Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars In Thousands)


	Six Months Ended March 31,
	2023			2022
Operating activities
Net income	$	8,211		$	15,572
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,567			4,906
Stock compensation expense		3,882			4,272
Inventory adjustment to net realizable value		847			98
Provision for doubtful accounts		194			11
Deferred tax expense		2,524			1,590
Impairment of long-lived and other non-current assets		—			31
Gain on disposal of property and equipment		(55	)		(13	)
Gain on termination of lease		—			(240	)
Change in fair value of earn-out liability		—			(8,500	)
Changes in operating assets and liabilities:
Accounts receivable		5,801			(637	)
Inventory		(4,438	)		(709	)
Prepaid taxes and tax refund receivable		(363	)		(3	)
Prepaid expenses and other assets		310			(1,230	)
Operating lease assets and liabilities		(155	)		422
Accounts payable		902			393
Accrued expenses and other current liabilities		1,461			(8,121	)
Deferred revenue		90			442
Payables to sellers		(2,314	)		7,149
Other liabilities		(129	)		(806	)
Net cash provided by operating activities		22,335			14,627
Investing activities
Cash paid for business acquisitions, net of cash acquired		—			(11,164	)
Purchases of property and equipment, including capitalized software		(2,711	)		(3,572	)
Purchase of short-term investments		(3,696	)		—
Other investing activities, net		51			9
Net cash used in investing activities		(6,356	)		(14,727	)
Financing activities
Common stock repurchases		(16,963	)		(19,998	)
Taxes paid associated with net settlement of stock compensation awards		(736	)		(1,809	)
Payments of the principal portion of finance lease liabilities		(50	)		(51	)
Payment for debt issuance cost		—			(91	)
Proceeds from exercise of stock options, net of tax		496			—
Net cash used in financing activities		(17,253	)		(21,949	)
Effect of exchange rate differences on cash and cash equivalents		735			(22	)
Net decrease in cash and cash equivalents		(539	)		(22,071	)
Cash and cash equivalents at beginning of period		96,122			106,335
Cash and cash equivalents at end of period	$	95,583			84,264
Supplemental disclosure of cash flow information
Cash paid (received) for income taxes, net	$	539		$	350
Non-cash: Common stock surrendered in the exercise of stock options		18			100
Non-cash: Earn-out liability for acquisition activity		—			19,500

See accompanying notes to the unaudited condensed consolidated financial statements.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

Organization


1.	~~Organization~~

Liquidity Services, ~~(the “Company”) operates~~Inc. (Liquidity Services, the Company) is a ~~network~~leading global commerce company providing trusted marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading ~~ecommerce~~auction marketplaces, ~~that~~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.

Our business delivers value to stockholders by unleashing the intrinsic value of surplus through our marketplace platforms. These platforms ignite and enable a self-reinforcing cycle of value creation where buyers and sellers ~~to transact~~attract one another in ~~an efficient, automated environment offering over 500 product categories.~~growing numbers. The ~~Company’s marketplaces provide professional~~result of this cycle is a continuous flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers, buyers, ~~access to a global,~~and stockholders.

Results from our operations are organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information. Additionally, the Company enables its corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. The Company's broad range of services include program management, valuation, asset management, reconciliation, Return to Vendor ("RTV") and Returns Management Authorization ("RMA"), refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, and compliance and risk mitigation, as well as self-service tools. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, www.unclesamsretailoutlet.com, www.irondirect.com, and www.auctiondeals.com. The Company has over 10,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies. The Company has threefour reportable ~~segments,~~segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and ~~GovDeals.~~Machinio. See Note 1314 - Segment Information for more information regarding our segments.

Liquidity Services was incorporated in ~~the Notes to the Consolidated Financial Statements for Segment Information.~~

Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.

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 any future economic impact from the COVID-19 pandemic, ongoing Russia-Ukraine conflict, increasing tensions between the United States and China, inflationary pressures, recent volatility in the financial services industry, and impacts from interest rate changes; the Company's susceptibility to rapid technological change, actual and potential competition by entities with greater financial and other resources, ~~than the Company,~~ 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 ~~or scrap~~ assets or to otherwise terminate or ~~elect~~ not to renew their contracts with the Company.

Summary of Significant Accounting Policies

~~The Company has evaluated subsequent events through the date that these financial statements were issued and filed with the Securities and Exchange Commission.~~


2.	~~Summary of Significant Accounting Policies~~

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial ~~information.~~information and the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been ~~included.~~included, and intercompany transactions and accounts have been eliminated in consolidation. The information disclosed in the notes to the condensed consolidated financial statements for these periods is unaudited. Operating results for the three and six months ended ~~December~~March 31, ~~2017~~2023, are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2018~~2023, or for any future period.

~~New Accounting Pronouncements~~

~~Accounting Standards Adopted~~

~~In March 2016,~~

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718). This update was issued as part of the FASB’s simplification initiative~~United States requires management to make estimates and ~~affects all entities~~assumptions that issue share-based awards to their employees. The amendments in this update cover such areas as the recognition of excess tax benefits and deficiencies and an accounting policy election for forfeitures. As part of the new guidance:

~~Excess tax benefits or deficiencies arising from share-based awards are reflected~~affect amounts in the condensed consolidated ~~statements of operations as income tax expense rather than within stockholders’ equity.~~

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

~~Excess tax benefits will be presented as an operating activity on the statement of cash flows rather than as a financing activity.~~

A forfeiture election will be made to either estimate forfeitures (similar to the requirement in effect prior to adoption of the update) or recognize actual forfeitures as they occur. Entities will apply the forfeiture election provision using a modified retrospective transition approach, with a cumulative effect adjustment recorded to retained earnings as of the beginning of the period of adoption.

Statutory tax withholding requirements for employers who withhold shares upon settlement of an award on behalf of an employee to cover tax obligations are broadened to allow for a range of withholding from the minimum to the maximum statutory allowable amounts.

~~The Company has adopted the remaining provisions as follows:~~

~~Excess tax benefits arising from share-based awards are reflected within the consolidated statements of operations as income tax expense; adopted prospectively, with no impact to prior year amounts;~~

~~Excess tax benefits are presented as an operating activity on the statement of cash flows; adopted prospectively.~~

The Company adopted this guidance during the first quarter of fiscal 2018. As part of its adoption of ASU 2016-09, the Company made an accounting policy election to change the way in which it accounts for forfeitures of share-based awards. Specifically, beginning in the first quarter of fiscal 2018, the Company recognizes forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. The change in accounting policy resulted in an adjustment to retained earnings as of October 1, 2017 of approximately $0.2 million.

~~Accounting Standards Not Yet Adopted~~

~~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 businesses. 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 the 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 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 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~~accompanying notes. For the three and ~~processes. The implementation team has apprised both management~~six months ended March 31, 2023, these estimates required the Company to make assumptions about the extent and duration of continued restrictions on cross-border transactions and the ~~audit committee~~impact of ~~project status~~the COVID-19 pandemic, ongoing Russia-Ukraine conflict, increasing tensions between the United States and China, and other disruptions on ~~a recurring basis.~~macroeconomic conditions and, in turn, the Company's results of operations. The Company ~~is continuing~~will continue to ~~evaluate the accounting impacts,~~update its assumptions as conditions change. Actual results could differ significantly from those estimates.

Contract Assets and ~~has identified some areas~~Liabilities

Contract assets reflect an estimate 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~~expenses that the Company provides 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 must adopt. The Company intends to adopt the new standard on a modified retrospective basis. This determination is subject to change based on finalization of the Company's implementation work.

~~In February 2016, the FASB issued ASU 2016-2,~~ ~~Leases~~. ASU 2016-02 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

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

~~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. A modified retrospective transition approach~~reimbursed upon settlement with a seller. The contract asset balance was $1.0 million as of March 31, 2023, and $0.9 million as of September 30, 2022, and is ~~required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented~~included in the financial statements. The Company is currently evaluating 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 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 is required to 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 is required to 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.

~~Promissory Note~~

On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC (the ‘‘Buyer’’). In connection with the disposition, the Buyer assumed certain liabilities related to the Jacobs Trading business. The Buyer issued a $12.3 million five-year interest bearing promissory note to the Company. Of the $12.3 million, $2.5 million has been repaid. Of the remaining $9.8 million, $8.3 million is recorded in Other assets, and $1.5 million initem Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability balance was $4.5 million as of ~~December~~March 31, ~~2017.~~2023, and $4.4 million as of September 30, 2022, and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets. Of the September 30, 2022, contract liability balance, $3.5 million was earned as other fee revenue during the six months ended March 31, 2023.

For the Company's Machinio segment, the performance obligation has been identified as the stand ready obligation to provide access to the Machinio subscription services, which it satisfies over time and recognizes as other fee revenues in the line item Consignment and other fee revenues on the Condensed Consolidated Statements of Operations. As of March 31, 2023, the Machinio segment had a remaining performance obligation of $4.5 million; the Company expects to recognize the substantial majority of that amount as other fee revenues over the next 12 months.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Contract Costs

Contract costs relate to sales commissions paid on subscription contracts that are capitalized within our Machinio segment. Contract costs are amortized over the expected life of the customer contract. The contract cost balance was $2.0 million as of March 31, 2023, and $1.8 million as of September 30, 2022, and is included in the line item Prepaid expenses and other current assets, and Other assets on the Condensed Consolidated Balance Sheets. Amortization expense was $0.3 million and $0.6 million during the three and six months ended March 31, 2023, and $0.3 million and $0.5 million during the three and six months ended March 31, 2022.

Treasury Stock

Treasury stock is presented at cost, including any applicable excise taxes, 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.

Risk Associated with Certain Concentrations

~~The Company does not perform credit evaluations for~~

For the majority of ~~its buyers.~~buyers that receive goods before payment to the Company is made, credit evaluations are performed. However, ~~substantially all sales~~for the remaining buyers, goods are ~~recorded subsequent to~~not shipped before payment ~~authorization being received. As~~is 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 Cash and cash inequivalents on the ~~consolidated financial statements.~~Condensed Consolidated Balance Sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business. ~~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 ~~over FDIC~~within non-interest bearing, interest-bearing, and earnings allowance checking accounts, as well as cash equivalent money market funds, all of which exceed the applicable U.S. federal (FDIC and/or SIPC) and local jurisdiction (foreign banking institutions) insurance limits, and Accounts receivable. The recent disruptions in the financial services industry have created significant market challenges and uncertainty for entities that bank with those institutions, and which raised significant concern regarding the stability of the banking system in the United States. The Company did not maintain any funds or lending relationships with any of the banks impacted and the banks we do maintain accounts ~~receivable.~~ and relationships with have, to date, not experienced any significant disruptions.

The Company deposits its cash in interest bearing checking accounts, acquires cash equivalent money market funds, and holds short-term investments designated as held-to-maturity investment securities, each with financial institutions that the Company considers to be of high credit quality.

~~During~~ Management continually monitors the ~~quarter ended December 31, 2017,~~financial institutions with whom we conduct business and takes appropriate measures, when necessary, to manage potential risk exposure to our cash balances above the Company had two material vendor contracts with the Department of Defense (DoD) under which it acquired, managed and sold government property, the Surplus contract and the Scrap contract. Revenue from the sale of property acquired, as well as provision of services, under the Surplus Contract accounted for 26.5% and 29.9% of the Company's consolidated revenue for the quarters ended December 31, 2017 and 2016, respectively. Revenue from the sale of property acquired under the Scrap contract accounted for approximately 8.4% and 10.0% of the Company's

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

~~total revenue for the quarters ended December 31, 2017 and 2016, respectively. These contracts are included within the Company's CAG segment.~~

insurance limits.

Additionally, the Company has amultiple vendor ~~contract~~contracts with Amazon.com, Inc. under which the Company acquires and sells commercial merchandise. The property purchased under ~~this contract~~these contracts with Amazon.com, Inc. represented ~~approximately 19.4%~~63.2% and ~~17.8%~~51.7% of ~~cost~~consolidated Cost of goods sold for the ~~quarters~~three months ended March 31, 2023 and 2022, respectively, and 60.6% and 56.0% of consolidated Cost of goods sold for the six months ended March 31, 2023 and 2022, respectively. These contracts are included within the RSCG reportable segment.

Recent Accounting Pronouncements

Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or Accounting Standards Codification (ASC) 326. ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASC 326 will require estimation of expected credit losses using a methodology that takes into consideration a broad range of reasonable and supportable information. The guidance will be effective for the Company beginning on October 1, 2023, and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its condensed consolidated financial statements and expects to estimate credit losses on its financial assets such as its accounts receivable, cash equivalent money market funds, and short-term investments. While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.

Bid4Assets Acquisition

On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland corporation. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. The results of Bid4Assets' operations are included within our GovDeals reportable segment and reporting unit.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $42.7 million consisting of $14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a fair value of $28.0 million. Former shareholders of Bid4Assets were eligible to receive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, ~~2017~~2022.

The Company's allocation of the purchase price to the assets acquired and ~~2016, respectively. This contract~~liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, is as follows:


(in thousands)	Fair Value
Cash and cash equivalents	$	3,576
Intangible assets		16,500
Other assets		346
Total assets acquired		20,422
Payable to sellers		3,715
Operating lease liabilities		204
Deferred tax liability		3,847
Total liabilities assumed		7,766
Net identifiable assets acquired	$	12,656
Goodwill		30,083
Total consideration transferred	$	42,739

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as Goodwill. The Goodwill associated with our acquisition includes the acquired assembled work force, and the value associated with the opportunity to leverage the workforce to continue to grow by adding additional customer relationships or new solutions in the future. Based on management's valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, Goodwill of approximately $30.1 million was recorded. The total Goodwill arising from the acquisition is included in the GovDeals reportable segment and reporting unit and is not deductible for tax purposes.

The known intangible assets acquired were determined to consist of, and fair valued at, the following:


(in thousands)	Useful Life (in years)	Fair Value
Contract intangibles	8	$	13,900
Developed software	3		2,200
Trade name	3		400
Total identifiable intangible assets		$	16,500

Contingent Consideration

During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded contingent consideration in the amount of $28.0 million on its Consolidated Balance Sheets. Through December 31, 2022, $3.5 million in earn-out payments were made. The remaining earn-out fair value was $0 based upon actual performance through the final earn-out measurement period ending December 31, 2022. See further discussion of this matter within Note 11 - Fair Value Measurement.

