronouncements
In August 2014, the FASB issued Accounting Standards Update ("ASU") 2014-15, Presentation of Financial Statements—Going Concern, which requires management to evaluate whether there are conditions and events that raise substantial doubt about the entity's ability to continue as a going concern and to provide disclosures in certain circumstances. The new guidance was issued to reduce diversity in the timing and content of footnote disclosures. This guidance is effective for fiscal years, and interim reporting periods ending after December 15, 2016. The Company's adoption of this new standard forDuring the year ended September 30, 2017,2019, the Company had no impacta material vendor contract with the Department of Defense (DoD), the Scrap Contract, which concluded on the Company’s consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). The new standard will change certain aspects of accounting for share-based payments to employees.September 30, 2019. Under the new standard, the Company will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, the Company will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement when the awards vest or are settled. The APIC pools will be eliminated. For interim reporting purposes, the Company will account for excess tax benefits and tax deficiencies as discrete items in the period in which they occur. The new standard will also allow the Company to repurchase more of an employee’s shares than it can today for income tax withholding purposes without triggering liability accounting and to make a policy election to account for forfeitures as they occur. The new guidance will require the Company to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. This guidance will become effective for the Company beginning on October 1, 2017. The Company does not expect the adoption of this standard to have a material effect upon its consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805). ASU 2017-01 clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or business. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. This guidance will become effective for the Company beginning on October 1, 2018. The amendments in this update should be applied prospectively on or after the effective date. No disclosures are required at transition. The Company does not expect the adoption of this standard to have a material effect upon its consolidated financial statements.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes most existing revenue recognition guidance under GAAP. The new standard will change the way the Company recognizes revenue and significantly expand the disclosure requirements for revenue arrangements. The guidance may be adopted either retrospectively or on a modified retrospective basis whereby the new standard would be applied to new and existing arrangements with remaining performance obligations as of the effective date, with a cumulative catch-up adjustment recorded to retained earnings at the effective date for existing arrangements with remaining performance obligations. During fiscal year ended September 30, 2017, the Company initiated a formal project to assess the new standard, which is being completed in phases: the assessment phase followed by the implementation phase. The Company has substantially completed the assessment phase of its project. The assessment phase consisted of reviewing a representative sample of contracts, discussions with key stakeholders, and cataloging potential impacts on the Company’s accounting policies, financial statements, and systems and processes. The implementation team has apprised both management and the audit committee of project status on a recurring basis. The Company is continuing to evaluate the accounting impacts, and have identified some areas of the accounting guidance which will require more detailed analysis, including the principal-agent guidance, the transfer of control guidance, and the guidance on when certain services that we provide would be considered separate performance obligations. Because this assessment is preliminary and the accounting for revenue recognition is subject to significant judgment, this could change as the Company finalizes the implementation of the new standard. The Company does not yet know and cannot reasonably estimate the quantitative impact on the consolidated financial statements. This guidance will become effective for the Company beginning October 1, 2018, which is when the Company intends to adopt. The Company intends to adopt the new standard on a modified retrospective basis. This determination is subject to change based on finalization of our implementation work.
In April 2015, the FASB issued Accounting Standards Update ("ASU") 2015-5, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-5 provides guidance regarding whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the software license element of the arrangement must be accounted for in a manner consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the arrangement must be accounted for as a service contract. ASU 2015-5 does not change the accounting for service contracts. ASU 2015-5 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2015. The Company adopted this standard beginning in fiscal year 2017, and it had no impact on the financial statements.
In February 2016, the FASB issued Accounting Standards Update ("ASU") 2016-2, Leases. ASU 2016-2 will change the way the Company recognizes its leased assets. ASU 2016-2 will require organizations that lease assets—referred to as "lessees"—to recognize on the balance sheet the assets and liabilities representing the rights and obligations created by those leases. ASU 2016-2 will also require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. The standard will be effective for the Company beginning on October 1, 2019. The Company is currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on the Company's consolidated financial statements and related disclosures.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350). Under ASU 2017-04 the entity should perform its annual or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds the reporting unit's fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. This guidance will become effective for the Company beginning on October 1, 2020. The Company is currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on the Company’s consolidated financial statements and related disclosures.
In March 2017, the FASB issued ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. ASU 2017-07 changes how employers that sponsor defined benefit pension and/or other postretirement benefit plans present the cost of the benefits in the income statement. Under this standard, employers will present the service cost component of net periodic benefit cost in the same income statement line item(s) as other employee compensation costs arising from services rendered during the period. Employers will present the other components of the net periodic benefit cost separately from the line item(s) that includes the service cost and outside of any subtotal of operating income, if one is presented. This guidance will become effective for the Company beginning on October 1, 2018. The Company is currently evaluating the methods of adoption allowed by the new standard and the effect that adoption of the standard is expected to have on the Company’s consolidated financial statements and related disclosures.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
3. Significant Contracts
DLA Disposition Services
The Company has two material vendor contracts with the DoD, the Surplus Contract and the Scrap Contract. Under the Surplus Contract, the Company iswas the remarketer of all DoD non-rolling stock surplusnon-electronic scrap turned into the DLADefense Logistics Agency (DLA) available for sale within the United States, Puerto Rico, and Guam. The Surplus Contract requires the Company to purchase all usable surplus property offered to the Company by the DoD at a fixed percentage of the DoD's OAV. This fixed percentage is 4.35%; prior to the date the current Surplus Contract became effective, this fixed percentage was 1.8%. The Company retains 100% of the profits from the resale of the property and bears all of the costs for the merchandising and sale of the property. Included in accrued expenses and other current liabilities in the Consolidated Balance Sheet is a liability to the DoD for the inventory that has not been paid for in the amount of $6.2 million and $16.1 million as of September 30, 2017 and 2016, respectively. The Surplus Contract permits either party to terminate the contract for convenience. The initial two-year base period ended in December 2016. On December 6, 2016, the DLA notified the Company that it was exercising the first 1-year extension option. The Surplus contract now extends through December 14, 2017. There are three remaining one-year options to extend the Surplus contract, exercisable by the DLA. See note 18 (Subsequent Event) in the Notes to the Consolidated Financial Statements for information about the bidding on the DLA’s Request for Technical Proposal, which was issued subsequent to September 30, 2017.
The Company currently earns fees for services provided under the Surplus contract. Service fees may vary month-to-month based on services rendered, agreed pricing and volume of goods. Pricing declines negatively affected revenue under the Surplus contract beginning in the quarter ended June 30, 2017, and the Company anticipates service fee revenue will continue to decline over several quarters due to anticipated additional pricing declines. Revenue under the Surplus contract was negatively affected for the twelve months ended September 30, 2017, as a result of an approximate $2.0 million decrease in service revenue due to lower pricing compared to the pricing in effect through the quarter ended March 31, 2017.
Revenue from 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. This contract is included within the CAG segment.
Under the Scrap Contract, the Company is the remarketer of all DoD non-electronic scrap turned into the DLA available for sale within the United States, Puerto Rico, and Guam.
The Scrap contract was awarded to the Company in April 2016. The Scrap contract has a 36-month base term, and commenced in the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA. The base period of the Scrap Contract will expire on September 30, 2019. The Company pays a revenue-sharing payment to the DLA under this contract equal to 64.5% of the gross resale proceeds of the scrap property, and the Company bearsbore all of the costs for the sorting, merchandising and sale of the property. The contract contains a provision permitting the DLA to terminate the contract for convenience upon written notice to the Company.
The original Scrap contract was structured as a profit-sharing arrangement, whereby the profit sharing percentage to the DLA was 65.0%. As a result of moving from a profit-sharing arrangement to a revenue-sharing arrangement, the Company re-named the balance sheet line item from Profit-sharing distributions payable to Distributions payable during the first quarter of fiscal year 2017.
Revenue from the Scrap contractContract accounted for approximately 11.1%, 10.2% and 15.3%7.4% of the Company's consolidated revenue for the fiscal yearsyear ended September 30, 2017, 2016 and 2015, respectively. This contract is included within the CAG segment.
2019.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
4.5. Property and Equipment
Property and equipment, including equipment under capital lease obligations, consists of the following:
|
| | | | | | | | |
| | 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 |
|
| | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
| | (in thousands) |
Computers and purchased software | | $ | 1,981 | | | $ | 2,060 | |
Internally developed software for internal-use | | 18,942 | | | 13,860 | |
Office/Operational equipment | | 6,373 | | | 5,781 | |
Leasehold improvements | | 3,244 | | | 3,451 | |
Building | | 2,158 | | | 2,151 | |
Furniture and fixtures | | 655 | | | 945 | |
Vehicles | | 1,129 | | | 1,043 | |
Land | | 754 | | | 754 | |
Construction in progress | | 956 | | | 2,353 | |
Total property and equipment | | 36,192 | | | 32,398 | |
Less: Accumulated depreciation and amortization | | (18,558) | | | (14,555) | |
Total property and equipment, net | | $ | 17,634 | | | $ | 17,843 | |
Depreciation and amortization expense related to property and equipment for the years ended September 30, 2017, 20162021, 2020 and 2015,2019, was $4.8$5.6 million, $5.1$4.9 million and $6.1$3.7 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 $0.4of $3.9 million, for the year ended September 30, 2017.$2.9 million and $1.2 million, respectively.
During the year ended September 30, 2017, the Company recorded $0.6 million in fixed asset impairment charges associated with leasehold improvements in its IronDirect business. The Company did not record fixed asset impairment charges in fiscal 2016. These impairment charges are recorded inon material property and equipment during the Acquisition costsyears ended September 30, 2021, 2020 and 2019.