Other Information

Revenue, net income (loss), and pro forma information related to the ~~Company's RSCG segment.~~Bid4Assets acquisition was immaterial to the condensed consolidated financial statements and its related notes for the three and six months ended March 31, 2022.

Earnings per Share

~~The Company calculates~~

Basic net income ~~(loss)~~ per share ~~in accordance with FASB Topic 260 Earnings Per Share (“ASC 260”). Under ASC 260, basic net income (loss) per common share~~ is ~~calculated~~computed by dividing ~~net~~Net income ~~(loss)~~for the period by the ~~weighted-average~~weighted average number of ~~common~~ shares outstanding during the ~~reporting~~ period. ~~The~~Diluted net income per share is computed by dividing Net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding ~~includes vested restricted stock units.~~during the period. The calculation of Diluted net income ~~(loss)~~ per share ~~(“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of~~excludes all dilutive unexercised stock options and unvested restricted stock units. 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, and the amount of compensation cost for future service not yet recognized by the Company are assumed to be used to repurchase shares of the Company’santi-dilutive common ~~stock. Stock options and restricted stock units are not included in the~~shares.

The computation of ~~diluted~~Basic and Diluted net income ~~(loss)~~ per share ~~when they are antidilutive.~~

For the three months ended December 31, 2017 and 2016, the basic and diluted weighted average common shares were the same because the inclusion of dilutive securities in the computation of diluted net income would have been anti-dilutive. See Note 7 for outstanding stock options and unvested restricted stock, all of which are anti-dilutive for the three months ended December 31, 2017 and 2016.

~~The following summarizes the basic and diluted loss per share:~~

Three Months Ended December 31,
2017 2016

(Unaudited)
(dollars in thousands, except per share amounts)
Weighted average shares calculation:

Basic weighted average common shares outstanding 31,876,603
31,261,603
Treasury stock effect of options and restricted stock —
—

Diluted weighted average common shares outstanding 31,876,603
31,261,603

Net loss $ (1,212 ) $ (8,397 )
Basic and diluted loss per common share $ (0.04 ) $ (0.27 )

~~Stock-Based Compensation~~

The Company estimates the fair value of share-based awards on the date of grant. The Company issues stock options and stock appreciation rights with restrictions that lapse upon either the passage of time (service vesting conditions), the achievement of performance targets (performance vesting conditions), or some combination thereof. In addition, the Company issues stock options that vest upon the achievement of certain Company stock price targets (market vesting conditions). The fair value of stock options and stock appreciation rights with service and/or performance vesting conditions is determined using the Black-Scholes option-pricing model. For those stock options with only service vesting conditions, the Company recognizes compensation cost on a straight-line basis over the explicit service period. For stock options with both performance and service vesting conditions, the Company starts recognizing compensation cost over the remaining service period, when it is probable the performance condition will be met.

as follows:

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements —- (Continued)


	Three months ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Numerator:
Net income	$	4,245	$	11,970	$	8,211	$	15,572
Denominator:
Basic weighted average shares outstanding		31,305,214		32,561,903		31,562,988		32,769,057
Dilutive impact of stock options, RSUs and RSAs		818,974		1,442,665		981,965		1,613,092
Diluted weighted average shares outstanding		32,124,188		34,004,568		32,544,953		34,382,149
Basic income per common share	$	0.14	$	0.37	$	0.26	$	0.48
Diluted income per common share	$	0.13	$	0.35	$	0.25	$	0.45
Stock options, RSUs and RSAs excluded from income per diluted share because their effect would have been anti-dilutive		2,303,254		1,327,292		1,837,326		1,246,493

Leases

The Company issues restricted stock units with service vesting conditions, performance vesting conditions, and market vesting conditions, or some combination thereof. For those restricted stock units with only service vesting conditions, the Company recognizes compensation cost on a straight-line basis over the explicit service period. For restricted stock units with both performance and service vesting conditions, the Company starts recognizing compensation cost over the remaining service period when it is probable the performance condition will be met. The fair value of restricted stock units with service vesting and/or performance vesting is based on the closing price of the Company’s common stock on the date of grant.

For the Company's stock options and restricted stock units with market vesting conditions, the ultimate number of shares to be earned depends on the Company's total shareholder return during the performance period. The fair value of these stock options and restricted stock units is estimated on the grant date using a Monte Carlo simulation model. The Company recognizes compensation cost for stock options and restricted stock units with market vesting conditions over the derived service period.

The determination of the fair value of the Company’s stock options and stock appreciation rights with service and performance vesting conditions is based on a variety of factors including, but not limited to, the Company’s common stock price on the date of grant, expected stock price volatility over the expected life of units, and actual and projected exercise behavior. The determination of the fair value of the Company’s stock options and restricted stock units with service and market vesting conditions is based on a variety of factors including, but not limited to, the Company’s common stock price on the grant date, expected stock price volatility, risk free interest rate, dividend yield, and projected exercise behavior.

Upon adoption of ASU 2016-09, beginning in the first quarter of fiscal 2018, the Company recognizes forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. The change in accounting policy resulted in an adjustment to retained earnings as of October 1, 2017, of $0.2 million.

Stock options and restricted stock units that contain performance vesting or market vesting conditions are excluded, 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 the compensation cost recognized for those options (excess tax benefits) as an operating activity in the Consolidated Statements of Cash Flows.


3.	~~Significant Contracts~~

The Company has ~~two material vendor contracts with~~operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 3.8 years. Some of the ~~DoD,~~leases have options to extend or terminate the ~~Surplus Contract~~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 ~~the Scrap Contract. Under the Surplus Contract the Company is the remarketer~~related balances are not significant.

The components of substantially all Department of Defense (DoD) non-rolling stock surplus turned into the Defense Logistics Agency Disposition Services (DLA), and available for sale within the United States, Puerto Rico, and Guam. The Surplus Contract requires the Company to purchase all usable surplus property offeredlease expense are:


	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Finance lease – lease asset amortization	$	20		$	21		$	39		$	42
Finance lease – interest on lease liabilities		4			5			8			10
Operating lease cost		1,326			1,434			2,684			2,912
Short-term lease cost		133			64			270			117
Variable lease cost (1)		375			169			750			553
Sublease income		(26	)		(30	)		(51	)		(67	)
Total net lease cost	$	1,832		$	1,663		$	3,700		$	3,567

(1)

Variable lease costs primarily relate to the ~~Company by~~Company's election to combine non-lease components such as common area maintenance, insurance and taxes related to its real estate leases. To a lesser extent, the ~~DoD at a fixed percentage~~Company's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.

Maturities of ~~the DoD's original acquisition value (OAV). This fixed percentage~~lease liabilities are:


	March 31, 2023
	Operating Leases			Finance Leases
2023	$	2,655		$	58
2024		4,495			97
2025		3,674			68
2026		2,235			65
2027		420			12
Thereafter		—			—
Total lease payments (1)	$	13,480		$	300
Less: imputed interest (2)		(1,155	)		(25	)
Total lease liabilities	$	12,325		$	275

(1)

The weighted average remaining lease term is ~~4.35%.~~ 3.0 years for operating leases and 3.2 years for finance leases.

(2)

The ~~Company retains 100%~~weighted average discount rate is 6.2 % for operating leases and 5.6 % for finance leases.

Supplemental disclosures 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~~cash flow information related to leases are:


	Six Months Ended March 31,
	2023		2022
Cash paid for amounts included in operating lease liabilities	$	2,421	$	2,060
Cash paid for amounts included in finance lease liabilities	$	50	$	51
Non-cash: lease liabilities arising from new operating lease assets obtained	$	—	$	3,158
Non-cash: lease liabilities arising from new finance lease assets obtained	$	—	$	179
Non-cash: adjustments to lease assets and liabilities	$	407	$	(198	)

(1)

These include adjustments due to lease modifications, renewals, 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 $7.5 million and $6.8 million as of December 31, 2017 and September 30, 2017, respectively.

~~Revenue from the Surplus Contract accounted for 26.5% and 29.9% of the Company's consolidated revenue for the quarters ended December 31, 2017 and 2016, respectively.~~

~~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 that commenced in the first quarter of fiscal year 2017, with two 12-month extension options exercisable by the DLA. The base

11adjustments.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements —- (Continued)

Goodwill

The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:


(in thousands)	GovDeals		CAG			Machinio		Total
September 30, 2021	$	23,731	$	21,583		$	14,558	$	59,872
Addition: Bid4Assets acquisition		30,083		—			—		30,083
Translation adjustments		—		(1,045	)		—		(1,045	)
September 30, 2022		53,814		20,538			14,558		88,910
Translation adjustments		—		554			—		554
March 31, 2023	$	53,814	$	21,092		$	14,558	$	89,464

~~period~~

Goodwill is tested for impairment at the beginning of the ~~Scrap contract will expire on September 30, 2019.~~fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable. The Company ~~pays a revenue-sharing payment~~has continued to evaluate the ~~DLA under this contract equal to 64.5%~~impact of the ~~gross resale proceeds~~COVID-19 pandemic, interest rate changes, elevated inflationary levels, and other ongoing macroeconomic disruptions on the recoverability of ~~the scrap property, and the Company bears all of the costs for the sorting, merchandising and sale of the property.~~its goodwill. The contract contains a provision permitting the DLA to terminate the contract for convenience upon written notice to the Company. The Company commenced operations under this contract in the quarter ended December 31, 2016.

~~Revenue from the Scrap contract accounted for approximately 8.4% and 10.0% of the Company's consolidated revenue for the quarters ended December 31, 2017 and 2016, respectively.~~

~~4. Goodwill~~

The goodwill of acquired companies is primarily related to the acquisition of an experienced and knowledgeable workforce. The following table presents goodwill balances and foreign currency translation adjustments to those balances during the three months ended December 31, 2017:

Goodwill (in thousands) CAG GovDeals Total
Balance at September 30, 2017 21,657
23,731
45,388
Translation adjustments 78
—
78
Balance at December 31, 2017 $ 21,735
$ 23,731
$ 45,466

As part of the Company's fiscal year 2017 annual goodwill impairment assessment, the Company believed that certain events required performing a step one evaluation of goodwill to identify potential impairment. After performing the step one test, the Company concluded its remaining reporting units with goodwill had fair values as of July 1, 2017, that substantially exceeded their respective book values. During the three months ended December 31, 2017, the Company did not identify any indicators of impairment that required ~~performing a step one evaluation.~~an interim goodwill impairment test during the three and six months ended March 31, 2023.

5. Intangible Assets

~~The components~~

Intangible assets consist of ~~identifiable intangible assets as of December 31, 2017 and September 30, 2017 are as follows:~~ the following:


		March 31, 2023							September 30, 2022
(in thousands)	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Contract intangibles	6 - 8	$	17,000	$	(4,916	)	$	12,084	$	17,000	$	(3,789	)	$	13,211
Technology	3 - 5		5,300		(3,793	)		1,507		5,300		(3,089	)		2,211
Patent and trademarks	7 - 10		2,364		(1,682	)		682		2,381		(1,569	)		812
Total intangible assets, net		$	24,664	$	(10,391	)	$	14,274	$	24,681	$	(8,447	)	$	16,234

December 31, 2017 September 30, 2017

Useful
Life
(in years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount
(dollars in thousands)
Patent and trademarks 3 - 10 959
(534 ) 425
943
(516 ) 427
Total intangible assets $ 959
$ (534 ) $ 425
$ 943
$ (516 ) $ 427

Future expected amortization of intangible assets ~~at December~~as of March 31, ~~2017~~2023, is as follows:


(in thousands)
Years ending September 30,	Expected Future Amortization
Remainder of 2023	$	1,827
2024		3,252
2025		2,012
2026		1,767
2027 and thereafter		5,416
Total	$	14,274

Future
Amortization
Years ending September 30, (in thousands)
2018 Remaining nine months $ 58
2019 71
2020 69
2021 58
2022 and thereafter 169
Total $ 425

Intangible ~~assets~~asset amortization expense was ~~approximately $0.02~~$1.0 million and ~~$0.3~~$1.0 million for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016, respectively.~~

~~Liquidity Services, Inc.~~2022, respectively, and ~~Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~


6.	~~Income Taxes~~

~~On December 22, 2017, the Tax Cuts~~$2.0 million and Jobs Act (“the Act”) was signed into law. The Act reduces the corporate tax rate from 35% to 21%. During the three months ending December 31, 2017, the Company revised its estimated annual effective tax rate to reflect this change in the statutory rate. The rate change is administratively effective at the beginning of the Company's 2018 fiscal year, using a blended rate of 24.53%. At December 31, 2017, the Company had not yet completed its accounting for the tax effects of enactment of the Act; however, in certain cases the Company has made a reasonable estimate of the Act's effects. The Company recognized a tax benefit of $3.5$1.8 million for the ~~period~~six months ended ~~December~~March 31, ~~2017~~2023 and 2022, respectively. The increase in intangible amortization expense was primarily due to the Bid4Assets acquisition as ~~a result of adjusting its deferred tax balance~~consummated on November 1, 2021.

The Company has continued to ~~reflect~~evaluate the new corporate tax rate. In addition, the Act makes the alternative minimum tax (“AMT”) credit refundable in tax years beginning after 2017 and before 2022. As a result of this change, the Company reduced its valuation allowance on its AMT credits and recognized an income tax benefit of $1.7 million.

~~The effect~~impact of the ~~international provisions~~COVID-19 pandemic, interest rate changes, elevated inflationary levels, ongoing macroeconomic disruptions, and the subsequent financial performance of Bid4Assets, on the ~~Act, which establish a territorial tax system and subjects certain foreign earnings~~recoverability of its long-lived assets. The Company did not identify any indicators of impairment requiring an interim impairment test on ~~which US tax is currently deferred to a one-time transition tax, is uncertain. Based on a preliminary analysis, the Company has not recorded any provisional amounts in its financial statements for~~material long-lived assets during the three and six months ~~ending December~~ended March 31, ~~2017.~~2023

Income Taxes

The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate. The Company recorded a pre-tax ~~loss~~income in the first ~~quarter~~six months of fiscal year ~~2018~~2023 and its corresponding effective tax rate is ~~approximately -5.8% before recognition of a $5.2 million tax benefit~~24.9% compared to 11.7% for the ~~adjustment to its deferred~~first six months of fiscal year 2022. The change in the effective tax ~~balance and reduction to its valuation allowance on AMT credits resulting from changes~~rate for the six months ended March 31, 2023, as compared to the same period in the prior year was primarily due to state and foreign taxes, the utilization of net operating losses, and the inclusion of the $8.5 million non-cash gain from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability recorded in the six months ended March 31, 2022. The effective tax ~~law.~~

rate differed from the U.S. statutory federal rate of 21% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments.

The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022, and introduces a 15% corporate alternative minimum tax (“CAMT”) on adjusted financial statement income. The CAMT will be effective for us beginning in fiscal year 2024. We currently are not expecting the IRA to have a material adverse impact on our financial statements.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740,Income Taxes, states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including ~~resolutions~~resolution of any related appeals or litigation processes, on the basis of technical merits. ~~The~~During the six months ended March 31, 2023, the Company ~~records~~recorded a benefit of $0.1 million due to the reduction of unrecognized tax benefits ~~as a reduction~~related to its deferred tax asset for its net operating loss carryforward. The Company identified no new uncertain tax positions during the three months ended December 31, 2017. The Company’s policy is to recognize interest and penalties in the period in which they occur in the income tax provision.foreign operations. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the ~~U.K. Currently,~~United Kingdom. As of March 31, 2023, the Company has no open ~~federal and state~~ income tax examinations ~~for fiscal years 2012 through 2015. The Company anticipates no material tax liability will arise from these examinations. The~~in the U.S. and the statute of limitations for ~~U.S. federal income tax returns for~~ years prior to ~~fiscal 2013~~2019 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal ~~2013~~year 2019 may be adjusted upon examination by tax authorities if they are utilized.

Debt

On February 10, 2022, the Company entered into a credit facility agreement (Credit Agreement) with Wells Fargo Bank, N.A. Terms of the Credit Agreement provide for revolving loans (Line of Credit) up to a maximum aggregate principal amount of $25.0 million with a $10.0 million sublimit for standby letters of credit.

During March 2023, the Company entered into the First Amendment to the Credit Agreement (First Amendment). The First Amendment extended the Credit Agreement end date by 12 months to March 31, 2025, at which time any remaining amounts outstanding will become due immediately. No other changes, including with respect to the borrowing terms or capacities, were made as a result of the First Amendment.

The applicable interest rate on any draws under the Line of Credit is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. The Company pays an Unused Commitment Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 0.05% per annum on the daily amount of the available, but unused, balance on the Line of Credit. The Company also pays a Line of Credit Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 1.25% on the daily amount available to be drawn for standby letters of credit. Interest incurred on any draws under the Line of Credit, as well as the Unused Commitment Fee and Letter of Credit Fee, are included within Interest and other expense (income), net in the Condensed Consolidated Statements of Operations.

The Company may draw upon the Line of Credit for general corporate purposes. Repayments of any borrowings under the Line of Credit shall become available for redraw at any time by the Company.

The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of March 31, 2023, the Company was in full compliance with the terms and conditions of the Credit Agreement.

During the three and six months ended March 31, 2023 and 2022, the Company did not make any draws under the Credit Agreement. As of March 31, 2023 and 2022, the Company had no outstanding borrowings under the Credit Agreement.

During the three and six months ended March 31, 2023 and 2022, interest expense incurred by the Company under the Credit Agreement was immaterial to the condensed consolidated financial statements.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

10.

Stockholders’ Equity

The changes in stockholders’ equity for the prior year comparable period are as follows:


						Additional									Accumulated Other
	Common Stock					Paid-in			Treasury Stock						Comprehensive			Retained
	Shares			Amount		Capital			Shares			Amount			Loss			Earnings			Total
Balance at September 30, 2021		35,457,095		$	35	$	252,017			(2,222,083	)	$	(36,628	)	$	(9,011	)	$	(71,398	)	$	135,015
Net income		—			—		—			—			—			—			3,602			3,602
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units		131,070			1		—			—			—			—			—			1
Taxes paid associated with net settlement of stock compensation awards		(40,239	)		—		(851	)		—			—			—			—			(851	)
Forfeitures of restricted stock awards		(14,855	)		—		—			—			—			—			—			—
Common stock repurchased		—			—		—			(147,185	)		(2,963	)		—			—			(2,963	)
Common stock surrendered in the exercise of stock options		—			—		100			(4,678	)		(100	)		—			—			—
Stock compensation expense		—			—		2,270			—			—			—			—			2,270
Foreign currency translation and other		—			—		—			—			—			(131	)		136			5
Balance at December 31, 2021		35,533,071		$	36	$	253,536			(2,373,946	)	$	(39,691	)	$	(9,142	)	$	(67,660	)	$	137,079
Net income		—			—		—			—			—			—			11,970			11,970
Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units		320,943			—		—			—			—			—			—			—
Taxes paid associated with net settlement of stock compensation awards		(47,124	)		—		(958	)		—			—			—			—			(958	)
Common stock repurchased		—			—		—			(1,011,881	)		(17,035	)		—			—			(17,035	)
Stock compensation expense		—			—		2,102			—			—			—			—			2,102
Forfeiture of restricted stock awards		(242,902	)		—		—			—			—			—			—			—
Foreign currency translation		—			—		—			—			—			(169	)		—			(169	)
Balance at March 31, 2022		35,563,988		$	36	$	254,680			(3,385,827	)	$	(56,726	)	$	(9,311	)	$	(55,690	)	$	132,989

Stock Compensation Incentive Plans

The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended (LTIP), and a plan and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets. As of March 31, 2023, the Company has reserved a total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5x shares against the plan reserves. As of March 31, 2023, 928,564 shares of common stock remained available for use under the LTIP.

Stock Compensation Expense

The table below presents the components of share-based compensation expense (in thousands):


	Three Months Ended March 31,					Six Months Ended March 31,
	2023		2022			2023			2022
Equity-classified awards:
Stock options	$	524	$	534		$	999		$	1,591
RSUs & RSAs		1,415		1,569			3,066			2,782
Total Equity-classified award		1,939		2,103			4,065			4,373
Liability-classified awards:
SARs		—		(111	)		(44	)		(101	)
Total stock compensation expense:	$	1,939	$	1,992		$	4,021		$	4,272

The table below presents the components of share-based compensation expense by line item within our Condensed Consolidated Statements of Operations (in thousands):

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)


	Three Months Ended March 31,				Six Months Ended March 31,
	2023		2022		2023		2022
Stock-compensation expense by function
Technology and operations	$	336	$	282	$	592	$	585
Sales and marketing		659		542	$	1,168		1,032
General and administrative		944		1,168	$	2,261		2,655
Total stock compensation expense:	$	1,939	$	1,992	$	4,021	$	4,272

Stock Options and RSUs & RSAs

The following table presents stock option and RSUs & RSAs grant activity:


	Six Months Ended March 31, 2023
Stock Options granted:
Options containing only service conditions:		178,048
Weighted average exercise price	$	14.43
Weighted average grant date fair value	$	7.50

Options containing performance conditions:		175,910
Weighted average exercise price	$	14.42
Weighted average grant date fair value	$	7.48

RSUs & RSAs granted:
RSUs & RSAs containing only service conditions:		472,813
Weighted average grant date fair value	$	15.14

RSUs & RSAs containing performance conditions:		288,420
Weighted average grant date fair value	$	15.15

The stock options and RSUs & RSAs containing only service conditions will vest over a four-year service period. The stock options and RSUs & RSAs containing performance conditions will vest upon the achievement of specified financial targets of the Company, a segment, or a division of a segment. Vesting is measured the first day of each fiscal quarter over the three-year terms of the awards, starting with the first fiscal quarter after the first anniversary of the grant date.

The range of assumptions used to determine the fair value of stock options using the Black-Scholes option-pricing model during the six months ended March 31, 2023, were as follows:


7.	~~Stockholders’ Equity~~	Six Months Ended
		March 31, 2023
Dividend yield			—
Expected volatility		56.87% - 62.16%
Risk-free interest rate		3.39% - 3.88%
Expected term		4.5 - 7.6 years

SARs

During the six months ended March 31, 2023, the Company did not issue any SARs. 24,150 SARs were exercised requiring the Company to make cash payments of $0.2 million. As of March 31, 2023, there were no SARs outstanding.

Share Repurchase Program

~~The Company is~~

From time to time, we may be authorized to repurchase issued and outstanding shares of ~~its~~our common stock under a share repurchase program approved by ~~the Company's~~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. ~~The~~

As of September 30, 2022, the Company had $6.6 million of remaining share repurchase authorization.

On December 6, 2022, and March 13, 2023, the Company's Board of Directors ~~reviews~~authorized new stock repurchase plans of up to $8.4 million and $8.0 million, respectively.

The Company repurchased 1,281,722 shares for $17.0 million during the six months ended March 31, 2023. As of March 31, 2023, the Company had $6.0 million of remaining authorization to repurchase shares through December 31, 2025.

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Other Share Repurchases

Separate from 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 three months ended December 31, 2017 or 2016. As of December 31, 2017, the Company may repurchase an additional $10.1 million in shares under this program.

~~2006 Omnibus Long-Term Incentive Plan (the 2006 Plan)~~

~~Under the 2006 Omnibus Long-Term Incentive Plan, or the 2006 Plan, as amended, 13,000,000~~our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock ~~were~~equivalent in value to the exercise price due. Any shares surrendered to the Company in this manner are not available for ~~issuance as~~future grant.

During the six months ended March 31, 2023 and 2022, participants surrendered 1,420 and 4,678 shares of ~~September 30, 2016. On February 23, 2017, at~~common stock, respectively, in the ~~Company's annual meeting~~exercise of ~~stockholders, the stockholders approved amendments~~stock options. Any shares surrendered to the ~~2006 Plan to increase the number of shares~~Company in this manner are not available for issuance under the 2006 Plan by 3,300,000, to a total of 16,300,000 shares. The 2006 Plan has a fungible share pool so that awards other than options or stock appreciation rights granted would be counted as 1.5 shares from the shares reserved for issuance.

future grant.

1311.

Fair Value Measurement

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

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 with restrictions that 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 only service vesting conditions, the Company recognizes compensation cost on a straight-line basis over the explicit service period. For awards subject to both performance and service vesting conditions, the Company starts recognizing compensation cost over the remaining service period, when it is probable the performance vesting condition will be met. The stock appreciation rights that include only service vesting conditions generally vest over a period of one to four years conditioned on continued employment for the incentive period.

~~Cash-Settled Stock Appreciation Rights~~

During the three months ended December 31, 2017, the Company did not issue any cash-settled stock appreciation rights. During the three months ended December 31, 2017, 94,957 cash-settled stock appreciation rights were forfeited. During fiscal year 2017, the Company issued 218,550 cash-settled stock appreciation rights at the price of $10.30, and 234,313 cash-settled stock appreciation rights were forfeited. Cash-settled stock appreciation rights are recorded as liability awards.

~~Stock Option Activity~~

~~A summary of the Company’s stock option activity for the three months ended December 31, 2017 and year ended September 30, 2017 is as follows:~~

Options
Weighted-
Average
Exercise Price
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 granted 531,300
4.65
Options exercised —
—
Options canceled (225,516 ) 12.39
Options outstanding at December 31, 2017 2,010,757
11.23
Options exercisable at December 31, 2017 1,109,171
15.30

The intrinsic value and weighted average remaining contractual life in years of outstanding and exercisable options at December 31, 2017 is approximately $0.1 million and 6.53 years, and zero and 5.43 years, respectively, based on a stock price per share of $4.85 on December 31, 2017. Over the last three years, volatility rates have ranged from 51.49% to 77.92%, the dividend rate has been 0%, risk free interest rates have ranged from 0.26% to 2.17% and expected forfeiture rates have ranged from 21.38% to 23.54%. Upon adoption of ASU 2016-09, beginning in the first quarter of fiscal 2018, the Company recognizes forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited.

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

~~Restricted Share Activity~~

~~A summary of the Company’s restricted share activity for the three months ended December 31, 2017 and year ended September 30, 2017 is as follows:~~

Restricted
Shares

Weighted-
Average
Fair Value
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
Restricted shares granted 77,600
3.66
Restricted shares vested (386,330 ) 9.19
Restricted shares canceled (280,997 ) 10.18
Unvested restricted shares at December 31, 2017 1,600,704
7.70

The intrinsic value and weighted average remaining contractual life in years of unvested restricted stock units at December 31, 2017 was approximately $7.8 million and 8.37 years, respectively, based on a stock price per share of $4.85 on December 31, 2017.


8.	~~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.~~

Level 1: Quoted market prices in active markets for identical assets or liabilities;

Level 2: Inputs other than Level 1 inputs that are either directly or indirectly observable; and

Level 3: Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

Cash and cash equivalents. The Company had $23.3 million and $22.0 million of ~~December~~money market funds considered cash equivalents at March 31, ~~2017,~~2023, and September 30, ~~2017, the Company had no Level 1 or Level 2~~2022, respectively. These assets ~~or liabilities measured at fair value. As of December 31, 2017, and September 30, 2017, the Company had financial assets that are~~were measured at fair value as of March 31, 2023, and ~~are~~September 30, 2022, and were classified as Level 31 assets within the fair value hierarchy. ~~The~~There were no transfers between levels during the periods presented.

Contingent consideration. During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, Inc. (Bid4Assets), the Company ~~has elected to record the financial assets using the~~recorded preliminary 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~~contingent consideration in the ~~Company's commercial business, where a third-party partner owns~~amount of $28.0 million on its Consolidated Balance Sheets as of the ~~underlying assets to be sold, and~~acquisition date. The contingent consideration was based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the ~~Company has contributed funds to~~end of each calendar quarter until the ~~partner towards purchasing those underlying assets. These assets are~~quarter ended December 31, 2022. The liability for this consideration was included in ~~Prepaid~~Accrued expenses and other current ~~assets in~~liabilities within the Consolidated Balance Sheets.