6. Leases
The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 5.3 years. Some of the leases have options to extend or terminate the leases. The exercise of such options is generally at the Company’s discretion. The lease agreements do not contain any significant residual value guarantees or restrictive covenants. The Company also subleases excess corporate office space. The Company's finance leases and related fair value adjustments and impairment of goodwill and long-lived assets line item in the Consolidated Statements of Operations and reported under the Corporate & other segment.balances are not significant.
5. Goodwill
The annual goodwill impairment assessment was performedcomponents of lease expense are:
| | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
| | (in thousands) |
Finance lease – lease asset amortization | | $ | 54 | | | $ | 69 | |
Finance lease – interest on lease liabilities | | 22 | | | 23 | |
Operating lease cost | | 5,139 | | | 5,264 | |
Operating lease impairment expense | | 172 | | | — | |
Short-term lease cost | | 242 | | | 125 | |
Variable lease cost (1) | | 1,532 | | | 1,463 | |
Sublease income | | (184) | | | (258) | |
Total net lease cost | | $ | 6,977 | | | $ | 6,686 | |
(1)Variable lease costs primarily relate to the Company's election to combine non-lease components such as of July 1, 2017, for fiscal year 2017.
The goodwill of acquired companies is primarilycommon area maintenance, insurance and taxes related to its real estate leases. To a lesser extent, the acquisitionCompany's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.
Maturities of an experienced and knowledgeable workforce.
A reporting unit represents a component of an operating segment that (a) constitutes a business, (b) has discrete financial information, and (c) its performance is reviewed by management. At fiscal year-end 2015, the Company had two reporting units—LSI-Retail Supply Chain Group (RSCG) and LSI-Capital Assets Group (CAG). During fiscal year 2016, in light of new business ventures and management restructuring, the Company concluded that it had five reporting units—RSCG, CAG, GovDeals, Truckcenter, and IronDirect. During fiscal year 2017, the Company decided to exit certain Truckcenter operations in order to focus its time and resources on its ecommerce marketplace strategy. As a result, as of September 30, 2017, the Company had four reporting units-RSCG, CAG, GovDeals and IronDirect.
As of December 31, 2014, the Company identified indicators of impairment and as a result performed an impairment test and concluded as part of the step one test that the carrying values of both of the Company’s two reporting units exceeded their estimated fair values. The Company performed the step one test using the discounted cash flow method. As a result of the step two test, the Company recorded an impairment charge of $85.1 million during the first quarter of fiscal year 2015. As of September 30, 2015, as part of the Company’s annual impairment test, the Company identified indicators of impairment and as a result performed an impairment test and concluded as part of the step one test that the carrying values of both of the Company’s two reporting units exceeded their estimated fair values. As a result of the step two test, the Company recorded an impairment charge of $51.2 million during the fourth quarter of fiscal year 2015. Goodwill impairment losses for fiscal 2015
lease liabilities are:
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | |
| September 30, 2021 |
(in thousands) | Operating Leases | | Finance Leases |
2022 | $ | 4,882 | | | $ | 78 | |
2023 | 4,145 | | | 79 | |
2024 | 3,076 | | | 59 | |
2024 | 2,445 | | | 30 | |
2025 | 1,441 | | | 30 | |
Thereafter | 212 | | | 12 | |
Total lease payments (1) | $ | 16,201 | | | $ | 288 | |
Less: imputed interest (2) | (1,855) | | | (38) | |
Total lease liabilities | $ | 14,346 | | | $ | 250 | |
totaled $136.2 million
(1)The weighted average remaining lease term is 3.7 years for operating leases and were the result of the termination of the Wal-Mart Agreement, cessation of operations of NESA,4.1 years for finance leases.
(2)The weighted average discount rate is 6.5% for operating leases and decline in market capitalization.6.7% for finance leases.
As part of the Company's fiscal year 2016 annual impairment assessment,
Additionally, the Company identified indicatorshas approximately $1.9 million of impairment andfuture payment obligations related to an executed warehouse lease agreement that has not yet commenced as a result performed step one of the goodwill impairment test. The Company performed the step one test using a discountedSeptember 30, 2021.
Supplemental disclosures of cash flow method. information related to leases are:
| | | | | | | | | | | |
(in thousands) | Year Ended September 30, |
| 2021 | | 2020 |
Cash paid for amounts included in operating lease liabilities | $ | 4,319 | | | $ | 4,771 | |
Cash paid for amounts included in finance lease liabilities | 42 | | | 34 | |
Non-cash: lease liabilities arising from new operating lease assets obtained (1) | 3,349 | | | 12,190 | |
Non-cash: lease liabilities arising from new finance lease assets obtained | 137 | | | 10 | |
Non-cash: adjustments to lease assets and liabilities | 3,756 | | | 3,942 | |
(1)Year ended September 30, 2020 amount includes $12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019 (see Note 2).
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.
As part of the Company's fiscal year 2017 annual impairment assessment, the Company believed that certain events triggered moving to a step one evaluation of goodwill attributable to identify potential impairment. After performing the step one test, the Company concluded the remaining reporting units with goodwill had fair valueseach reportable segment were as of July 1, 2017, that substantially exceeded their respective book values.
The following summarizes the goodwill activity for the Company's reportable segments that have goodwill during the periods indicated:
|
| | | | | | | | | | | | | | | | |
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 |
|
follows: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Goodwill (in thousands) | | | | CAG | | GovDeals | | Machinio | | Total |
Balance at September 30, 2018 | | | | $ | 21,530 | | | $ | 23,731 | | | $ | 14,558 | | | $ | 59,819 | |
| | | | | | | | | | |
Translation adjustments | | | | (352) | | | — | | | — | | | (352) | |
Balance at September 30, 2019 | | | | $ | 21,178 | | | $ | 23,731 | | | $ | 14,558 | | | $ | 59,467 | |
| | | | | | | | | | |
Translation adjustments | | | | 372 | | | — | | | — | | | 372 | |
Balance at September 30, 2020 | | | | $ | 21,550 | | | $ | 23,731 | | | $ | 14,558 | | | $ | 59,839 | |
Translation adjustments | | | | 33 | | | — | | | — | | | 33 | |
Balance at September 30, 2021 | | | | $ | 21,583 | | | $ | 23,731 | | | $ | 14,558 | | | $ | 59,872 | |
Accumulated goodwill impairment losses as of September 30, 20142021 and 2020 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. Pursuant to ASC 350, Goodwill and Other, the Company may utilize the optional qualitative assessment for its reporting units. The qualitative assessment considers trends in macroeconomic conditions, industry and market conditions, cost factors, and overall performance of the reporting unit. After assessing the totality of these factors and trends, if it is determined that it is more likely than not that the fair value of the reporting unit exceeds its carrying value, then no further steps are required. If not however, then the Company will perform the quantitative impairment test. 6.As of July 1, 2021, the Company performed its annual impairment test using the optional qualitative assessment for each of our reporting units. For each of our reporting units, based upon the significance of positive indicators identified through our assessment of qualitative evidence, we concluded that it was more likely than not that the fair value of each reporting unit exceeded their carrying amounts. The Company did not record impairment charges on goodwill during the years ended September 30, 2021, 2020 and 2019.
8. Intangible Assets
Intangible assets consist of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Balance as of September 30, 2021 | | Balance as of September 30, 2020 |
| | Useful Life (in years) | | Weighted average useful Life (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | |
| | | | | | (in thousands) | | (in thousands) | |
Contract intangibles | | 6 | | 6.0 | | $ | 3,100 | | | $ | (1,679) | | | $ | 1,421 | | | $ | 3,100 | | | $ | (1,162) | | | $ | 1,938 | | |
Brand and technology | | 5 | | 5.0 | | 2,700 | | | (1,755) | | | 945 | | | 2,700 | | | (1,215) | | | 1,485 | | |
Patent and trademarks | | 7 - 10 | | 8.6 | | 2,360 | | | (1,273) | | | 1,087 | | | 2,329 | | | (994) | | | 1,335 | | |
Total intangible assets, net | | | | | | $ | 8,160 | | | $ | (4,707) | | | $ | 3,453 | | | $ | 8,129 | | | $ | (3,371) | | | $ | 4,758 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2017,2021, is as follows:
| | | | | | | | |
Year Ending September 30, | | Amortization |
| | (in thousands) |
2022 | | $ | 1,330 | |
2023 | | 1,187 | |
2024 | | 649 | |
2025 | | 287 | |
2026 | | — | |
Thereafter | | — | |
Total | | $ | 3,453 | |
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, 20162021, 2020 and 20152019 was $1.0$1.3 million, $1.4$1.3 million and $3.1$1.3 million, respectively.
During fiscal year 2017, the Company recorded a $1.2 million impairment of a contract intangible associated with customer relationships in its IronDirect business, and reduced the remaining unamortized value of this intangible asset to zero during the fiscal year ended September 30, 2017. The Company also concluded that the covenantdid not to compete intangible asset received in connection with the acquisition of the TruckCenter business, was impaired due to the exit of the TruckCenter land-based, live auction and retail business. 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. Theserecord 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.
7. Commitments
Leases
The Company leases certain office space and equipment under non-cancelable operating lease agreements, which expire at various dates through 2022. Certain of the leases contain escalation clauses and provide for the pass-through of increases in operating expenses and real estate taxes. Rent related to leases that have escalation clauses is recognized on a straight-line basis. Resulting deferred rent charges are included in other long-term liabilities and were $0.6 million and $1.0 million, at September 30, 2017 and 2016, respectively. Future minimum payments under the leases as of September 30, 2017, are as follows:
|
| | | | |
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 |
|
On June 16, 2017 the Company entered into a sub-lease agreement for 18,412 square feet of office space at 6931 Arlington Road, Bethesda, Maryland. The sub-lease commenced September 29, 2017, and will expire April 30, 2023. On the sub-lease commencement date, the Company relocated its headquarters previously located at 1920 L Street NW, Washington DC, to the new Bethesda location. The Company ceased using the L Street location as of September 30, 2017, and recognized a $2.0 million cease-use charge in its consolidated statements of operations at September 30, 2017, within the Other operating expenses line item.
Rent expense forduring the years ended September 30, 2017, 20162021, 2020 and 2015, was $10.8 million, $11.5 million, and $12.5 million, respectively. The fiscal 2017 rent expense amount does not include the $2.0 million cease-use charge pertaining to the L Street location.2019.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
8.9. 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. 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 year ended September 30, 2020, the Company changed its employer contributions from a safe harbor matching program to be fully discretionary where employer contributions may be provided to participants based upon the Company's financial performance and metrics at the end of its fiscal and calendar years. For the years ended September 30, 2017, 20162021, 2020, and 2015,2019, the Company contributed and recorded expenseexpenses of approximately $2.1$1.1 million, $1.7$0.9 million and $2.4$1.6 million, respectively, related to its contributions to the Plan.
9.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
10. Income Taxes
The components of the provision for income taxes of continuing operations are as follows: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
Current tax provision (benefit): | | | | | | |
U.S. Federal | | $ | — | | | $ | — | | | $ | — | |
State | | 293 | | | 382 | | | 453 | |
Foreign | | 847 | | | 313 | | | 611 | |
| | 1,140 | | | 695 | | | 1,064 | |
Deferred tax provision (benefit): | | | | | | |
U.S. Federal | | (23,315) | | | 74 | | | 103 | |
State | | (1,252) | | | (27) | | | (31) | |
Foreign | | 57 | | | 59 | | | 64 | |
| | (24,510) | | | 106 | | | 136 | |
Total (benefit) provision | | $ | (23,370) | | | $ | 801 | | | $ | 1,200 | |
|
| | | | | | | | | | | | |
| | 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: | | | | | | | | | | | | | | |
| | September 30, |
| | 2021 | | 2020 |
| | (in thousands) |
Deferred tax assets: | | | | |
Net operating losses—Foreign | | $ | 13,593 | | | $ | 12,709 | |
Net operating losses—U.S. | | 31,456 | | | 35,126 | |
Accrued vacation and bonus | | 678 | | | 571 | |
Inventory capitalization | | 219 | | | 54 | |
Allowance for doubtful accounts | | 96 | | | 65 | |
Stock compensation expense | | 1,415 | | | 1,804 | |
Operating lease assets | | 3,605 | | | 2,236 | |
| | | | |
Depreciation | | 2,339 | | | 1,266 | |
Other | | 897 | | | 893 | |
Total deferred tax assets before valuation allowance | | 54,298 | | | 54,724 | |
Less: valuation allowance | | (13,813) | | | (41,788) | |
Net deferred tax assets | | 40,485 | | | 12,936 | |
Deferred tax liabilities: | | | | |
Amortization of intangibles | | 107 | | | 291 | |
Amortization of goodwill | | 7,322 | | | 6,666 | |
| | | | |
Capitalized costs | | 5,602 | | | 4,470 | |
Operating lease liabilities | | 3,394 | | | 2,059 | |
Pension liability | | 238 | | | 138 | |
Total deferred tax liabilities | | $ | 16,663 | | | $ | 13,624 | |
Net deferred taxes | | $ | 23,822 | | | $ | (688) | |
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, |
| | 2021 | | 2020 | | 2019 |
U.S. statutory rate | | 21.0 | % | | 21.0 | % | | 21.0 | % |
Stock-based stock compensation expense | | (14.1) | % | | (14.9) | % | | (2.0) | % |
Nondeductible compensation expense | | 5.5 | % | | (6.0) | % | | (0.6) | % |
Other permanent items | | 0.1 | % | | (1.1) | % | | (4.2) | % |
State taxes | | 3.0 | % | | (13.2) | % | | (0.4) | % |
Net foreign rate differential | | 0.5 | % | | (0.8) | % | | (0.6) | % |
Unrecognized tax benefits | | 0.1 | % | | 5.1 | % | | (1.5) | % |
Change in valuation allowance | | (98.9) | % | | 9.9 | % | | (22.5) | % |
| | | | | | |
Write-down of deferred tax assets on share-based stock compensation | | 0.7 | % | | (12.3) | % | | (7.9) | % |
Write-down of deferred tax assets on net operating loss | | (2.8) | % | | (15.9) | % | | 10.6 | % |
Other | | 0.2 | % | | 1.3 | % | | 1.5 | % |
Effective rate | | (84.7) | % | | (26.9) | % | | (6.6) | % |
|
| | | | | | | | | |
| | 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 | % |
AtAs of September 30, 20172021 and 2016,2020, the Company had federal and state deferred tax assets of $45.4$23.5 million and $35.8$27.7 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.and 2022, 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 2023. At September 30, 20172021 and 2016,2020, the Company had deferred tax assets related to available foreign NOL carryforwards of approximately $9.2$13.6 million and $9.0$12.7 million, respectively. All but approximately $0.5$0.4 million of our foreign NOLs maintain an indefinite carry forward life. The NOLs with limited carryforward periods will expire beginning in 2022.
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 $13.8 million and $41.8 million against its gross deferred tax asset balance at September 30, 2021 and September 30, 2020, 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, 2021, in part because in the current year we achieved three years of cumulative pre-tax income in the U.S. federal jurisdiction, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred tax assets of $27.9 million are realizable. It therefore recorded a net valuation allowance release of $27.9 million for the year ended September 30, 2021.
On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the Pandemic. The CARES Act, among other things, accelerates the recovery of alternative minimum tax (AMT) credits into fiscal year 2020. During fiscal year 2020, the Company recovered its full AMT refund of $1.7 million. Prior to the CARES Act, the Company’s AMT credits were recoverable in fiscal years 2021 through 2023. The CARES Act also permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021. In addition, NOLs incurred in fiscal years 2019, 2020, and 2021 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company does not expect the NOL provisions of the CARES Act to result in a material cash benefit.
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.
On July 10, 2018, through 2037.
the Company acquired 100% of the stock of Machinio for $19.9 million. Under the acquisition method of accounting, the Company recorded a net deferred tax liability of $0.7 million comprised primarily of acquired intangibles netted
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
against NOLs and other deferred assets and recognized a $0.7 million tax benefit from a reduction to its valuation allowance. The Company assesses available positive and negative evidencetotal amount of acquired NOLs, which are subject to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was 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 basis of this evaluation, the Company recorded a valuation change of $10.1 million to bring the total valuation allowance to $54.4 million at September 30, 2017.limitations under Section 382, were $1.4 million.
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$6.9 million as of September 30, 2017.2021. As of September 30, 2017,2021, and 2016, approximately $14.92020, $22.4 million and $21.5$19.5 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:
|
| | | | | | | | | | |
| | 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 |
| | — |
|
benefits (in thousands): | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 | | 2019 |
Beginning balance at October 1 | | $ | 123 | | | $ | 273 | | | $ | — | |
Additions based on positions related to the current year | | 20 | | | — | | | — | |
Additions for tax positions of prior years | | — | | | — | | | 273 | |
Reductions for tax positions of prior years | | — | | | (150) | | | — | |
Settlements | | — | | | — | | | — | |
Balance at September 30 | | $ | 143 | | | $ | 123 | | | $ | 273 | |
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 deferred tax asset and valuation allowance for our net operating loss carryforward by $1.22021, the Company recorded a charge of $0.1 million fordue to 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. 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.
The Company's policy is to recognizerecognizes 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, primarily Canada and the U.K. Currently, theThe Company is subject tohas no open income tax examinations for fiscal years 2012 through 2015. The Company anticipates no material tax liability to arise from these examinations. Thein the U.S. and the statute of limitations for years prior to fiscal year 20132018 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 20132018 may be adjusted upon examination by tax authorities if they are utilized.
10.11. Equity Transactions
2006 Omnibus Long-TermStock Compensation Incentive PlanPlans
In conjunction withThe 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. Company’s acquisition of Machinio. As of September 30, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5x shares against the plan reserves. As of September 30, 2021, 1,993,244 shares of common stock remained available for use.
Stock Compensation Expense
The 2005 Stock Optiontable below presents the components of share-based compensation expense (in thousands): | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 | | 2019 |
Equity-classified awards: | | |
Stock options | | $ | 3,117 | | | $ | 2,054 | | | $ | 1,530 | |
RSUs & RSAs | | 2,977 | | | 3,635 | | | 4,496 | |
Liability-classified awards: | | | | | | |
SARs | | $ | 853 | | | $ | (29) | | | $ | 482 | |
Total stock compensation expense: | | $ | 6,947 | | | $ | 5,660 | | | $ | 6,508 | |
The Company’s total liabilities for liability-classified stock compensation awards was $0.5 million and Incentive Plan was terminated when$0.1 million as of September 30, 2021 and 2020, the 2006 Plan became effective, immediately after the closing of the initial public offering.
Acurrent portion of the optionswhich was $0.3 million and restricted shares granted to employees vest based on certain performance conditions being satisfied by the Company. Performance-based stock options are tied to the Company's annual performance against pre-established internal targets and the actual payout under these awards may vary from zero to 100% of an employee's target payout, based upon the Company's actual performance during the previous twelve months. The performance-based stock options are also subject to vesting requirements and generally vest when the performance condition has been satisfied. The fair 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.