The changes in ~~financial assets~~earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value ~~for the quarter ended December 31, 2017 are as follows ($ in thousands):~~

Level 3 Assets

Balance at September 30, 2017 $ 491
Acquisition of financial assets —
Settlements (375 )
Change in fair value of financial assets (110 )
Balance at December 31, 2017 $ 6

~~During~~during the three months ended December 31, ~~2017,~~2022, was as follows (in thousands):


	Contingent Consideration
Balance at September 30, 2022	$	—
Change in fair value		—
Balance at December 31, 2022	$	—

Through December 31, 2022, $3.5 million in earn-out payments were made. As of September 30, 2022, the ~~Company recognized~~earn-out fair value was estimated to be $0 based upon a ~~loss~~Monte Carlo simulation of ~~approximately $0.1 million on its financial assets.~~

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to~~forecasted EBITDA for the ~~Unaudited Consolidated Financial Statements — (Continued)~~

final measurement period ending December 31, 2022.

As of December 31, 2022, the remaining earn-out fair value was $0 based upon actual performance through the final earn-out measurement period ending December 31, 2022.

Other Information. When valuing its Level 3 assets, the Company gives consideration to asset condition, economic and/or market events, and other pertinent information that would impact its estimate of the expected generated proceeds. The valuation procedures are primarily based onliability, management's ~~projection of the value of the assets securing the financial investment. Management’s~~ estimation of ~~the~~ fair value ~~of these assets~~ is based on the best information available in the circumstances and may incorporate management's own assumptions around market demand ~~for these assets~~ which could involve a level of judgment, taking into consideration a combination of internal and external factors. ~~Changes in fair value of the Company's Level 3 assets are recorded in Other operating expense in the Consolidated Statements of Operations.~~

The Company’s financial assets and liabilities not measured at fair value are cash, short-term investments, accounts receivable, and ~~cash equivalents (which includes cash and commercial paper with original maturities of less than 90 days).~~accounts payable. The Company believes the carrying ~~value~~values of these instruments ~~approximates~~approximate fair value.

As of March 31, 2023, the Company had no non-financial instruments measured at fair value ~~due to their short-term maturities.~~on a non-recurring basis other than fair value measurements associated with the purchase accounting for Bid4Assets. As of March 31, 2023, and September 30, 2022, the Company did not have any material assets or liabilities measured at fair value on a non-recurring basis.

12.

Defined Benefit Pension Plan


9.	~~Defined Benefit Pension Plan~~

Certain employees of Liquidity Services UK Limited ~~(“GoIndustry”)~~(GoIndustry), which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme (the ~~“Scheme”)~~Scheme), a qualified defined benefit pension plan.

The ~~net periodic benefit recognized for the three months ended December 31, 2017 and 2016 included the following components:~~

Three Months Ended December 31,
Qualified Defined Benefit Pension Plan 2017 2016
(dollars in thousands)
Service cost $ —
$ —
Interest cost 166
144
Expected return on plan assets (252 ) (204 )
Settlement cost (4 ) —
Total net periodic (benefit) $ (90 ) $ (60 )


~~10.~~	~~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~~GoIndustry's performance ~~by the Subsidiary of all its Guaranteed Obligations, defined as~~on 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 for up to a maximum of £10 million British ~~pounds, (b) undertakes with~~pounds. The Scheme was closed to new members on January 1, 2002.

Liquidity Services, Inc. and Subsidiaries

Notes to the ~~Trustees~~Unaudited Condensed Consolidated Financial Statements - (Continued)

The net periodic (benefit) is recognized within Interest and other (income), net in the Condensed Consolidated Statements of Operations, and for the three and six months ended March 31, 2023 and 2022, included the following components:


	Three Months Ended March 31,						Six Months Ended March 31,
(in thousands)	2023			2022			2023			2022
Interest cost	$	195		$	130		$	391		$	262
Expected return on plan assets		(215	)		(232	)		(431	)		(467	)
Amortization of prior service cost		6			5			12			10
Total net periodic benefit	$	(14	)	$	(97	)	$	(28	)	$	(195	)

13.

Legal Proceedings and Other Contingencies

The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that ~~whenever~~a liability is probable and reasonably estimable.

From time to time, the ~~Subsidiary does not pay any amount when due~~Company may become involved in ~~respect of its Guaranteed Obligations, it must immediately on demand by~~litigation relating to claims arising in 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 amountordinary course of the ~~cost, charge, expense, loss~~business. However, unless otherwise noted, there are no claims or ~~liability under this indemnity will be equal to~~actions pending or threatened against the ~~amount~~Company that, if adversely determined, would in the ~~Trustees would otherwise~~Company's management's judgment have ~~been entitled to recover~~a material adverse effect on the Company.

Former Employee Matters

In May 2021, the Company’s former Vice President, Human Resources filed a complaint against the Company in federal court in Montgomery County, Maryland, alleging wrongful termination on the basis of gender, race, and age. The parties have completed the discovery phase of this case. On April 4, 2022, the Company filed a ~~guarantee.~~motion for summary judgment. The ~~guarantee is a continuing guarantee that will extend~~court granted the motion with respect to the ~~ultimate balance of all sums payable by~~age discrimination claim but denied the ~~Company in~~motion with respect of its Guaranteed Obligations. As of December 31, 2017, the Company's Plan assets exceeded Plan liabilities by approximately $2.0 million. As of September 30, 2017, the Company's Plan assets exceeded Plan liabilities by approximately $1.9 million. The funded status of the Scheme as of September 30, 2017, was disclosed in Note 12, Defined Benefit Pension Plan, to the ~~consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2017.~~

~~11. Business Realignment expenses~~

During the fourth quarter of fiscal year 2017, the Company began to restructure its CAG business. The restructuring plan resulted in a reduction in force across a number of departments, including Sales, Marketingrace 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~~

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

for the closure of several offices and legal entities in Europe. Legal and administrative costs associated with the restructuring amounted to $0.1 million. The Company continued to implement its CAG cost cutting initiatives during the first quarter of fiscal 2018. In addition, as discussed in Note 3 - Significant Contracts, the Company was not the high bidder for the new Surplus contracts, and therefore will be winding down operations of the Surplus Contract over the remainder of fiscal 2018. As a result, the Company recognized an additional $0.9 million in restructuring costs, $0.5 million of which related to severance and occupancy cost as a result of the loss of the Surplus Contract. Restructuring costs associated with the restructuring plan were recognized within the other operating expense (income) line item in the consolidated statement of operations. These amounts are presented within the table below.

In connection with 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 to the executive in the amount of $0.3 million. This activity is included within employee severance and benefit costs in the table below.

During fiscal year 2017, the Company reorganized its IronDirect business. As a result, the Company recorded approximately $0.9 million of net expense related to the impairment of long-lived assets associated with the IronDirect business, as well as a fair value adjustment. The impairment was comprised of $1.2 million of impairment of contract intangibles, and $0.6 million of impairment of 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 IronDirect 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, which is included within employee severance and benefit costs in the table below.

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. During the three months ended December 31, 2017, the Company paid down the cease-use charge in the amount of approximately $0.3 million. This activity is presented under occupancy cost in the table below.

During the first quarter of fiscal 2018, the Company recognized an additional $0.5 million in severance cost primarily related to the restructuring of its Corporate IT department. This is recorded within the Corporate & Other line item below. This cost is in addition to the $0.9 million of severance cost described in the first paragraph of this Note 11.

The table below sets forth the significant components and activity in the liability for business realignment initiatives during the quarter ended December 31, 2017, on a segment and consolidated basis:

(in thousands)
Liability
Balance at
September 30,
2017

Business
Realignment
Expenses

Cash
Payments

Liability
Balance at
December 31,
2017
Employee severance and benefit costs:
CAG 793
751
(207 ) 1,337
Corporate & Other 399
474
(737 ) 136
Total employee severance and benefit costs $ 1,192
$ 1,225
$ (944 ) $ 1,473
Occupancy costs:
CAG —
94
(55 ) 39
Corporate & Other 1,988
28
(331 ) 1,685
Total occupancy costs $ 1,988
$ 122
$ (386 ) $ 1,724
Total business realignment $ 3,180
$ 1,347
$ (1,330 ) $ 3,197

The $1.3 million in employee severance and occupancy cost per the table above is recorded in Other operating expenses (income) in the Consolidated Statements of Operations. Of this $1.3 million in cost, approximately $0.2 million is associated with general and administrative, $0.2 million with sales and marketing, and $0.9 million with technology and operations activities.

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

The Company expects that the majority of the remaining liability balance at December 31, 2017, of approximately $3.2 million will be paid during fiscal year 2018, with the remainder in fiscal year 2019.

~~12.Legal Proceedings~~

~~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 in the United States District Court for the District of Columbia (the ‘‘District Court’’) against the Company and its chief executive officer, chief financial officer, and chief accounting officer, on behalf of stockholders who purchased the Company’s common stock between February 1, 2012, and May 7, 2014. The complaint alleged that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by, among other things, misrepresenting the Company’s growth initiative, growth potential, 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 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 the Company’s retail division were not dismissed. On May 16, 2016, the Company answered the amended complaint. Plaintiffs’ class certification was granted on September 6, 2017. The scheduling order in this action requires that fact discovery be completed by April 9, 2018, and that expert discovery be completed by October 1, 2018.

gender discrimination claims. The Company believes the ~~allegations in the amended complaint~~remaining claims are without merit and cannot estimate a range of potential liability, if any, at this time.

The Company’s employment practices liability insurance carrier, CNA, has accepted tender of this claim.

In ~~re Liquidity Services, Inc. Derivative Litigation, Civ. No. 2017-0080-JTL (Del. Ch.~~October 2021, the Company’s former Chief Marketing Officer (the “Former CMO”).

~~On February 2, 2017, plaintiff David Girardi~~ filed a ~~putative derivative~~charge with the Equal Employment Opportunity Commission (the “EEOC”), alleging wrongful termination on the basis of race and age and that the Company retaliated against him. The Company submitted its position statement to the EEOC on February 8, 2022. On December 28, 2022, the Former CMO filed a complaint (the “Original Complaint”), alleging the same claims noted in the EEOC charge in federal court in Montgomery County, Maryland (the “District Court”). The EEOC dismissed the Former CMO’s charge on April 26, 2023. In addition, on April 26, 2023, the Former CMO filed an amended complaint with the District Court, ~~of Chancery of~~alleging the ~~State of Delaware (the “Court of Chancery”), and on February 7, 2017, plaintiff Harold Slingerland filed a putative derivative complaint~~same claims made in the ~~Court~~Original Complaint. The Company believes these claims are without merit and cannot estimate a range of ~~Chancery. On March 9, 2017, plaintiffs Girardi and Slingerland filed a consolidated putative derivative complaint in the Court~~potential liability, if any, at this time. CNA has accepted tender of ~~Chancery, purportedly~~these claims as well.

Unless otherwise noted, based on the information currently available, there are no claims or actions pending or threatened against the Company that, if adversely determined, would have, in Company’s ~~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~~management’s judgement based on the ~~Company’s Board of Directors between 2012 and 2014, and seeks recovery from those individuals, not from us. The complaint asserts that, among other things,~~information known to management, a material adverse effect on 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 Company securities while in possession of material non-public information. On November 27, 2017, the Court of Chancery granted the defendants’ motion to dismiss.Company.

Following the dismissal of the putative derivative action discussed above, former plaintiffs Girardi and Slingerland sent the Company a letter dated January 5, 2018 (the “Shareholder Demand”) demanding that the Board of Directors take action to remedy purported breaches of fiduciary duties allegedly related to the claims asserted in the above-discussed securities class action and derivative actions. The Company acknowledged the Shareholder Demand on January 22, 2018. The Company’s Board of Directors has delegated evaluation of the Shareholder Demand to the Audit Committee of the Board of Directors.

14.

~~13.~~Segment Information

The Company provides operating results in ~~three~~four reportable segments: GovDeals, ~~Capital Assets Group (CAG), and~~ Retail Supply Chain Group (RSCG)~~. These three segments constitute 97%~~, Capital Asset Group (CAG), and Machinio. Descriptions of the Company's revenue as of December 31, 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 our ~~revenues vary depending upon the models employed and the level of service required. A description of the~~ reportable segments are as follows:

•

The GovDeals reportable segment provides ~~self-service~~self-directed service solutions ~~in which sellers list their assets for sale without relying on our services, and it consists of marketplaces~~ that enable ~~local~~federal, state, and ~~state~~local government entities including city, county and state agencies ~~as well as commercial businesses~~ located in the United States and Canada, to sell

~~Liquidity Services, Inc. and Subsidiaries~~

~~Notes to the Unaudited Consolidated Financial Statements — (Continued)~~

surplus and salvage assets. GovDeals also offers a suite of services that includes asset sales and marketing services. 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~~real estate assets ~~that~~through the Company receives as the exclusive contractor of the Defense Logistics Agency of the Department of Defense (DoD) are sold in this segment. CAG also offers a suite of services that includes surplus management, asset valuation,GovDeals and asset sales and marketing services. Commercial sellers are located worldwide. This segment includes the Company's Network International, GoIndustry DoveBid, Government Liquidation, and Uncle Sam's Retail OutletBid4Assets 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 ~~eCommerce~~e-commerce services. This segment uses the Liquidation.com, Secondipity and AllSurplus marketplaces.

•

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 the ~~Company's Liquidation.com, Liquidation.com DIRECT,~~Americas, Europe, Australia, Asia, and ~~Secondipity~~Africa. This segment uses the AllSurplus and GoIndustry DoveBid marketplaces.

•

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. Machinio also offers the Machinio System service that provides equipment sellers with a set of online marketing tools that includes website hosting, email marketing, and inventory management.

We also report results for Corporate & Other, ~~primarily consists of~~including elimination adjustments.

Liquidity Services, Inc. and Subsidiaries

Notes to the Company's TruckCenter and IronDirect operating segments which are not individually significant, as well as elimination adjustments. The TruckCenter business consisted of land-based, live auctions for fleet and transportation equipment. On January 30, 2017, the Company exited the TruckCenter land-based, live auction business in order to focus its time and resources on its ecommerce marketplace strategy. IronDirect offers buyers access to construction equipment, parts and services through a single ecommerce marketplace.

Unaudited Condensed Consolidated Financial Statements - (Continued)

Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker ~~("CODM")~~(CODM), which is the Company's ~~CEO,~~Chief Executive Officer, with oversight by the Board of Directors. The Company reports reportable segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period. In connection with ~~that~~this assessment, the CODM uses ~~segment gross~~direct profit to evaluate the performance of each segment. ~~Gross~~Segment direct profit, ispreviously referred to as segment gross profit, continues to be calculated as total revenue less cost of goods sold (excluding depreciation and ~~seller distributions.~~

amortization).

The following table sets forth certain financial information for the Company's reportable segments:


		Three Months Ended March 31,				Six Months Ended March 31,
(in thousands)		2023		2022		2023		2022
GovDeals:
	Purchase revenue	$	—	$	—	$	—	$	—
	Consignment and other fee revenues		15,079		14,559		28,686		28,543
	Total revenue		15,079		14,559		28,686		28,543
	Segment direct profit	$	14,291	$	13,853	$	27,183	$	27,148

RSCG:
	Purchase revenue	$	44,343	$	33,967	$	80,213	$	66,050
	Consignment and other fee revenues		9,329		7,858		19,474		14,459
	Total revenue		53,672		41,825		99,687		80,509
	Segment direct profit	$	16,675	$	16,619	$	32,686	$	30,876

CAG:
	Purchase revenue	$	2,931	$	3,417	$	5,694	$	7,552
	Consignment and other fee revenues		6,487		5,575		13,116		12,648
	Total revenue		9,418		8,992		18,810		20,200
	Segment direct profit	$	7,026	$	6,085	$	15,528	$	14,805

Machinio:
	Purchase revenue	$	—	$	—	$	—	$	—
	Consignment and other fee revenues		3,286		2,899		6,553		5,731
	Total revenue		3,286		2,899		6,553		5,731
	Segment direct profit	$	3,095	$	2,750	$	6,199	$	5,424

Corporate & Other, including elimination adjustments:
	Purchase revenue	$	—	$	—	$	—	$	—
	Consignment and other fee revenues		—		—		—		—
	Total revenue		—		—		—		—
	Segment direct profit	$	—	$	—	$	—	$	—

Consolidated:
	Purchase revenue	$	47,273	$	37,384	$	85,907	$	73,602
	Consignment and other fee revenues		34,180		30,891		67,829		61,381
	Total revenue		81,453		68,275		153,736		134,983
	Total Segment direct profit	$	41,087	$	39,307	$	81,596	$	78,253

Three Months Ended December 31,
2017 2016
GovDeals:
Revenue $ 7,040
$ 5,813
Gross profit $ 6,543
$ 5,438

CAG:
Revenue $ 32,063
$ 42,506
Gross profit $ 17,603
$ 21,202

RSCG:
Revenue $ 20,485
$ 21,411
Gross profit $ 6,728
$ 7,002

Corporate & Other:
Revenue $ 1,555
$ 1,065
Gross profit $ (675 ) $ 335

Consolidated:
Revenue $ 61,143
$ 70,796
Gross profit $ 30,199
$ 33,977

The following table reconciles segment direct profit used in the reportable segments to the Company's consolidated results:


	Three Months Ended March 31,						Six Months Ended March 31,
(in thousands)	2023			2022			2023			2022
Reconciliation:
Total segment direct profit	$	41,087		$	39,307		$	81,596		$	78,253
Other costs and expenses from operations (1)	$	35,852			34,801			71,495			69,297
Fair value adjustment of acquisition earn-outs	$	—			(8,500	)		—			(8,500	)
Interest and other income, net	$	(583	)		(23	)		(833	)		(187	)
Income before provision for income taxes	$	5,818		$	13,029		$	10,934		$	17,643

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements —- (Continued)

(1)

Other costs and expenses from operations is defined as Total costs and expenses from operations per the Condensed Consolidated Statements of Operations, less Cost of goods sold (which is included in the calculation of Segment direct profit).

The ~~following table presents a reconciliation between~~percent of our revenues that came from transactions conducted outside of the ~~reportable segments~~United States for the three months ended March 31, 2023 and 2022, was 9.4% and 15.4%, respectively. The percent of our revenues that came from transactions conducted outside of the ~~Company's consolidated results:~~United States for the six months ended March 31, 2023 and 2022, was 11.3% and 14.5%, respectively.

Three months ended December 31,
2017 2016
Reconciliation:
Revenue $ 61,143
$ 70,796
Gross profit 30,199
33,977
Operating Expenses 36,651
42,237
Interest and other (income) expense, net (425 ) 34
(Benefit) provision for income taxes (4,815 ) 103
Net loss $ (1,212 ) $ (8,397 )

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2022, and subsequent filings with the Securities and Exchange ~~Commission.~~Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.

All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.

The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and the information contained elsewhere in this document.

Overview

About ~~us.~~ 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 inventory~~thousands of sellers through our leading auction marketplaces, search engines, asset management software, and ~~equipment for~~related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government ~~clients~~sellers.

Our business delivers value to stockholders by ~~operating~~unleashing the intrinsic value of surplus through our marketplace platforms. These platforms ignite and enable a ~~network~~self-reinforcing cycle of ~~leading ecommerce marketplaces that enable~~value creation where buyers and sellers continue to ~~transact~~attract one another in ~~an efficient, automated environment offering over 500 product categories. Our marketplaces provide professional~~ever-increasing numbers. The result is a continuous flow of goods that becomes increasingly valuable as more participants join the platform, thereby creating positive network effects that benefit sellers, buyers, ~~access to a global,~~and stockholders.

Results from our operations are 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, as well as self-service tools. We organize the products on our marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Our network of marketplaces includes: www.liquidation.com, www.govliquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.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 threefour reportable ~~segments,~~segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and ~~GovDeals.~~Machinio. See Note 1314 - Segment Information to the condensed consolidated financial statements for more information regarding our segments.

Macroeconomic Conditions

Supply chain challenges and shifting consumer sentiment.Constraints in the ~~Notes~~production of new vehicles and heavy equipment originating during the COVID-19 pandemic, particularly as it relates to new fleet sales, are continuing to limit the supply of used vehicles available for sale on our marketplaces, while used car market price indices are simultaneously experiencing heightened volatility. In addition, general consumer behavior appears to be more cautious, focused more on essential goods with limited discretionary high-value purchases. These conditions are impacting our GMV, Revenues, Segment direct profit and Segment direct profit margins, and may continue to do so while these conditions persist, or if similar challenges emerge in other key asset categories.

Effects of Inflation. Rising inflation in both the U.S. and internationally has weighed on the global economy, increasing prices for energy, shipping, and labor, among other areas of the macroeconomic environment. These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation. Currently, the Company is unable to predict the likelihood, magnitude and timing of inflationary risk to our business, if any. As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, whose impacts may vary across each of our individual asset classes.

Disruptions in the Financial Services Industry. In March 2023, Silicon Valley Bank and Signature Bank were each closed and taken over by the Federal Deposit Insurance Corporation (FDIC), which created significant market disruption and uncertainty for entities that bank with those institutions, and which raised significant concern regarding the stability of the banking system in the United States. The Company did not maintain any funds or lending relationships with either of those banks and the banks we do maintain accounts and relationships with have, to date, not experienced any significant disruptions. Any additional market disruptions could impact banks directly used by the Company or those used by its buyers and sellers that transact using its marketplaces, which could have a negative effect on the Company’s financial position and results of operations.

Russia-Ukraine Conflict. The global financial markets have experienced volatility subsequent to the ~~Consolidated Financial Statements~~invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing. In response to the invasion, numerous countries, including the United States, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals. The conflict has further heightened global supply chain disruptions and impacted the international trade and energy markets. For the three and six months ended March 31, 2023 and 2022, the Company's total revenues directly associated with Russia and Ukraine were not material to our consolidated financial results. We will continue monitoring the events in Ukraine and any potential future impacts on our business.

COVID-19 Pandemic. At this time, the likelihood, magnitude, and timing of business developments across our reportable segments are difficult to predict given the continued economic uncertainty. As a result, prior trends in the Company's results of operations may not be applicable.

Industry Trends

We believe there are several industry trends positively impacting the long-term growth of our business including:

•

the increase in volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales;

•

the increase in government regulations and the need for ~~Segment Information.~~corporations to have sustainability solutions with verifiable recycling and remarketing of surplus assets;

•

the increase in outsourcing surplus disposition and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital, and increasingly prefer service providers with proven track records, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain;

•

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 could impact our long term growth;

•

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; and

•

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.

Our Marketplace Transactions

We believe our ~~ability~~marketplaces benefit over time from greater scale and adoption by our constituents creating a continuous flow of goods benefiting our buyers and sellers. As of March 31, 2023, we had more than 5.0 million registered buyers in our marketplaces. We had access to ~~create liquid marketplaces for surplus~~millions of additional end-users through a range of external consumer marketplaces. Aggregating this level of buyer demand and ~~salvage assets generates~~market data enables us to generate a continuous flow of goods from ~~our~~ corporate and government ~~sellers. This flow of goods~~sellers, which in turn attracts an increasing number of ~~professional buyers to our marketplaces.~~buyers. During the twelve months ended ~~December~~March 31, ~~2017,~~2023, the approximate number of registered buyers ~~grew~~increased from ~~3,018,000~~4,785,000 to ~~3,209,000,~~5,021,000, or ~~approximately 6.0%~~5%.

~~Our revenue.~~ As buyers continue to discover and use our e-commerce marketplaces as an effective method to source assets, we believe our solutions become an increasingly attractive sales channel for corporate and government agency sellers. We believe this self-reinforcing cycle results in greater transaction volume and enhances the value of our marketplaces.

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 Purchase revenues line item on the Condensed Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our ~~vendors~~sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the ~~primary obligor, and take general and physical inventory risks and credit risk under this~~principal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. ~~Also included in the~~The proceeds paid by buyers ~~are~~also include transaction fees, ~~charged to the buyers,~~ referred to as buyer premiums. ~~Revenue from~~For the three and six months ended March 31, 2023, our purchase transaction model accounted for ~~approximately 65.9%~~17.0% and 15.7% of our Gross Merchandise Volume (GMV), respectively, and 58.0% and 55.8% of our total ~~revenue for~~revenues, respectively. For the three and six months ended ~~December~~March 31, 2017. Included in these amounts is revenue earned from the sale of property obtained under the Scrap Contract, where the price we pay the Defense Logistics Agency Disposition Services (DLA) of the Department of Defense (DoD) for the property purchased is based on a revenue share model, and which accounted for approximately 8.4% of our total revenue for the three months ended December 31, 2017. The merchandise sold under2022, our purchase transaction model accounted for ~~approximately 24.7%~~13.5% and 14.0% of our ~~gross~~GMV, respectively, and 54.8% and 54.5% of our total revenues, respectively. These amounts included sales of commercial merchandise ~~volume, which is the total sales value~~sourced from multiple vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial merchandise we purchased under these contracts represented 63.2% and 51.7% of ~~all merchandise~~consolidated Cost of goods sold ~~through our marketplaces during a given period,~~ for the three months ended ~~December~~March 31, ~~2017. The revenue from our purchase transaction model is recognized within~~2023, and 2022, respectively, and 60.6% and 56.0% of consolidated Cost of goods sold for the ~~Revenue line item on the Consolidated Statements of Operations.~~

six months ended March 31, 2022 and 2022, respectively.

Consignment ~~model — fee revenue.~~model. Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces, and we charge them a commission fee based on the gross or net proceeds received from such sales. ~~This~~The revenue from our consignment transaction model is recognized upon auction close or upon collection of auction proceeds, depending upon the settlement service level selected by the seller. Revenue under the consignment model is recorded within the Consignment and other fee revenues line item on the Condensed Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to ~~their~~the 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~~For the three and six months ended March 31, 2023, our consignment model accounted for ~~approximately 29.1%~~83.0% and 84.3% of our GMV, respectively, and 35.1% and 36.9% of our total ~~revenue for~~revenues, respectively. For the three and six months ended ~~December~~March 31, ~~2017. The merchandise sold under~~2022, our consignment model accounted for ~~approximately 75.3%~~86.5% and 86.0% of our GMV, ~~for the three months ended December 31, 2017. The revenue from~~respectively, and 37.7% and 38.0% of our ~~consignment transaction model is recognized within the Fee Revenue line item on the Consolidated Statements of Operations.~~

total revenues, respectively.

Other fee revenues. We also earn non-consignment fee revenue ~~which is largely made up of service revenue related to our Surplus Contract. This~~from Machinio's subscription services, as well as other services including asset valuation. Non-consignment fee revenue is ~~recognized~~recorded within the ~~Fee revenue~~Consignment and other fee revenues line item on ~~our~~the Condensed Consolidated Statements of ~~Operations,~~Operations. Other fee revenues accounted for 6.9% 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 sold 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 growth~~7.3% of our business including: (1) the increase in the adoption of the Internet by businesses to conduct ecommerce both in the United States 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.

~~Our Vendor Agreements~~

~~Our DoD agreements.~~ ~~We have two vendor contracts with the DoD pursuant to which we acquire, manage and sell excess property.~~

•~~Surplus Contract.~~ The Surplus Contract is a competitive-bid contract under which we acquire, manage and sell usable DoD surplus personal 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 non-rolling stock surplus property. The initial two-year base period of the current Surplus contract ended in December 2016 and was extended through December 14, 2017. Transactions under this contract follow the purchase transaction model described above. This contract is included within our CAG segment.