$0.1 million, respectively.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
UnderShare-Based Award Activity
Stock Options
The table below presents stock option activity (aggregate intrinsic value in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Stock Options | | Weighted- Average Exercise Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of September 30, 2020 | | 3,075,914 | | | $ | 8.54 | | | 6.16 | | $ | 2,841 | |
Granted | | 1,108,273 | | | $ | 10.60 | | | | | $ | — | |
Exercised | | (1,033,529) | | | $ | 6.59 | | | | | $ | 15,036 | |
Forfeited | | (272,720) | | | $ | 7.82 | | | | | $ | 2,547 | |
Expired | | (33,653) | | | $ | 15.35 | | | | | $ | 108 | |
Outstanding as of September 30, 2021 | | 2,844,285 | | | $ | 10.04 | | | 6.14 | | $ | 34,877 | |
Vested and expected to vest as of September 30, 2021 | | 2,810,202 | | | $ | 9.94 | | | 6.10 | | $ | 34,775 | |
Exercisable as of September 30, 2021 | | 1,477,408 | | | $ | 10.37 | | | 4.24 | | $ | 18,589 | |
Of the 2006 Plan,1,366,877 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 Plan2021, 853,553 can become exercisable by 3,000,000 shares and established a fungible share pool so that awards other than 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.
During fiscal year 2016, the Company issued 1,062,668 cash-settled stock appreciation rights at a price of $4.57, and 153,338 cash-settled stock appreciation rights were forfeited. During fiscal year 2017, the Company issued 218,550 cash-settled stock appreciation rights at a price of $10.30, and 234,313 cash-settled stock appreciation rights were forfeited. Stock appreciation rights are recorded as liability awards. The maximum number of shares subject to options or stock appreciation rights that can be awarded under the 2006 Plan to any person is 1,000,000 per year. The maximum number of shares that can be awarded under the 2006 Plan to any person, other than pursuant to an option or stock appreciation right, is 700,000 per year. The Company issues stock appreciation rights where restrictions lapse upon either the passage of time (service vesting), achievement of performance targets, or some combination of these conditions. For those stock appreciation rights with onlysatisfying service conditions the Company recognizes compensation cost on a straight-line basis over the explicitonly, and 513,324 can become exercisable by satisfying service period. For awards with bothand performance and service conditions, the Company starts recognizing compensation cost over the remaining service period, when it is probable the performance condition will be met. The stock appreciation rights that includeor market conditions.
Stock options containing only service conditions generally vest over a periodperiods of one to four years conditioned on continued employment forand expire five to ten years from the incentivedate of grant. Stock compensation cost is expensed ratably over the entire service period. As of September 30, 2021, there was $2.7 million of unrecognized compensation cost related to stock options containing only service conditions, which is expected to be recognized over a weighted-average period of 2.8 years.
For
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, 2017, 20162021, 2020 and 2015,2019 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30 |
| | 2021 | | 2020 | | 2019 |
Dividend yield | | — | | — | | — |
Expected volatility | | 51.0% - 55.9% | | 46.5% - 51.0% | | 47.8% - 53.7% |
Risk-free interest rate | | 0.4% - 0.8% | | 0.5% - 1.5% | | 1.9% - 2.8% |
Expected term | | 4.6- 7.6 years | | 4.6 - 7.4 years | | 4.2 - 7.1 years |
The weighted-average grant date fair value of options granted during the Company recorded stock-based compensation of $7.4 million, $12.3 millionyear-ended September 30, 2021, 2020 and $12.4 million,2019 was $4.81, $2.66 and $2.70, respectively. The total costs related to unvested awards with service vesting conditions, not yet recognized, as of 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.
The 2006 Plan permits the grantingintrinsic value of options to purchase shares of common stock intended to qualify as incentive stockexercised during 2021, 2020 and 2019 was $15.0 million, $0.1 million and $0.3 million, respectively. Stock options under the Internal Revenue Code and stock options that do not qualify as incentive stock options ("non-qualified stock options"). The exercise price of each stock option may not be less than 100% of the fair market value of the common stock on the date of grant. However, if a grant recipient, who holds at least 10% of the common stock of the Company, receives an incentive stock option, the exercise price of such incentive stock option may not be less than 110% of the fair market value of the common stock on the date of grant. The term of each stock option is fixed by the compensation committee and may not exceed 10 years from the date of grant.
The compensation committee may also award under the 2006 Plan:
restricted stock, whichcontaining performance conditions are shares of common stock subject to restrictions;
restricted stock units, which are common stock units subject to restrictions;
dividend equivalent rights, which are rights entitling the recipient to receive credits for dividends that would be paid if the recipient had held a specified number of shares of common stock;
stock appreciation rights, which are rights to receive a number of shares or,discussed separately in the discretion of the compensation committee and subject to applicable law, an amount in cash or a combination of shares and cash, based on the increase in the fair market value of the shares underlying the right during a stated period specified by the compensation committee;section below.
unrestricted stock, which are shares of common stock granted without restrictions as a bonus; and
performance and annual incentive awards, ultimately payable in common stock or cash, as determined by the compensation committee (the compensation committee may grant multi-year and annual incentive awards subject to achievement of specified goals tied to business criteria set forth in the 2006 Plan).
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
RSUs & RSAs
The table below presents RSU & RSA activity (aggregate fair value in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | RSU & RSA | | Weighted- Average Grant Date Fair Value | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Fair Value |
Outstanding as of September 30, 2020 | | 1,545,285 | | | $ | 6.84 | | | 1.85 | | $ | 11,528 | |
Granted | | 330,545 | | | $ | 14.08 | | | | | $ | 4,653 | |
Vested | | (811,773) | | | $ | 6.78 | | | | | $ | 13,780 | |
Forfeited | | (146,676) | | | $ | 8.98 | | | | | $ | 2,688 | |
Outstanding as of September 30, 2021 | | 917,381 | | | $ | 9.15 | | | 1.98 | | $ | 19,825 | |
Expected to vest as of September 30, 2021 | | 666,092 | | | $ | 10.17 | | | 2.35 | | $ | 14,394 | |
Of the outstanding RSUs & RSAs as of September 30, 2021, 463,300 can vest by satisfying service conditions only, and 454,081 can vest by satisfying service and performance or market conditions.
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, 2021, there was $3.6 million of unrecognized compensation cost related to RSUs containing only service conditions, which is expected to be recognized over a weighted-average period of 2.9 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- Average Exercise Price | | Weighted- Average Remaining Contractual Term (years) | | Aggregate Intrinsic Value |
Outstanding as of September 30, 2020 | | 160,810 | | | $ | 8.45 | | | 1.00 | | $ | 96 | |
| | | | | | | | |
Exercised | | (45,084) | | | $ | 8.45 | | | | | $ | 443 | |
Forfeited | | (73,681) | | | $ | 9.80 | | | | | $ | 213 | |
Outstanding as of September 30, 2021 | | 42,045 | | | $ | 6.11 | | | 1.26 | | $ | 652 | |
Vested and expected to vest as of September 30, 2021 | | 42,045 | | | $ | 6.11 | | | 1.26 | | $ | 652 | |
Exercisable as of September 30, 2021 | | 12,045 | | | $ | 6.11 | | | 1.26 | | $ | 187 | |
The 30,000 SARs not yet exercisable as of September 30, 2021 can become exercisable by satisfying service conditions only.
As of September 30, 2021, there was $0.3 million of unrecognized compensation cost related to SARs containing service conditions, which is expected to be recognized over a weighted-average period of 1.3 years. The Company made cash payments of $0.4 million, $0.6 million and $0.5 million to settle SARs exercised during the years ended September 30, 2021, 2020 and 2019, respectively.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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, 2021, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30 |
| | 2021 | | 2020 | | 2019 |
Dividend yield | | — | | — | | — |
Expected volatility | | 78.3% - 78.3% | | 55.0% - 68.8% | | 38.2% - 48.8% |
Risk-free interest rate | | 0.1% - 0.1% | | 0.1% - 0.1% | | 1.3% - 1.7% |
Expected term | | 1.3-1.3 years | | 0.0-2.3 years | | 0.1-3.3 years |
As of September 30, 2021 and 2020, the weighted-average fair value of SARs outstanding was $18.86 and $0.63 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 or 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, 2021, there was $0.4 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 3.0 years.
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 derived 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, the Company does 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, 2021, there was $0.9 million of unrecognized compensation costs related to stock options, RSUs and SARs, containing market conditions, which is expected to be recognized over a weighted-average period of 0.5 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 determine the fair value of these awards during the years ended September 30, 2021, 2020 and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Year ended September 30 |
| | 2021 | | 2020 | | 2019 |
Dividend yield | | — | | — | | — |
Expected volatility | | 51.6% - 54.6% | | 45.2% - 54.9% | | 45.5% - 55.0% |
Risk-free interest rate | | 0.3% - 0.9% | | 0.1% - 1.7% | | 1.5% - 2.9% |
Expected holding period (% of remaining term) | | 31.7% - 100.0% | | 30.7% - 100.0% | | 25.9% - 100.0% |
Share Repurchase Program
The Company isWe are 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 Company's Board of Directors reviews the share repurchase program periodically, the last such review having occurred in May 2016. The Company did not repurchase shares under this program 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 |
|
| |
(1) | On February 5, 2014, the Company's Board of Directors approved an additional $19.0 million for the share repurchase program. On May 5, 2016, the Company's Board of Directors approved the repurchase of an additional $5.0 million in shares raising the current amount approved for repurchase, that may yet be expended up to $10.1 million. |
Stock Option Activity
A summary of the Company's stock option activity for the years ended September 30, 2017, 2016, and 2015 is as follows:
|
| | | | | | | |
| | 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 |
|
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table summarizes information about options outstanding atAs of the fiscal year ended September 30, 2017:
|
| | | | | | | | | |
| | 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 |
The following table summarizes information about options exercisable at September 30, 2017:
|
| | | | | | | | | |
| | 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 |
The following table summarizes information about assumptions used in valuing options granted:
|
| | | | | | | | | |
| | 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% |
|
The intrinsic value2020, we had $6.1 million of outstanding and exercisable options at September 30, 2017 was approximately $494 and $494, respectively, based on a stock priceremaining share repurchase authorization. On March 8, 2021, our Board of $5.90 on September 30, 2017.