On October 11, 2017, the DLA published a Request for Technical Proposal (“RFTP”) and draft Invitation for Bid (“IFB”) for the sale of surplus, useable non-rolling stock property. The RFTP and IFB related to the DLA’s award of two term contracts. On December 5, 2017, the DLA determined that we were not the high bidder for either of the two contracts. We made our final inventory purchase under the Surplus Contract during December 2017, and we are currently in the process of winding down the Surplus Contract. The Surplus Contract accounted for $74.6 million, or 27.6% of revenue in fiscal year 2017, $21.1 million or 29.9% of revenue in the first quarter of fiscal 2017, and $16.2 million or 26.5% of revenue in the first quarter of fiscal 2018. We expect revenue to continue to decline further in the second and third quarters of fiscal 2018, and no further revenue from this contract in future periods. The property sold under the Surplus Contract accounted for approximately 8.9% and 9.9% of our GMVtotal revenues for the three and six months ended ~~December~~March 31, ~~2017~~2023, respectively, and ~~2016.~~

~~In regards to the impact on our profitability resulting from the Surplus contract revenue change noted above, we anticipate the lost profits will be offset by benefits from the reorganization~~7.6% and realignment efforts in fiscal 2017 and Q1-FY18 (see Note 11 Business realignment expenses). The reorganization efforts in our CAG commercial business and Corporate functions are expected to generate a benefit during FY18 and beyond, which combined with the 2017 realignments7.4% of our ~~Truckcenter and Iron Direct businesses, are expected to offset the impact of the DoD Surplus contract.~~

We recorded approximately $0.5 million of severance and occupancy cost during the first quarter of fiscal 2018, as a result of the restructuring and realignment efforts undertaken due to the loss of the Surplus Contract. The wind-down is expected to be completed within fiscal 2018.

•~~Scrap Contract.~~ On April 8, 2016, the DLA awarded us the second Scrap Contract. Under the second Scrap Contract, we acquire scrap property from the DLA and pay 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 consists of items determined by the DoD to have no use beyond their base material content, such as metals, alloys, and building materials. We bear 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. Transactions under this contract follow 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.

~~Resale of scrap property that we purchased under the Scrap Contract accounted for 8.4% and 10.0% of our revenue, and 3.3%, and 4.5% of our GMV~~total revenues for the three and six months ended ~~December~~March 31, ~~2017 and 2016,~~2022, respectively. ~~This contract is included within our CAG segment.~~

Our ~~commercial~~Vendor Agreements

Commercial agreements.We have amultiple vendor ~~contract~~contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While purchase model transactions account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated Costs of goods sold. The property we purchased under ~~this contract~~these contracts represented ~~approximately 19.4%,~~63.2% and ~~17.8%~~51.7% of ~~cost~~consolidated Cost of goods sold for the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, respectively, and 60.6% and 56.0% of consolidated Cost of goods sold for the six months ended March 31, 2023 and 2022, respectively. ~~This contract is~~These contracts are included within our RSCG segment.

Our agreements with our other sellers are generally terminable at will by either party.

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. ~~The~~Our GMV ~~of goods sold in our marketplaces during~~for the three and six months ended ~~December~~March 31, ~~2017 and 2016 totaled $155.4~~2023, was $282.7 million and ~~$159.7~~$553.5 million, respectively.

Total registered ~~buyers.~~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 ~~December~~March 31, ~~2017~~2023, and ~~September 30, 2017,~~2022, we had ~~3,209,000~~5.0 million and ~~3,171,000~~4.8 million, registered buyers, respectively.

None of our buyers represented more than 10% of our revenue during the three and six months ended March 31, 2023.

Total auction participants.For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended ~~December~~March 31, ~~2017~~2023 and ~~2016, 519,000~~2022, 797,000 and ~~544,000~~829,000 participants participated in auctions on our marketplaces, respectively.

During the six months ended March 31, 2023 and 2022, approximately 1,541,000 and 1,471,000, respectively, total auction participants participated in auctions on our ~~marketplaces, respectively.~~

marketplaces.

Completed ~~transactions.~~transactions. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended March 31, 2023 and 2022, we completed 209,000 and 245,000 transactions, respectively. During the six months ended March 31, 2023 and 2022, we completed approximately 423,000 and 456,000 transactions, respectively.

Critical Accounting Policies and Estimates

The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, 2022, and in Note 2 — Summary of Significant Accounting Policies to the condensed consolidated financial statements. The following discussion is a supplement to the disclosures referenced in connection with accounting estimates made in preparing the purchase accounting for the Bid4Assets acquisition completed during the year ended September 30, 2022.

Earn-out liability. Following the acquisition of Bid4Assets during the year ended September 30, 2022, shareholders of Bid4Assets were eligible to receive up to $37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, ~~2017 and 2016, we completed 122,280 and 129,000 transactions, respectively.~~

~~Non-GAAP Financial Measures~~

~~EBITDA and adjusted EBITDA.~~ EBITDA is a supplemental non-GAAP financial measure and is equal to net income plus interest and other (income) expense, net; provision for income taxes; and depreciation and amortization. Interest and other (income) expense, net, can include nonoperating gains and losses, such2022. The earn-out consideration was preliminarily fair valued at approximately $28.0 million as ~~from foreign currency fluctuations and disposals of~~

~~fixed assets. Our definition~~ of ~~adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation expense,~~the acquisition ~~costs such as transaction expenses and changes~~date on November 1, 2021. As of March 31, 2023, $3.5 million in earn out ~~estimates, business realignment expense, disposition expenses, and goodwill and long-lived asset impairment.~~

~~We believe EBITDA and adjusted EBITDA are useful to an investor in evaluating our~~payments were made as based upon actual performance ~~for~~through the ~~following reasons:~~

~~Depreciation and amortization expense primarily relates to property and equipment, and~~final earn-out measurement period ending December 31, 2022. During the ~~amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly over~~year ended September 30, 2022, 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 recognizedsignificant unobservable inputs used 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.

The authoritative guidance related to business combinations requires the recognition of contingent consideration so that it is recognized at the time of acquisition rather than when it is probable and disallows the capitalization of transaction costs. We believe adjusting net income 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 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 allvalue measurement categorized within Level 3 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.~~

Three Months Ended December 31,
2017 2016
(In thousands)
(Unaudited)
Net loss $ (1,212 ) $ (8,397 )
Interest and other (income) expense, net (425 ) 34
(Benefit) provision for income taxes (4,815 ) 103
Depreciation and amortization 1,211
1,429
EBITDA (5,241 ) (6,831 )
Stock compensation expense 930
2,500
Business realignment expenses* 1,349
—
Adjusted EBITDA $ (2,962 ) $ (4,331 )

* Business realignment expenses, which are excluded from Adjusted EBITDA, arefair value hierarchy included ~~in Other operating expenses (income) on the Statement of Operations. See Note 11 to Notes to Consolidated Financial Statements for further detail.~~

~~Critical Accounting Estimates~~

~~Our discussion and analysis of our financial condition and~~estimated results of operations ~~are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation~~over the earn-out period, a high level of ~~these consolidated financial statements requires us to make estimates and judgments that affect~~volatility of operating results given the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. A “critical accounting estimate” is one which is both important to the portrayal of our financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a resultnature of the ~~need to make estimates about~~business model and its economic environment create a wider range of potential outcomes over the effect of matters that are inherently uncertain. We continuously evaluate our critical accounting estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. 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:~~

~~a buyer submits the winning bid in an auction and, as a result, evidence of an arrangement exists,~~earn-out period, and the ~~sale price has been determined;~~

~~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. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.

~~Fee revenue is principally revenue earned under the consignment model, and is presented separately as it accounts for more than 10% 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 broker on a consignment 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.

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).~~

~~The amount of our revenue that was generated outside of the U.S. for the three months ended December 31, 2017 and 2016 was 13.4% and 13.3%, respectively.~~

~~Inventory.~~ Inventory consists of products available for sale and is valued at net realizable value. This valuation requires us to make judgments based on currently available information about expected recoverable value.

~~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, whichdiscount rate.

Goodwill. Goodwill represents the ~~amount at which the assets could be bought or sold~~costs 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~~excess 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~~acquired through acquisitions by the ~~reported value of~~Company. Pursuant to our purchase price allocation, goodwill ~~and other intangible assets. Estimating future cash flows requires significant judgment, and our projections may vary~~arising 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 ratethe Bid4Assets acquisition was determined ~~by our management~~ to be ~~consistent with industry discount rates and the risks inherent~~$30.1 million. As discussed in ~~our current business model.~~

~~Determining~~Note 11 – Fair Value Measurement, 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~~Bid4Assets earn-out liability declined 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 December 31, 2017, we have four reporting units. We will continue to sell trucks and related equipment through our other ecommerce marketplaces.

As part of our fiscal year 2017 annual impairment assessment performed as of July 1, 2017, we believed that certain events required performing a step one evaluation of goodwill to identify potential impairment. As a result of the step one test, we determined that our reporting units with goodwill had fair values as of September 30, 2017, that substantially exceeded their respective book values.

~~During the three months ended December 31, 2017, we did not identify any indicators of impairment.~~

~~We cannot predict the occurrence of certain future events that might adversely affect the reported value of goodwill and other intangible assets, which totaled $45.9~~$24.5 million at December 31, 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 customers.

~~Income taxes.~~ We account for income taxes using 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 $10.1 million to our valuation allowance~~ during the fiscal year ended September 30, ~~2017. During~~2022. As of March 31, 2023, there was no remaining earn-out liability pursuant to the ~~three months ended~~final earn out measurement period ending December 31, ~~2017, we recorded a reduction~~2022. The decline in earn-out liability since the acquisition date was due to our valuation allowance of $10.3 million. The reduction is comprised of $10.3 million for the re-measurement of deferred tax assets at the newly enacted tax rate and $1.7 million for the recognition of tax credits resulting from the repealtiming changes, which were not known nor knowable as of the ~~alternative minimum tax, netted against a charge~~acquisition date, impacting the level of ~~$1.7 million of net operating losses generated in~~auction events and transactions that were expected to occur during the ~~first quarter.~~

We apply 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 three months endedearn-out period ending December 31, ~~2017, we did~~2022. These timing changes have not ~~identify new uncertain tax benefits.~~

~~We provide~~reflected substantive changes to the long-term outlook for ~~income taxes based on our estimate~~real estate sales within the GovDeals segment and were not considered a triggering event for testing goodwill or long-lived assets for impairment as of ~~federal and state tax liabilities. These estimates include, among other items, effective rates~~December 31, 2022. The Company will continue to monitor for ~~state and local income taxes, estimates related to depreciation and amortization expense allowable for tax purposes, and~~changes that could impact the ~~tax deductibility~~recoverability 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 recognize all share-based payments to employees, including grants of employee stock options, in the statements of operations based on their estimated fair values. We use the Black-Scholes option pricing model as well as a Monte Carlo simulation to estimate the fair values of certain share-based payments.

The above list is not intended to be a comprehensive list of all of our accounting estimates. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with little need for management’s judgment in their application. There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result. See our audited financial statements and related notes, which contain accounting policies and other disclosures required by GAAP.

its goodwill.

Components of Revenue and Expenses

Revenue. ~~We generate a large portion~~Refer to the discussion in the Our revenue section above, and to Note 2 — Summary of ~~our revenue from the proceeds of sales of merchandise held in inventory. We also generate commission revenue from sales~~ Significant Accounting Policies in our ~~marketplaces~~Annual Report onForm 10-K for discussion of ~~merchandise that is owned by others. Our revenue recognition practices are discussed in more detail in~~ the ~~section above entitled “Critical Accounting Estimates~~.”

~~Cost of goods sold.~~ Company's related accounting policies.

Cost of goods sold ~~includes the costs of purchasing~~(excludes depreciation and ~~transporting property for auction, as well as credit card transaction fees.~~

~~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 disbursedamortization). Refer to the ~~DoD~~discussion in Note 2 — Summary of Significant Accounting Policies in our Annual Report on ~~a monthly basis a percentage~~Form 10-K for discussion ofthe ~~profits~~Company's Costs of ~~the aggregate monthly sales. We retained the remaining percentage of these profits after the DoD’s disbursement.~~

goods sold and related accounting policies.

Technology and operations.Technology expenses primarily consist ~~primarily~~ of the cost of technical staff ~~who~~(including stock compensation), third party services, licenses, and infrastructure, all as required to develop, configure, deploy, maintain, and ~~maintain~~secure our ~~marketplaces~~marketplace platforms, business operational systems, and ~~corporate infrastructure. These personnel also develop and upgrade the software systems that support our operations, such as sales processing.~~facilities. Technology expenses ~~also includes certain~~are net of the required capitalization of costs associated with enhancing our ~~LiquidityOne platform.~~ marketplace platforms and other software development activities. Depreciation and amortization of capitalized software development costs, purchased software, acquired developed software intangible assets, and computer hardware are included within Depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. Technology expenses are presented separately from Costs of goods sold (excluding depreciation and amortization) in the Condensed Consolidated Statements of Operations, as these expenses provide for the general availability of our marketplace platforms and other business operational systems and are not attributable to specific revenue generating transaction activity occurring on our marketplaces.

Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC ~~350.~~350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our ~~LiquidityOne platform. At the end of the first quarter of fiscal 2017, we determined that a seller~~marketplaces and buyer management module of the LiquidityOne platform was ready for its intended use. As such, we began amortizing the associated capitalized costs during the second quarter of fiscal year 2017. During the fourth quarter of fiscal year 2017, we launched our Network International energy marketplace on the new LiquidityOne platform. As such, we determined that additional modules of the LiquidityOne platform were ready for their intended use, and began amortizing the associated capitalized costs during the fourth quarter of fiscal year 2017. During the first quarter of fiscal 2018, we completedsupport systems, as well as other software development ~~of our new Return to Vendor ("RTV") module of the LiquidityOne platform, and began amortizing the associated capitalized costs during the quarter.~~

activities.

Operations expenses consist primarily of ~~operating~~ costs to operate our distribution centers, including ~~buyer relations,~~ shipping logistics, inventory management, refurbishment, and ~~distribution center operating costs.~~

administrative functions; costs to enhance our online auctions listings and provide customer support; and costs associated with field support and preparation and transfer of goods from sellers to buyers. Operations expenses include both internal and external labor costs, as well as other third-party charges. These costs are expensed as incurred.

Sales and ~~marketing.~~marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional ~~activities.~~activities, including buyer and seller acquisition, as well as general brand marketing. These activities

include online marketing campaigns such as paid search ~~advertising.~~

advertising, as well as offline marketing efforts, trade shows, and marketing analytics.