The weighted average grant date fair valueDirectors authorized an additional $10 million of options granted during 2017, 2016, and 2015 was $3.58, $2.07, and $4.89, respectively.
The intrinsic value of options exercised at September 30, 2017, 2016, and 2015 was approximately $24,032, $3,128 and $4,000, respectively. Approximately 0.2 million unvested service-based stock options are expected to vest.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Restricted Share Activity
A summaryshare repurchases of the Company's restricted share activityoutstanding shares of common stock through March 31, 2023. We repurchased 957,079 shares for $16.1 million under this program during the yearssix months ended March 31, 2021.
On May 3, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the “May 3, 2021 Stock Repurchase Plan”) of up to $15 million of our outstanding shares of common stock through June 30, 2023. We repurchased 634,884 shares for $15.0 million under this program during the year ended September 30, 2017, 2016, and 2015 is as follows:2021. On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $20 million of the Company's outstanding shares of common stock through December 31, 2023.
|
| | | | | | | |
| | 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 |
|
Other Share RepurchasesThe intrinsic
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 and weighted average remaining contractual lifeto the exercise price due. During the three months ended June 30, 2021, no shares of common stock were surrendered by participants in yearsthe exercise of unvested restricted shares at stock options. During the year ended September 30, 2017, is approximately $12.9 million and 8.37, respectively, based on a2021, participants surrendered 82,612 shares of common stock pricein the exercise of $5.90 on September 30, 2017. Approximately 1.2 million unvested service-based restricted stock options. Any shares surrendered to the Company in this manner are expected to vest.not available for future grant.
11.12. 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. |
AsThe Company had $40.0 million and $30.0 million of money market funds considered cash equivalents at September 30, 2017,2021 and 2016, the Company had no Level 1 or Level 22020, respectively. These assets or liabilities measured at fair value. As of September 30, 2017, and September 30, 2016, the Company had financial assets that arewere measured at fair value at September 30, 2021 and are2020 and were classified as Level 31 assets within the fair value hierarchy. The Company recordsThere were no transfers between levels during the financial assets using the fair value option under ASC 825, Financial Instruments. These financial assets represent the value of rights the Company holds from its participation in certain principal transactions in the Company's commercial business, where a third-party partner owns the underlying assets to be sold, and the Company has contributed funds to the partner towards purchasing those underlying assets. These assets are included in prepaid expenses and other current assets in the Consolidated Balance Sheets. The changes in financial assets measured at fair value for which the Company has used Level 3 inputs to determine fair value for the year ended September 30, 2017, are as follows ($ in thousands):periods presented.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
|
| | | |
| 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, the Company recognized a gain of approximately $0.6 million on its financial assets.
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 on 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 regarding market demand for these assets. Such assumptions involve management's 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, 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, 2021 and 2020, the Company did not have any material assets or liabilities measured at fair value due to their short-term maturities.on a non-recurring basis.
12.13. Defined Benefit Pension Plan
Certain employees of Liquidity Services UK Limited ("GoIndustry"), which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme (the "Scheme"), a qualified defined benefit pension plan. The Company guarantees GoIndustry's performance on all present and future obligations to make payments to the Scheme for up to a maximum of £10 million British pounds. The Scheme was closed to new members on January 1, 2002.
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.Scheme.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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, 20162021, 2020 and 2015,2019, included the following components: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 | | 2019 |
| | (in thousands) |
Interest cost | | $ | 438 | | | $ | 431 | | | $ | 618 | |
Expected return on plan assets | | (793) | | | (797) | | | (965) | |
Amortization of prior service cost | | 21 | | | 19 | | | — | |
Total net periodic benefit | | $ | (334) | | | $ | (347) | | | $ | (347) | |
Qualified Defined Benefit Pension Plan
|
| | | | | | | | | | | | |
| | 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, 20172021 and September 30, 2016:2020: | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 |
| | (in thousands) |
Change in benefit obligation | | | | |
Beginning balance | | $ | 26,047 | | | $ | 23,240 | |
Interest cost | | 438 | | | 431 | |
Benefits paid | | (781) | | | (597) | |
Actuarial loss/(gain) | | 152 | | | 1,803 | |
Foreign currency exchange rate changes | | 1,099 | | | 1,170 | |
Ending balance | | $ | 26,955 | | | $ | 26,047 | |
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Qualified Defined Benefit Pension Plan
|
| | | | | | | | |
| | 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 |
|
Qualified Defined Benefit Pension Plan
| | | | Year Ended September 30, | | | Year Ended September 30, |
| | 2017 | | 2016 | | | 2021 | | 2020 |
| | (in thousands) | | | (in thousands) |
Change in plan assets | | |
| | |
| Change in plan assets | | | | |
Beginning balance at fair value | | $ | 25,767 |
| | $ | 24,537 |
| Beginning balance at fair value | | $ | 26,771 | | | $ | 25,779 | |
Actual return on plan assets | | 569 |
| | 4,831 |
| Actual return on plan assets | | 1,077 | | | 297 | |
Benefits paid | | (718 | ) | | (1,246 | ) | Benefits paid | | (781) | | | (597) | |
Employer's contributions | | 552 |
| | 1,482 |
| |
| Foreign currency exchange rate changes | | 773 |
| | (3,837 | ) | Foreign currency exchange rate changes | | 1,141 | | | 1,292 | |
Ending balance at fair value | | $ | 26,943 |
| | $ | 25,767 |
| Ending balance at fair value | | $ | 28,208 | | | $ | 26,771 | |
Overfunded (underfunded) status of the plan | | $ | 1,859 |
| | $ | (554 | ) | |
Overfunded status of the Scheme | | Overfunded status of the Scheme | | $ | 1,253 | | | $ | 724 | |
The accrued pension asset of $1.9$1.3 million is recorded in Other long-term assets in the Consolidated Balance Sheet. Because the planScheme is closed to new participants, the accumulated benefit obligation is equal to the projected benefit obligation, and totals $25.1which was $27.0 million and $26.3$26.0 million at September 30, 20172021 and 2020, respectively.
During the year ended September 30, 2016, respectively.2021, the Company extended early settlement offers to all members of the Scheme. There was no material impact to the consolidated financial statements as a result of the early settlement offers.
The amountamounts recognized in other comprehensive (income) 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, 20172021 and September 30, 2016,2020, is shown in the following table:
Qualified Defined Benefit Pension Plan
|
| | | | | | | | |
| | 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 |
|
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
| | | | | | | | | | | | | | |
| | Year Ended September 30, |
| | 2021 | | 2020 |
| | (in thousands) |
Accumulated other comprehensive (loss) income at beginning of year | | $ | (1,971) | | | $ | 303 | |
Net actuarial gain (loss) | | 170 | | | (2,293) | |
Foreign currency translation adjustments | | (84) | | | 19 | |
Accumulated other comprehensive loss at end of year | | $ | (1,885) | | | $ | (1,971) | |
Estimated amounts to be amortized from accumulated other comprehensive (income) loss into net periodic benefit cost during 2017 based on September 30, 2017 plan measurements are $0. Amortization of a net gain or loss included in accumulated other comprehensive income shall be included as a component of net pension cost for a year if, as of the beginning of the year, that net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the market-related value of plan assets. The plan complies with the funding provisions of the UK 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.