General and ~~administrative.~~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 with~~in response to the volume of merchandise sold through our marketplaces.

Depreciation and ~~amortization.~~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 equipment~~internally developed software, and amortization of intangible ~~assets from our acquisitions.~~

~~Other operating expenses (income)~~assets.

Fair value adjustment of acquisition earn-outs. ~~Other operating expenses (income) includes~~Fair value adjustment of acquisition earn-outs consists of the change in fair value of ~~financial~~earn-out consideration following a business combination.

Other operating (income) expenses. Other operating expenses, net includes impairment of long-lived and other assets, ~~and liabilities,~~impacts of lease terminations, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.

Interest and other ~~(income) expense, net.~~income, net. Interest and other ~~(income) expense,~~income, net consists of interest income on interest bearing checking accounts, money market funds, interest and unused commitment fees in connection with the ~~note receivable related to~~Company's Credit Agreement, the ~~sale~~components of net periodic pension (benefit) other than the ~~Jacobs Trading business,~~service component, and impacts of foreign currency ~~fluctuations, and gains and losses on the sale of fixed assets.~~

fluctuations.

Income taxes. For interim income tax reporting, ~~the Company estimates its~~we estimate our annual effective tax rate and ~~applies~~apply this effective tax rate to ~~its year to date~~our year-to-date pre-taxincome (loss) ~~income. The Company’s~~. Our effective income tax rate ~~before~~after discrete items was ~~-5.8%~~24.9% for the ~~three~~six months ended ~~December 31, 2017.~~March 31,2023. The ~~2018~~ effective tax rate differed from the statutory federal rate of ~~24.53%~~21% primarily as a result of ~~the valuation allowance charge for fiscal 2017 and~~ the impact of foreign, state, and local income taxes and permanent tax adjustments.

Results of Operations

The following table sets forth, for the periods indicated, ~~selected statement of operations data expressed as a percentage of revenue:~~

Three Months Ended December 31,
2017 2016
Revenue 100.0 % 100.0 %
Costs and expenses from operations:

Cost of goods sold 45.2
45.7
Seller distributions 5.4
6.4
Technology and operations 29.6
30.9
Sales and marketing 13.6
14.1
General and administrative 12.4
13.9
Depreciation and amortization 2.0
2.0
Other operating expenses (income) 2.4
(1.3 )
Total costs and expenses 110.6
111.7
Loss from operations (10.6 ) (11.7 )
Interest and other (income) expense, net (0.7 ) —
(Loss) before provision for income taxes (9.9 ) (11.7 )
(Benefit) provision for income taxes (7.9 ) 0.2
Net loss (2.0 )% (11.9 )%

our operating results:


	Three Months Ended March 31,						Change						Six Months Ended March 31,						Change
(in thousands)	2023			2022			$			%			2023			2022			$			%
Purchase revenues	$	47,273		$	37,384		$	9,889			26.5	%	$	85,907		$	73,602		$	12,305			16.7	%
Consignment and other fee revenues		34,180			30,891			3,289			10.6	%		67,829			61,381			6,448			10.5	%
Total revenue		81,453			68,275			13,178			19.3	%		153,736			134,983			18,753			13.9	%
Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)		40,366			28,968			11,398			39.3	%		72,139			56,730			15,409			27.2	%
Technology and operations		14,791			13,872			919			6.6	%		29,495			27,790			1,705			6.1	%
Sales and marketing		11,854			11,273			581			5.2	%		22,644			21,317			1,327			6.2	%
General and administrative		6,404			7,053			(649	)		(9.2	)%		13,789			15,284			(1,495	)		(9.8	)%
Depreciation and amortization		2,803			2,603			200			7.7	%		5,567			4,906			661			13.5	%
Fair value adjustment of acquisition earn-outs		—			(8,500	)		8,500		NM				—			(8,500	)		8,500		NM
Other operating (income) expenses, net		(11	)		23			(34	)	NM				129			(10	)		139		NM
Total costs and expenses		76,207			55,292			20,915			37.8	%		143,763			117,517			26,246			22.3	%
Income from operations		5,246			12,983			(7,737	)		(59.6	)%		9,973			17,466			(7,493	)		(42.9	)%
Interest and other income, net		(572	)		(46	)		(526	)	NM				(961	)		(177	)		(784	)	NM
Income before provision for income taxes		5,818			13,029			(7,211	)		(55.3	)%		10,934			17,643			(6,709	)		(38.0	)%
Provision for income taxes		1,573			1,059			514			48.5	%		2,723			2,071			652			31.5	%
Net income	$	4,245		$	11,970		$	(7,725	)		(64.5	)%	$	8,211		$	15,572		$	(7,361	)		(47.3	)%

NM = not meaningful

The following table presents reportable segment GMV, revenue, segment direct profit (previously referred to as segment gross profit ~~and gross profit margin for the periods indicated:~~

Three Months Ended December 31,
2017 2016
GovDeals:
Total revenue $ 7,040
$ 5,813
Gross profit 6,543
5,438
Gross profit margin 92.9 % 93.5 %

CAG:
Total revenue 32,063
42,506
Gross profit 17,603
21,202
Gross profit margin 54.9 % 49.9 %

RSCG:
Total revenue 20,485
21,411
Gross profit 6,728
7,002
Gross profit margin 32.8 % 32.7 %

Corporate & Other:
Total revenue 1,555
1,065
Gross profit (675 ) 335
Gross profit margin (43.4 )% 31.5 %

Consolidated:
Total revenue 61,143
70,796
Gross profit $ 30,199
$ 33,977
Gross profit margin 49.4 % 48.0 %

~~Three Months Ended December 31, 2017 Compared~~which continues to ~~Three Months Ended December 31, 2016~~

~~Segment Results~~

~~GovDeals.~~ Revenue from our GovDeals segment increased 21.1%, or $1.2 million, due to additional sales volume from existing clients and an increase in the number of new sellers. GMV from this segment increased 26.8%, or $15.1 million, also due to additional sales volume from existing clients and an increase in the number of new sellers. Gross profit within this segment increased 20.3%, or $1.1 million, to $6.5 million for the three months ended December 31, 2017, from $5.4 million for the three months ended December 31, 2016, due to the new business. As a percentage of revenue, gross profit slightly decreased to 92.9%, from 93.5% in the prior year. Gross profit isbe calculated as total revenue less cost of goods sold (excluding depreciation and ~~client distributions.~~

~~CAG.~~ ~~Revenue~~amortization)), and segment direct profit as a percentage of total revenue for the periods indicated:


	Three Months Ended March 31,						Six Months Ended March 31,
(dollars in thousands	2023			2022			2023			2022
GovDeals:
GMV	$	167,851		$	180,256		$	328,973		$	337,191
Total revenue	$	15,079		$	14,559		$	28,686		$	28,543
Segment direct profit	$	14,291		$	13,853		$	27,183		$	27,148
Segment direct profit as a percentage of total revenue		94.8	%		95.2	%		94.8	%		95.1	%
RSCG:
GMV	$	73,338		$	59,085		$	138,235		$	112,454
Total revenue	$	53,672		$	41,825		$	99,687		$	80,509
Segment direct profit	$	16,675		$	16,619		$	32,686		$	30,876
Segment direct profit as a percentage of total revenue		31.1	%		39.7	%		32.8	%		38.4	%
CAG:
GMV	$	41,534		$	37,520		$	86,290		$	87,382
Total revenue	$	9,418		$	8,992		$	18,810		$	20,200
Segment direct profit	$	7,026		$	6,085		$	15,528		$	14,805
Segment direct profit as a percentage of total revenue		74.6	%		67.7	%		82.6	%		73.3	%
Machinio:
GMV	—			—			—			—
Total revenue	$	3,286		$	2,899		$	6,553		$	5,731
Segment direct profit	$	3,095		$	2,750		$	6,199		$	5,424
Segment direct profit as a percentage of total revenue		94.2	%		94.9	%		94.6	%		94.6	%
Consolidated:
GMV	$	282,723		$	276,861		$	553,498		$	537,027
Total revenue	$	81,455		$	68,275		$	153,736		$	134,983

Three Months Ended March 31, 2023, Compared to the Three Months Ended March 31, 2022

Segment Results

GovDeals. Total revenues from our ~~CAG~~GovDeals reportable segment ~~decreased 24.6%~~increased 3.6%, or ~~$10.4~~$0.5 million, while GMV decreased by 6.9%, or $12.4 million. The decline in GMV was driven by headwinds impacting volumes of foreclosed real estate properties available for auction, which are generally conducted at a lower take-rate. The increase in revenues was driven by personal property sales, due to a lower volume of goods sold under our Surplus Contract, and a change in mix of commodities to lower value commodities sold under our Scrap contract. Also contributing to the decrease in revenue is lower service revenue related to our Surplus contract,increased take-rate pricing as well as ~~a decrease in revenue within our CAG Commercial business. GMV from our CAG segment decreased 29.4%, or $22.4 million,~~adding new sellers and increased volumes with existing sellers. The used vehicle market continues to be volatile due to ~~a lower volume~~ongoing macroeconomic challenges which have impacted the supply of ~~goods sold under our Surplus Contract, a change in mix of commodities to lower value commodities sold under our Scrap contract,~~used vehicles. Combined, these factors caused revenue as well as a decrease in GMV related to our CAG Commercial business. Gross profit within the CAG segment decreased 17.0%, or $3.6 million, to $17.6 million for the three months ended December 31, 2017, from $21.2 million for the three months ended December 31, 2016. This decrease can primarily be attributed to the lower volume of goods sold under our Surplus Contract, a change in mix of commodities to lower value commodities sold under our Scrap Contract, and lower service revenue under the Surplus Contract. As a percentage of GMV to increase to 9.0% from 8.1% last year. Segment direct profit as a percentage of total revenue ~~gross profit increased to 54.9%, from 49.9%~~remained relatively consistent between the periods.

RSCG.

~~RSCG.~~ Revenue from our RSCG ~~segment decreased 4.3%, or $0.9 million. The decrease in revenue is driven by the change in mix from purchase model to consignment model transactions. GMV from our RSCG~~reportable segment increased ~~16.9%, or~~

~~$4.2~~$11.8 million, ~~over fiscal 2016. The increase in GMV is attributable to increased sales under our consignment model during fiscal 2018. The overall decrease in revenue, but increase in GMV is~~or 28.3%, due to a ~~change~~$14.3 million, or 24.1%, rise in ~~mix from purchase~~GMV due to a stronger seasonal holiday return and liquidations season, continued diversification in its client programs, primarily under the consignment model, ~~transactions. Gross profit within~~as well as expanded sales channels and distribution networks. Changes in consumer sentiment affected holiday season product mix, with a higher proportion of lower value products transacted under the RSCG segment decreased 3.9%, or $0.3 million for the three months ended December 31, 2017, due to the decrease in revenue. As a percentage of revenue, gross profit slightly increased to 32.8%, from 32.7%.

~~Corporate & Other.~~ ~~Revenue from Corporate & Other primarily relates to IronDirect~~purchase model, and certain TruckCenter operations. The decrease in revenue of $0.5 million is largely made up of the decreases in revenue related to our decision to exit certain TruckCenter operations in January 2017, partially offset by increases in revenue from IronDirect. Gross profit within Corporate & Other decreased $1.0 million over prior year, mostly attributable to a $0.6 million inventory ~~reserve within IronDirect during the first quarter of fiscal 2018, and $0.3 million of gross profit related to our Truckcenter operations~~provision during the three months ended ~~December~~March 31, ~~2017,~~2023, resulted in a decrease in segment direct profit as a percentage of revenue from 39.7% to 31.1%.

CAG. Revenue from the CAG reportable segment increased by $0.4 million, or 4.7%, due to a $4.0 million, or 10.7%, increase in GMV driven by consignment sales in our energy and heavy equipment categories. Revenue did not increase at the same rate as GMV due to increases in the mix of transactions using partner organizations. As a result of the increase in revenues, segment direct profit increased by $0.9 million, or 15.5%. Segment direct profit as a percentage of total revenue increased 6.9% due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period. Challenged global supply chains are experiencing heightened disruptions from the Russian invasion of Ukraine and increasing tensions between the United States, and their impacts on international trade and energy markets, COVID-19 and other disruptions, which ~~we subsequently exited.~~

could limit the volume of assets made available for sale in any period.

Machinio. Revenue from our Machinio reportable segment increased 13.4%, or $0.4 million, due to price increases and continued growth in subscribers. As a result of the increase in revenues, segment direct profit increased 12.6%, or $0.3 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

Consolidated Results

Total ~~Revenue.~~revenues - Total consolidated revenue ~~decreased $9.7~~increased $13.2 million, or ~~13.7%,~~19.3%. Refer to ~~$61.1 million~~the discussion of Segment Results above for discussion of the ~~three months ended December 31, 2017, from $70.8 million for the three months ended December 31, 2016, primarily due to a $10.4 million decrease~~ increasein revenue from our CAG segment, a $0.9 million decrease in revenue from our RSCG segment, partially offset by a $1.2 million increase in revenue from our GovDeals segment. Total consolidated GMV decreased $4.3 million, or 2.8%, to $155.4 million for the three months ended December 31, 2017, from $159.7 million for the three months ended December 31, 2016, primarily due to a $22.4 million decrease in GMV from our CAG segment, a $1.2 million decrease within Corporate & Other, partially offset by a $15.1 million increase in GMV from our GovDeals segment, and a $4.2 million increase in GMV from our RSCG segment.

~~Cost of goods sold.~~revenue.

Cost of goods sold ~~decreased $4.7~~(excludes depreciation and amortization). Cost of goods sold increased $11.4 million, or ~~14.6%~~39.3%, which changed at a higher rate than Total revenues primarily due to ~~$27.6~~an increase in purchase transactions at the RSCG segment.

Technology and operations expenses. Technology and operations expenses increased $0.9 million, or 6.6%, from the impact of the growth in our distribution network facilities, market share expansion, and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases.

Sales and marketing expenses. Sales and marketing expenses increased $0.6 million, or 5.2%, from the impact of our market share expansion and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases.

General and administrative expenses. General and administrative expenses decreased $0.6 million, or 9.2%, due to a decrease in stock and other compensation expenses from changes in expected attainment of certain variable compensation targets.