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at September 30, 20172021 and September 30, 2016,2020, and to determine the net periodic (benefit) cost for the year were as follows:
Qualified Defined Benefit Pension Plan
|
| | | | | | |
| | 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 | % |
| | | | | | | | | | | | | | |
| | September 30, 2021 | | September 30, 2020 |
Discount rate to determine net periodic (benefit) cost | | 1.60 | % | | 1.80 | % |
Expected return on plan assets | | 2.82 | % | | 3.00 | % |
Discount rate to determine benefit obligations | | 2.00 | % | | 1.60 | % |
Rate of increases to deferred CPI linked benefits | | 3.10 | % | | 2.50 | % |
Rate of increases to deferred RPI linked benefits | | 3.60 | % | | 3.00 | % |
Mortality—100%105% for males and 105% for females of S2PxA "light"mortality tables, projected in line with the 20162020 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, | | |
|
2018 | | $ | 751 |
|
2019 | | 767 |
|
2020 | | 791 |
|
2021 | | 687 |
|
2022 | | 749 |
|
2023 through 2027 | | 4,362 |
|
Total | | $ | 8,107 |
|
| | | | | | | | |
| | Pension Benefits |
| | (in thousands) |
Year ending September 30, | | |
2022 | | $ | 904 | |
2023 | | 789 | |
2024 | | 1,213 | |
2025 | | 1,052 | |
2027 | | 1,010 | |
2027 through 2030 | | 4,390 | |
Total | | $ | 9,358 | |
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:
•Funding—to ensure that the Plan is fully funded using assumptions that contain a modest margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial covenant of the employer;
•Stability—to have due regard to the likely level and volatility of required contributions when setting the Plan's investment strategy; and
•Security—to ensure that the solvency position of the Scheme is expected to improve. The primary objectives are:
| |
1. | Funding—to ensure that the Plan is fully funded using assumptions that contain a modest margin for prudence. Where an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial covenant of the employer; |
| |
2. | Stability—to have due regard to the likely level and volatility of required contributions when setting the Plan's investment strategy; and |
| |
3. | Security—to ensure that the solvency position of the Plan is expected to improve. The Trustees will take into account the strength of employer's covenant when determining the expected improvement in the solvency position of the Plan. |
Trustees will take into account the strength of employer's covenant when determining the expected improvement in the solvency position of the Plan.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The assets are allocated among equity investmentssecurities, 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 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, 2017:2021 and 2020:
|
| | | |
| | Actual
2016
|
Equity securities | | 43.7 | % |
Fixed-income securities | | 54.9 | % |
Cash equivalents | | 1.4 | % |
Total | | 100.0 | % |
The class of equity securities consists of one pooled fund whose strategy is to invest in approximately 70% UK company shares (domestic) and 30% international equity securities. The class of fixed-income securities consists of one pooled fund whose strategy is to invest in a limited number of government and corporate bonds. | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
Equity securities | | 21.0 | % | | 20.6 | % |
Corporate bonds | | 53.0 | % | | 53.0 | % |
Diversified fund | | 26.0 | % | | 26.0 | % |
Cash | | — | % | | 0.4 | % |
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, 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, 2021 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
Equity securities | | $ | — | | | $ | 5,860 | | | $ | — | | | $ | 5,860 | |
Corporate bonds | | — | | | 14,878 | | | — | | | 14,878 | |
Diversified fund | | — | | | 7,279 | | | — | | | 7,279 | |
Cash | | 191 | | | — | | | — | | | 191 | |
Total | | $ | 191 | | | $ | 28,017 | | | $ | — | | | $ | 28,208 | |
|
| | | | | | | | | | | | | | | | |
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 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of September 30, 2020 | | Level 1 | | Level 2 | | Level 3 | | Total |
| | (in thousands) |
Equity securities | | $ | — | | | $ | 5,526 | | | $ | — | | | $ | 5,526 | |
Corporate bonds | | — | | | 14,194 | | | — | | | 14,194 | |
Diversified fund | | — | | | 6,957 | | | — | | | 6,957 | |
Cash | | 94 | | | — | | | — | | | 94 | |
Total | | $ | 94 | | | $ | 26,677 | | | $ | — | | | $ | 26,771 | |
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.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Guarantees
During 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.
14. Business Realignment expensesExpenses
In January 2017, the Company decided to exit the TruckCenter land-based, live auction and retail business. Costs of $0.9 millionBusiness realignment expenses are associated with the restructuring, were recognized undermanagement changes, exiting certain businesses, or other operating expenses in the consolidated statement of operations. Those costs included occupancy cost of $0.6 million, employee severance of $0.2 million,saving actions, and long-lived asset impairments of $0.1 million.
During the fourth quarter of fiscal year 2017, the Company decided to execute a restructuring of its CAG business. The restructuring plan resulted in a reduction in force across a number of departments, including Sales, Marketing and Operations in both the US and in Europe. Severance costs associated with this restructuring amounted to $0.6 million. In addition, the restructuring plan calls for the closure of several offices and legal entities in Europe. Legal and administrative costs associated with the restructuring amounted to $0.1 million. These amounts are presented within the table below.
Also related to the restructuring of its CAG business, on September 25, 2017 the Company entered into a Severance Agreement and General Release (the "Severance Agreement") with the President of the Capital Assets Group. Pursuant to the terms of the Severance Agreement, the Company provided a severance package in the amount of $0.3 million. This amount is presented underinclude employee severance and benefit costs inassociated with terminations, occupancy costs associated the table below.ceased use of facilities, and other related costs, such as impairments. Business realignment expenses are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.
During fiscalFor the year 2017, the Company reorganized its IronDirect business. As a result, the Company recorded approximately $0.9 million of net expenseended September 30, 2020, business realignment expenses were incurred related to the impairmentelimination of long-lived assetscertain positions in response to the COVID-19 pandemic.
For the year ended September 30, 2019, business realignment expenses were incurred related to: management changes associated with a strategic reorganization of the IronDirect business, as well as a fair value adjustment. The impairment was comprisedCompany's go-to-market strategy for self-directed and fully-managed market place services, the conclusion of $1.2 million of impairment related tothe Scrap contract, intangibles, and $0.6 million of impairment related to fixed assets. This expense was netted with a $0.9 million reversal of an earn-out liability. In addition to these impairments, and the restructuring of its overall business model, the Company entered into a Severance Agreement and General Release with the previous President of IronDirect. As a result, the Company incurred severance costs of approximately $0.1 million.
On June 16, 2017 the Company entered into a sub-lease agreement for 18,412 square feet of office space at 6931 Arlington Road, Bethesda, Maryland. The sub-lease commenced September 29, 2017, and will expire April 30, 2023. On the sub-lease commencement date, the Company relocated its headquarters previously located at 1920 L street NW, Washington DC, to the new Bethesda location. The Company ceased using the previous location as of September 30, 2017 and recognized a $2.0 million cease-use charge in its consolidated statements of operations at September 30, 2017, under the Other operating expenses line item. The amount is presented under occupancyother cost in the table below.
saving actions.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The table below sets forth the significant components and activity in the liability for business realignment initiatives during the fiscal year ended September 30, 2017,2021, on a segment and consolidated basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(in thousands) | | Liability Balance at September 30, 2019 | | Adoption of ASC 842 | | Business Realignment Expenses | | Cash Payments | | Liability Balance at September 30, 2020 | | Business Realignment Expenses | | Cash Payments | | Liability Balance at September 30, 2021 |
Employee severance and benefit costs: | | | | | | | | | | | | | | | | |
GovDeals | | $ | — | | | $ | — | | | $ | 29 | | | $ | (25) | | | $ | 4 | | | $ | — | | | $ | (4) | | | $ | — | |
RSCG | | — | | | — | | | 84 | | | (64) | | | 20 | | | — | | | (20) | | | — | |
CAG | | 414 | | | — | | | 120 | | | (481) | | | 53 | | | 5 | | | (58) | | | — | |
Corporate & Other | | 238 | | | — | | | 172 | | | (410) | | | — | | | — | | | — | | | — | |
Total employee severance and benefit costs | | 652 | | | — | | — | | 405 | | | (980) | | | 77 | | | 5 | | | (82) | | | — | |
Occupancy and other costs: | | | | | | | | | | | | | | | | |
CAG | | 169 | | | (169) | | | — | | | — | | | — | | | — | | | — | | | — | |
Corporate & Other | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total occupancy and other costs | | 169 | | | (169) | | | — | | | — | | | — | | | — | | | — | | | — | |
Total business realignment | | $ | 821 | | | $ | (169) | | | $ | 405 | | | $ | (980) | | | $ | 77 | | | $ | 5 | | | $ | (82) | | | $ | — | |
|
| | | | | | | | | | | | | | | | |
(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 |
|
The $4.2 million in employee severance and occupancy cost per the table above is recorded in Other operating expenses in the Consolidated Statements of Operations. Of this $4.2 million in cost, approximately $3.7 million is associated with general and administrative, $0.3 million with sales and marketing, and $0.2 million with technology and operations activities.
The Company expects that the majority of the remaining liability balance at September 30, 2017, of approximately $3.2 million will be paid during fiscal year 2018, with the remainder in fiscal year 2019.
During fiscal year 2015, the Company incurred approximately $0.3 million of business realignment expenses. In order to conform to current year presentation, this amount was reclassified from Technology and operations, and General and Administrative expenses to the Other operating expenses line item in the Consolidated Statements of Operations. The reclassification had no effect on total operating expenses, net income, or cash flows.
15. Legal Proceedings
Howard v. Liquidity Services, Inc.The Company reserves for contingent liabilities based on ASC 450, Contingencies, et al.,Civ. No. 14-1183 (D. D. C. 2014).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.
Former Employee Matters
On July 14, 2014, Leonard HowardDecember 22, 2020, the Company’s former Vice President, Human Resources (the “HR Plaintiff”) filed a putative class actionclaim with the Equal Employment Opportunity Commission (“EEOC”) for wrongful termination on the basis of gender, race, and age. The EEOC subsequently assigned HR Plaintiff’s claim to the Montgomery County Office of Human Rights for
investigation, which, in turn, dismissed HR Plaintiff’s claim after HR Plaintiff filed a complaint in the United States District Court for the District of Columbia (the ‘‘District Court’’) against theMaryland Southern Division on May 19, 2021. The Company believes this claim is without merit and its chief executive officer, chief financial officer, and chief accounting officer, on behalfcannot estimate a range of stockholders who purchased thepotential liability, if any, at this time. The Company’s common stock between February 1, 2012, and May 7, 2014. The complaintemployment practices liability insurance carrier, CNA, has accepted tender of this claim.
Separately, HR Plaintiff also alleged that the defendants violated Sections 10(b) and 20(a)outside of the Securities Exchange Act of 1934 by, among other things, misrepresenting the Company’s growth initiative, growth potential,above process wage and financial and operating conditions, thereby artificially inflating its stock price, and sought unspecified compensatory damages and costs and expenses, including attorneys’ and experts’ fees. On October 14, 2014, the Court appointed Caisse de Dépôt et Placement du Québec and the Newport News Employees’ Retirement Fund as co-lead plaintiffs. The plaintiffs filed an amended complaint on December 15, 2014, which alleges substantially similar claims, but which does not name the chief accounting officer as a defendant. On March 2, 2015, the Company moved to dismiss the amended complainthour violations under Maryland law for failure to statepay his fiscal year 2020 performance bonus. The Company and HR Plaintiff settled the wage and hour claims for an immaterial amount in May 2021.
On October 22, 2021, the Company’s former Chief Marketing Officer (“Marketing Plaintiff”) filed a claim or plead fraud with the requisite particularity. On March 31, 2016, the Court grantedEEOC alleging that motion in part and denied it in part. Only the claims related to the Company’s retail division were not dismissed. On May 16, 2016, the Company answereddiscriminated against him on the amended complaint. Plaintiffs’ class certification motion was granted on September 6, 2017. The scheduling order in this action requires that fact discovery be completed by February 23, 2018,basis of his race and age and that expert discovery be completed by July 27, 2018.
the Company retaliated against him. The Company believes the allegations in the amended complaintthese claims are without merit and cannot estimate a range of potential liability, if any, at this time. CNA has accepted tender of the claims.
Separately, Marketing Plaintiff also alleged wage and hour violations under Maryland law for failure to pay his fiscal year 2021 performance bonus.
Unless otherwise noted, there are no claims or actions pending or threatened against the Company that, if adversely determined,
would in the Company's management's judgment have a material adverse effect on the Company.
16. Segment Information
The Company provides operating results in 4 reportable segments: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), Machinio. Descriptions of our reportable segments are as follows:
•The GovDeals reportable segment provides self-directed service solutions that enable local and state government entities including city, county and state agencies, located in the United States and Canada to sell surplus and
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
In re Liquidity Services, Inc. Derivative Litigation, Civ. No. 2017-0080-JTL (Del. Ch.).
On February 2, 2017, plaintiff David Girardi filed a putative derivative complaint insalvage assets through our GovDeals marketplace. Through the Courtend of Chanceryfiscal 2019, GovDeals provided self-directed service solutions to commercial businesses as part of the State of Delaware (the “Court of Chancery”), and on February 7, 2017, plaintiff Harold Slingerland filed a putative derivative complaint 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. 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 the complaint in its entirety. On November 27, 2017, the Court of Chancery granted the defendants’ motion to dismiss.Auction Deals marketplace.
16.Segment Information
Prior to the Company's quarterly report as of June 30, 2017, the Company provided operating results in one reportable segment. Effective as of June 30, 2017, the Company provides operating results in three reportable segments: GovDeals, Capital Assets Group (CAG), and Retail Supply Chain Group (RSCG). These three segments constitute 99% 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 the reportable segments follows:
The GovDeals reportable segment provides self-service solutions in which sellers list their own assets, and it consists of marketplaces that enable local and state government entities including city, county and state agencies, as well as commercial businesses located in the United States and Canada to sell surplus and salvage assets. GovDeals also offers a suite of services to sellers that includes asset sales and marketing. This segment includes the Company's GovDeals.com and AuctionDeals.com marketplaces.
The CAG reportable segment provides full-service solutions to sellers and it consists of marketplaces that enable federal government agencies as well as commercial businesses to sell surplus, salvage, and scrap assets. The assets that the company receives as the exclusive contractor of the DLA of the DoD are sold in this segment. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. Commercial sellers are located in the United States, Europe, Australia and Asia. This segment includes the Company's Network International, GoIndustry DoveBid, Government Liquidation, and Uncle Sam's Retail Outlet marketplaces.
•The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell surplus and salvage consumer goods and retail capital assets.goods. RSCG also offers a suite of services that includes returns management, asset recovery, and ecommercee-commerce services. This segment includes the Company's Liquidation.com Liquidation.com DIRECT, and Secondipity marketplaces. Through the end of third quarter fiscal 2021, RSCG operated the Liquidation.com DIRECT marketplace for truckload quantities of retail surplus. Those assets are now sold on the Liquidation.com marketplace.
•The CAG reportable segment provides managed and self-directed service solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus and idle assets. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. Commercial seller assets are located across North America, Europe, Australia, Asia, and Africa. This segment includes the Company's Network International and GoIndustry DoveBid marketplaces and, beginning in fiscal 2020, self-directed service solutions for commercial businesses on the AllSurplus marketplace. Prior to the conclusion of the Scrap Contract, CAG sold scrap assets from the DoD on its Government Liquidation marketplace.
•The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.
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 JanuaryFor the year ended September 30, 2017,2019, Corporate & Other included a previously existing operating segment that did not meet the quantitative thresholds to be a reportable segment, IronDirect. The Company exited its TruckCenter land-based, live auctionthe IronDirect 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.January 2019.
Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker ("CODM"), which is the Company's chief executive officer,Chief Executive Officer, with oversight by the Board of Directors. The Company reports 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 gross profit to evaluate the performance of each segment. GrossSegment gross profit is calculated as total revenue less cost of goods sold and seller distributions.distributions (excludes depreciation and amortization).
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table sets forth certain financial information for the Company's reportable segments.segments:
| | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
(in thousands) | | 2021 | | 2020 | | 2019 |
GovDeals: | | | | | | |
| Revenue | | $ | — | | | $ | — | | | $ | — | |
| Fee revenue | | 49,579 | | | 32,806 | | | 32,936 | |
| Total revenue | | 49,579 | | | 32,806 | | | 32,936 | |
| Gross profit | | 47,030 | | | 30,721 | | | 30,386 | |
| | | | | | | |
RSCG: | | | | | | |
| Revenue | | 130,790 | | | 118,398 | | | 110,736 | |
| Fee revenue | | 28,016 | | | 18,093 | | | 16,585 | |
| Total revenue | | 158,806 | | | 136,491 | | | 127,321 | |
| Gross profit | | 64,564 | | | 49,727 | | | 44,967 | |
| | | | | | | |
CAG: | | | | | | |
| Revenue | | 15,361 | | | 9,182 | | | 36,684 | |
| Fee revenue | | 24,284 | | | 20,299 | | | 23,558 | |
| Total revenue | | 39,645 | | | 29,481 | | | 60,242 | |
| Gross profit | | 29,324 | | | 22,714 | | | 32,679 | |
| | | | | | | |
Machinio: | | | | | | |
| Revenue | | — | | | — | | | — | |
| Fee revenue | | 9,559 | | | 7,213 | | | 5,598 | |
| Total revenue | | 9,559 | | | 7,213 | | | 5,598 | |
| Gross profit | | 8,992 | | | 6,813 | | | 5,196 | |
| | | | | | | |
Corporate & Other, including elimination adjustments: | | | | | | |
| Revenue | | — | | | — | | | 469 | |
| Fee revenue | | (57) | | | (51) | | | (41) | |
| Total revenue | | (57) | | | (51) | | | 428 | |
| Gross profit | | (57) | | | (51) | | | 52 | |
| | | | | | | |
Consolidated: | | | | | | |
| Revenue | | 146,151 | | | 127,580 | | | 147,889 | |
| Fee revenue | | 111,380 | | | 78,360 | | | 78,636 | |
| Total revenue | | 257,531 | | | 205,940 | | | 226,525 | |
| Gross profit | | 149,853 | | | 109,924 | | | 113,280 | |
The following table presents a reconciliation between gross profit used in the reportable segments and the Company's consolidated results: | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
(in thousands) | | 2021 | | 2020 | | 2019 |
Reconciliation: | | | | | | |
| Gross profit | | 149,853 | | | 109,924 | | | 113,280 | |
| Operating expenses | | 122,679 | | | 113,248 | | | 127,739 | |
| Other operating expenses | | 6 | | | 573 | | | 5,049 | |
| Interest and other income, net | | (411) | | | (924) | | | (1,448) | |
| Income (loss) before income taxes | | 27,579 | | | (2,973) | | | (18,060) | |
|
| | | | | | | | | | | | | |
| | | 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 |
|
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Total segment assets reconciled to consolidated amounts are as follows: | | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2021 | | 2020 |
GovDeals | | $ | 148,111 | | | $ | 102,083 | |
RSCG | | 84,971 | | | 51,230 | |
CAG | | 94,884 | | | 107,529 | |
Machinio | | 29,806 | | | 26,568 | |
Corporate & Other, including elimination adjustments | | (102,196) | | | (90,776) | |
Total Assets: | | $ | 255,576 | | | $ | 196,634 | |
The following table presents a reconciliation between the reportable segments and 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 | ) |
Other operating expenses includes changes in the fair value of the Company's financial assets and business realignment expenses, which can be seen in more detail in Note 14.
See Note 5 in the Notes to the Consolidated Financial Statements for goodwill impairment information by segment.
Revenue attributed to countries that represent a significant portion of consolidated revenues are as follows: | | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
(in thousands) | | 2021 | | 2020 | | 2019 |
United States | | $ | 214,162 | | | $ | 180,887 | | | $ | 191,816 | |
Rest of the world | | 43,369 | | | 25,053 | | | 34,709 | |
Total Revenue | | $ | 257,531 | | | $ | 205,940 | | | $ | 226,525 | |
|
| | | | | | | | | | | | |
| | 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 |
|
Total segment assets reconciled to consolidated amounts are as follows:
|
| | | | | | |
| | 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 |
|
As of September 30, 2016, the RSCG segment balance sheet was included within Corporate & Other because it was not practical for the Company to separate the RSCG and Corporate & Other balance sheets at that time. As of September 30, 2017, the RSCG and corporate balance sheets have been separated.
Total long-lived assets by geographic areas are presented as follows: | | | | | | | | | | | | | | |
| | September 30, |
(in thousands) | | 2021 | | 2020 |
United States | | $ | 17,261 | | | $ | 17,358 | |
Rest of the world | | 373 | | | 485 | |
Total Long-lived Assets | | $ | 17,634 | | | $ | 17,843 | |
17. Subsequent Event
On November 1, 2021, the Company entered into a definitive agreement to purchase all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a pioneer in internet-based public auctions of real property. This acquisition will support our growth objectives for the GovDeals reportable segment. Upon closing, the Company paid $15 million in cash, including the assumption of a minimum working capital amount of $0.3 million. Shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets' achievement of certain EBITDA targets measured as of each trailing twelve-month period and determined at the end of each calendar quarter, for the period from October 1, 2021 until the quarter ended December 31, 2022.
The Company is currently evaluating the purchase price accounting for this transaction and as such, the final accounting treatment could result in material changes to our balance sheet and earnings during fiscal 2022.
|
| | | | | | |
| | September 30, | | September 30, |
| | 2017 | | 2016 |
United States | | 16,142 |
| | 14,159 |
|
Rest of the world | | 650 |
| | 217 |
|
Consolidated | | 16,793 |
| | 14,376 |
|
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Property and equipment, additions by segment are presented as follows:
|
| | | | | | |
| | 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 |
|
17.18. Quarterly Results (Unaudited)
The following table sets forth for the eight most recent quarters the selected unaudited quarterly consolidated statement of operations data. The unaudited quarterly consolidated statement of operations data has been prepared on the same basis as the Company's audited consolidated financial statements and, in the opinion of management, includes all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of this data. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
| | Dec. 31, 2019 | | Mar. 31, 2020 | | June 30, 2020 | | Sept. 30, 2020 | | Dec. 31, 2020 | | Mar. 31, 2021 | | June 30, 2021 | | Sept. 30, 2021 |
| | (in thousands, except share and per share data) |
Revenue | | $ | 49,504 | | | $ | 52,824 | | | $ | 47,722 | | | $ | 55,890 | | | $ | 55,751 | | | $ | 61,786 | | | $ | 69,666 | | | $ | 70,328 | |
Gross profit (excludes depreciation and amortization) | | $ | 25,328 | | | $ | 26,205 | | | $ | 25,228 | | | $ | 33,163 | | | $ | 33,178 | | | $ | 35,401 | | | $ | 41,213 | | | $ | 40,061 | |
Income (loss) before income taxes | | $ | (4,738) | | | $ | (4,195) | | | $ | 422 | | | $ | 5,538 | | | $ | 4,811 | | | $ | 5,667 | | | $ | 8,848 | | | $ | 8,253 | |
Net income (loss) | | $ | (5,196) | | | $ | (4,238) | | | $ | 213 | | | $ | 5,447 | | | $ | 4,514 | | | $ | 5,260 | | | $ | 8,419 | | | $ | 32,756 | |
Basic income (loss) per common share | | $ | (0.15) | | | $ | (0.13) | | | $ | 0.01 | | | $ | 0.16 | | | $ | 0.14 | | | $ | 0.16 | | | $ | 0.25 | | | $ | 0.98 | |
Diluted income (loss) per common share | | $ | (0.15) | | | $ | (0.13) | | | $ | 0.01 | | | $ | 0.16 | | | $ | 0.13 | | | $ | 0.15 | | | $ | 0.24 | | | $ | 0.93 | |
Basic weighted average shares outstanding | | 33,545,235 | | | 33,624,889 | | | 33,695,936 | | | 33,584,040 | | | 33,176,895 | | | 33,491,395 | | | 33,371,906 | | | 33,297,879 | |
Diluted weighted average shares outstanding | | 33,545,235 | | | 33,624,889 | | | 33,815,332 | | | 33,986,862 | | | 34,911,119 | | | 35,559,747 | | | 35,437,761 | | | 35,294,326 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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 |
|
18. Subsequent Event
On October 11, 2017, the Defense Logistics Agency Disposition Services DLA published a Request for Technical Proposals (“RFTP”) and draft Invitation for Bid (“IFB”) for the sale of surplus, useable non-rolling stock property. The DLA is awarding two term contracts, each with a base term of two years and four one-year options to extend. One term contract will include all property west of the Mississippi River, including Alaska, Hawaii, and Guam. The other term contract will include all property east of the Mississippi River, including Puerto Rico and the U.S. Virgin Islands.
On December 5, 2017, the DLA has determined that the Company is not the apparent high bidder for either of the two contracts. Final contract awards are subject to a protest period and a pre-award survey by the DLA regarding the bidder’s ability to satisfactorily perform the work in accordance with their technical proposal submitted in step-one of the solicitation.
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
LIQUIDITY SERVICES, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
(dollars in thousands) | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 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, 2019 | | $ | 39,337 | | | 2,572 | | | — | | | $ | 41,909 | |
Year ended September 30, 2020 | | 41,909 | | | (121) | | | — | | | 41,788 | |
Year ended September 30, 2021 | | $ | 41,788 | | | (27,975) | | | — | | | $ | 13,813 | |
Allowance for doubtful accounts (deducted from accounts receivable) | | | | | | | | |
Year ended September 30, 2019 | | $ | 337 | | | 178 | | | (224) | | | $ | 291 | |
Year ended September 30, 2020 | | 291 | | | 200 | | | (102) | | | 389 | |
Year ended September 30, 2021 | | $ | 389 | | | 297 | | | (196) | | | $ | 490 | |
Provision for inventory allowance (deducted from inventory) | | | | | | | | |
Year ended September 30, 2019 | | $ | 503 | | | 331 | | | (503) | | | $ | 331 | |
Year ended September 30, 2020 | | 331 | | | 328 | | | (359) | | | 300 | |
Year ended September 30, 2021 | | $ | 300 | | | 174 | | | (300) | | | $ | 174 | |
|
| | | | | | | | | | | | |
| | 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 |
|
EXHIBIT INDEX
|
| | | | |
| |
Exhibit No. | Description |
3.1 | 2.1 | Stock Purchase Agreement, dated July 10, 2018, by and between the Company, Machinio, Corp., the stockholders of Machinio, Corp., and Shareholder Representative Services, LLC, incorporated herein by reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 2, 2018. |
2.2 | |
2.3 | |
2.4 | Agreement and Plan of Merger, dated November 1, 2021, by and among the Company, Liquidity Services RE Ventures, Inc., Bid4Assets, Inc. (“Bid4Assets”), USA B4A Sellers Rep LLC, and certain holders of the outstanding stock of Bid4Assets, incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 1, 2021. |
3.1 | |
3.2 |
| |
4.1 |
| |
10.1 | 4.2 | |
10.1# | |
10.2# | |
10.3# | |
10.4# | |
10.5# | |
10.6# | |
10.7# | |
10.1.2 | 10.7.1# | |
10.2 | 10.7.2# | |
10.8# | |
10.8.1# | |
| | | | | |
10.8.2# | |
10.9# | |
10.9.1# | |
10.10# | |
10.11# | |
10.3 | 10.12# | |
10.3.1 |
| |
10.4 |
| |
10.5 |
| |
10.6 |
| |
10.6.1 |
| |
10.7 |
| |
|
| | |
| |
Exhibit No. | Description |
10.7.1 |
| |
10.7.2 |
| |
10.7.3 |
| Supplemental Agreement No. 8, dated January 17,July 25, 2014, relating to the modification of Surplus Usable Property Sales Contract (Sales Contract Number 08-0001-0001), as amended, between the Company and DLA Disposition Services, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on January 21, 2014July 30, 2014.. |
10.7.4 | 10.13# | Notice of Award, Statement, and Release Document, dated January 17, 2014, relating to Surplus Usable Property Sales Contract (Sales Contract Number 08-0001-0001), as amended, between the Company and DLA Disposition Services, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on January 21, 2014. |
10.8 |
| Shareholders' Agreement dated as of September 1, 2011 among Liquidity Services, Inc., Jacobs Trading, LLC, WGD, Inc., Irwin L. Jacobs and Howard Grodnick, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on September 1, 2011. |
10.9 |
| |
10.9.1 |
| |
10.9.2 |
| |
10.10 |
| |
10.10.1 |
| |
10.11 |
| |
10.12 |
| |
|
| | |
| |
Exhibit No. | Description |
10.13 |
| |
10.14 |
| |
10.15 |
| |
10.16 | 10.14# | |
10.17 | 10.15# | |
10.18 | 10.16# | |
10.17# | |
10.18# | |
10.19# | |
10.20# | |
21.1 |
| |
23.1 |
| |
24.1 |
| |
31.1 |
| |
31.2 |
| |
31.332.1 |
| |
32.1 |
| |
32.2 |
| |
32.3101 |
| |
101 |
| The following materials from the Registrant's Annual Report on Form 10-K for the year ended September 30, 2017,2021, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of September 30, 20172021 and 2016,2020, (ii) Consolidated Statements of Operations for each of the three years in the period ended September 30, 2017,2021, (iii) Consolidated Statements of Comprehensive Income (Loss) Income for each of the three years in the period ended September 30, 2017,2021, (iv) Consolidated Statements of Changes in Stockholders' Equity for each of the three years in the period ended September 30, 2017,2021, (v) Consolidated Statements of Cash Flows for each of the three years in the period ended September 30, 2017,2021, and (vi) Notes to Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
# DesignatesIndicates management contract or compensation plans.compensatory plan.
Item 16. Form 10-K Summary.
None.
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.
9, 2021. | | | | | | | | | | | | | | |
| | | | |
| | | | |
| | 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.
9, 2021. | | | | | | | | |
| | |
Signature | | Title |
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/ MICHAEL SWEENEY
Michael Sweeney
| | Vice President and Chief Accounting Officer (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/ PATRICK W. GROSS Patrick W. Gross
| | 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 |