Depreciation and amortization. Depreciation and amortization expense increased $0.2 million, or 7.7%, as we continue to invest in technology and operations to continue our growth.

Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs decreased by $8.5 million as a non-cash gain for the three months ended December 31, 2017, from $32.3 million for the three months ended December 31, 2016. Approximately $4.3 million of this decrease is attributable to a lower volume of sales under our Surplus Contractsame amount was recorded during the three months ended ~~December~~March 31, ~~2017. In line with these changes, cost~~2022, due to a reduction in the fair value of ~~goods sold slightly decreased to 45.2% of revenue, from 45.7%~~the Bid4Assets earn-out liability. See Note 11 - Fair Value Measurement for further information.

Other operating (income) expenses.

~~Seller distributions.~~ ~~Seller distributions decreased $1.2 million, or 26.7%, to $3.3 million for~~ Other operating expenses (income) was consistent between the three months ended ~~December~~March 31, 2017, from $4.5 million for the three months ended December 31, 2016, due to lower sales under our Scrap Contract during the three months ended December 31, 2017. As a percentage of revenue, seller distributions decreased to 5.4%, from 6.4%.

~~Technology~~2023 and ~~operations expenses.~~ Technology and operations expenses decreased $3.8 million, or 17.4%, to $18.1 million for the three months ended December 31, 2017, from $21.9 million for the three months ended December 31, 2016, due to a decrease in staff costs of approximately $3.4 million, partially the result of business realignment activities. As a percentage of revenue, technology and operations expenses decreased to 29.6%, from 30.9%.

~~Sales and marketing expenses.~~ Sales and marketing expenses decreased $1.7 million, or 17.0%, to $8.3 million for the three months ended December 31, 2017, from $10.0 million for the three months ended December 31, 2016, due to decreases in staff cost of approximately $1.2 million, as well as lower marketing and promotional expenses. As a percentage of revenue, sales and marketing expenses decreased to 13.6%, from 14.1% in the prior year.

~~General and administrative expenses.~~ General and administrative expenses decreased $2.3 million, or 23.2%, to $7.6 million for the three months ended December 31, 2017, from $9.9 million for the three months ended December 31, 2016. Included within this decrease are reductions in overall staff cost of approximately $1.2 million, partially the result of business realignment activities, as well as lower non-income tax regulatory costs, and a decrease in certain lease costs. As a percentage of revenue, general and administrative expenses decreased to 12.4%, from 13.9% in the prior year.

~~Depreciation and amortization expenses.~~ ~~Depreciation and amortization expenses decreased $0.2 million, or 14.3%, to $1.2 million for the three months ended December 31, 2017, from $1.4 million for the three months ended December 31, 2016.~~

~~Other operating expenses (income).~~ Other operating expenses (income) reflected an expense of approximately $1.5 million in the three months ended December 31, 2017, which consisted of approximately $1.3 million of restructuring cost (for further information, see Note 11 to the Consolidated Financial Statements included in this Report), and a $0.1 million loss on the value of a right the Company holds from its participation in certain principal transactions in the Company's CAG business. In the three months ended December 31, 2016, Other operating expenses (income) reflected income of $0.9 million, which

~~represented a gain on the value of a right the Company holds from its participation in certain principal transactions in the Company's CAG business.~~

2022.

Interest and other (income) ~~expense,~~, net.Interest and other expenses (income) ~~expense,~~, net increased ~~$0.4~~$0.5 million, ~~over prior year, consisting~~due to the effect of ~~a gain on sale of equipment of approximately $0.3 million, and $0.1 million of~~rising interest ~~income~~rates on our ~~note receivable.~~

~~(Benefit) provision~~cash equivalent and short-term investment holdings.

Provision for income taxes. ~~(Benefit) provision~~Provision for income taxes increased ~~$4.9~~$0.5 million ~~to a benefit of $4.8 million for the three months ended December 31, 2017, from a provision of $0.1 million for the three months ended December 31, 2016,~~ due to ~~a decrease in the deferred tax balance resulting from the newly enacted lower corporate tax rate, a reduction to the valuation allowance, and~~ the impact of foreign, state, and local taxes and permanent tax adjustments.

~~Net loss.~~ ~~Net loss~~

Six Months Ended March 31, 2023, Compared to the Six Months Ended March 31, 2022

Segment Results

GovDeals. Total revenues from our GovDeals reportable segment increased 0.5%, or $0.1 million, while GMV decreased by 2.4%, or $8.2 million. The decline in GMV was driven by headwinds impacting volumes of foreclosed real estate properties available for auction, which are generally conducted at a lower take-rate, as well as used vehicles. Revenue including revenue as a percentage of GMV, segment direct profit, and segment direct profit as a percentage of total revenue remained consistent between the periods.

RSCG. Revenue from our RSCG reportable segment increased $19.2 million, or 23.8%, due to a $25.8 million, or 22.9%, rise in GMV due to a stronger holiday return and liquidations season, continued diversification in its client programs, primarily under the consignment model, as well as expanded sales channels and distribution networks. Changes in consumer sentiment affected holiday season product mix, with a higher proportion of lower value products transacted under the purchase model, and a $0.6 million inventory provision during the three months ended ~~December~~March 31, ~~2017 was $1.2~~2023, resulted in a decrease in segment direct profit as a percentage of revenue from 38.4% to 32.8%.

CAG. Revenue from the CAG reportable segment decreased by $1.4 million, or 6.9%, due to a $1.1 million, or 1.2%, decrease in GMV primarily due to project timing and the availability of international spot purchase transactions. However, segment direct profit increased by $0.7 million, or 4.9%, due to an increase in transactions conducted under our consignment model. Segment direct profit as a percentage of total revenue increased 9.3% due to favorable margins for international transactions as compared to ~~$8.4~~the prior year. Challenged global supply chains are experiencing heightened disruptions from the Russian invasion of Ukraine and increasing tensions between the United States and China, and their impacts on international trade and energy markets, COVID-19 and other disruptions, which could limit the volume of assets made available for sale in any period.

Machinio. Revenue from our Machinio reportable segment increased 14.3%, or $0.8 million, due to price increases and continued growth in subscribers. As a result of the increase in revenues, segment direct profit increased 14.3%, or $0.8 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

Consolidated Results

Total revenues - Total consolidated revenue increased $18.8 million, or 13.9%. Refer to the discussion of Segment Results above for discussion of the increasein revenue.

Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $15.4 million, or 27.2%, which changed at a higher rate than Total revenues primarily due to an increase in purchase transactions at the RSCG segment.

Technology and operations expenses. Technology and operations expenses increased $1.7 million, or 6.1%, from the impact of the growth in our distribution network facilities, market share expansion, and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases.

Sales and marketing expenses. Sales and marketing expenses increased $1.3 million, or 6.2%, from the impact of our market share expansion and client diversification efforts that occurred throughout the past year, as well as other inflationary cost increases, and partially offset by a $0.9 million non-recurring benefit from a concluded client program.

General and administrative expenses. General and administrative expenses decreased $1.5 million, or 9.8%, as variable costs were incurred in the past year to support the expansion of our sales, marketing, technology and operations functions, and due to a decrease in stock and other compensation expenses from changes in expected attainment of certain variable compensation targets.

Depreciation and amortization. Depreciation and amortization expense increased $0.7 million, or 13.5%, primarily due to the increase in intangible assets following our acquisition of Bid4Assets on November 1, 2021.

Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs decreased by $8.5 million as a non-cash gain for the same amount was recorded during the six months ended March 31, 2022, due to a reduction in the fair value of the Bid4Assets earn-out liability. See Note 11 - Fair Value Measurement for further information.

Other operating expenses (income). Other operating expenses (income) was consistent between the six months ended March 31, 2023 and 2022.

Interest and other (income), net. Interest and other expenses (income), net increased $0.8 million, due to the effect of rising interest rates on our cash equivalent and short-term investment holdings.

Provision for income taxes. Provision for income taxes increased $0.7 million due to the impact of foreign, state, and local taxes and permanent tax adjustments.

Non-GAAP Financial Measures

Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income (loss) plus Interest and other expense (income), net excluding the non-service components of net periodic pension (benefit); Provision (benefit) for income taxes; and Depreciation and amortization. Interest and other expense (income), net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, and goodwill, long-lived asset and other non-current asset impairment.

We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:

•

Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges 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 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 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 based upon information known or knowable as of the acquisition date, 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 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 overall operating performance of companies in our industry.

Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:

•

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.

Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP.

We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

The table below reconciles Net income to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.


	Three Months Ended March 31,						Six Months Ended March 31,
	2023			2022			2023			2022
Net income	$	4,245		$	11,970		$	8,211		$	15,572
Interest and other income, net1		(634	)		51			(937	)		18
Provision for income taxes		1,573			1,059			2,723			2,071
Depreciation and amortization		2,803			2,603			5,567			4,906
EBITDA	$	7,987		$	15,683		$	15,564		$	22,567
Stock compensation expense		1,939			1,992			4,020			4,272
Acquisition costs and impairment of long-lived and other non-current assets2		—			40			184			252
Fair value adjustments to acquisition earn-outs3		—			(8,500	)		—			(8,500	)
Non-GAAP Adjusted EBITDA	$	9,926		$	9,215		$	19,768		$	18,591

1 Interest and other expenses (income), net excludes non-services pension and other postretirement benefit expenses.

2 Acquisition costs and impairment of long-lived and other non-current assets, are components of Other operating (income) expenses, net on the Condensed Consolidated Statements of Operations.

Liquidity and Capital Resources

Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate and equipment used in our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. 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 March 31, 2023, we had $95.6 million in cash and cash equivalents, which we believe is sufficient to meet the Company’s anticipated cash needs for at least one year from the date of these financial statements.

Capital Expenditures

Our capital expenditures consist primarily of capitalized software, warehouse equipment, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the six months ended March 31, 2023 and 2022, were $2.7 million and $3.6 million, respectively. This decrease was primarily driven by prior year growth in our distribution network facilities. As of March 31, 2023, we had no significant outstanding commitments for capital expenditures.

Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. We may seek to enter agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Credit Agreement

The Company maintains a $25.0 million Credit Agreement, the due date for which was extended by 12 months to March 31, 2025, during the three months ended ~~December~~March 31, ~~2016.~~

~~Liquidity~~2023, via the First Amendment to the Credit Agreement. No other changes, including with respect to the borrowing terms or capacities, were made as a result of the First Amendment.

The Company may draw upon the Credit Agreement for general corporate purposes. Repayments of any borrowings under the Credit Agreement shall become available for redraw at any time by the Company. The interest rate on borrowings under the Credit Agreement is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. During the three and ~~Capital Resources~~

~~Historically, our primary cash needs have been working capital (including capital used for inventory purchases), which we have funded primarily through cash generated from operations.~~six months ended March 31, 2023, the Company did not make any draws under the Credit Agreement. As of ~~December~~March 31, ~~2017, we~~2023, the Company had ~~approximately $96.8 million in cash. Throughout~~no outstanding indebtedness under the ~~quarter, we have continued to advance~~Credit Agreement and our borrowing availability was $25.0 million.

The obligations under the ~~design~~Credit Agreement are unconditionally guaranteed by us and ~~development~~each of our ~~LiquidityOne platform, services~~existing and ~~analytical tools~~subsequently acquired or organized domestic subsidiaries and secured on a first priority basis by a security interest (subject to ~~empower~~permitted liens) in substantially all assets owned by us, and each of our ~~clients~~other domestic subsidiaries, subject to ~~maximize bottom-line return,~~limited exceptions. The Credit Agreement contains certain financial and ~~transform their supply chain into~~non-financial restrictive covenants including, among others, the requirement to maintain a ~~high-performing business function. During~~minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of March 31, 2023, the ~~fourth quarter of fiscal year 2017, we launched our Network International energy marketplace on~~Company was in full compliance with the ~~new LiquidityOne platform,~~terms and during fiscal 2018, we plan to launch further marketplaces onto the platform. We will continue to incur additional costs throughout the duration of this initiative to implement the new platform and educate our employees and clients about the initiative.

~~The effects~~conditions of the ~~international provisions~~Credit Agreement.

Working Capital Management

Most of ~~the Tax Cuts~~our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and ~~Job Act (“the Act”), which establish~~PayPal, an Internet based payment system, as methods of payments. As a ~~territorial tax system and~~result, we are not subject ~~certain foreign earnings on which US tax~~to significant collection risk, as goods are generally not shipped before payment is ~~currently deferred to a one-time transition tax is uncertain. Based on a preliminary analysis, the Company has not recorded any provisional amounts~~received.

The recent disruptions in the financial ~~statements~~services industry have created significant market challenges and uncertainty for entities that bank with those institutions, and which raised significant concern regarding the ~~three months ending December 31, 2017~~stability of the banking system in the United States. The Company did not maintain any funds or lending relationships with any of the banks impacted and ~~will re-evaluate~~the banks we do maintain accounts and relationships with have, to date, not experienced any significant disruptions. The Company maintains its ~~existing accounting position~~cash balances in non-interest bearing and interest-bearing accounts which exceed the applicable U.S. FDIC and local jurisdiction (foreign banking institutions) insurance limits. Management continually monitors the financial institutions with whom we conduct business and takes appropriate measures, when necessary, to manage potential risk exposure to our cash balances above the insurance limits.

We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities and tools for data-driven product recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.

We intend to indefinitely reinvest ~~unremitted~~the earnings of our foreign ~~earnings. The amount~~subsidiaries outside the United States. As a result, we did not record a provision for deferred U.S. tax expense on the $10.2 million of ~~such unremitted~~undistributed foreign earnings ~~was approximately $8.4 million~~ as of ~~December~~March 31, ~~2017.~~2023. As of ~~December~~March 31, ~~2017,~~2023, and September 30, ~~2017, approximately $17.4~~2022, $18.5 million and ~~$14.9~~$20.3 million, respectively, of cash and cash equivalents was held ~~overseas~~

~~We are~~by foreign subsidiaries outside of the U.S.

Other Uses of Capital Resources

Share Repurchases. From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash. ~~We did not repurchase shares under this program during the three months ended December 31, 2017 or 2016.~~

As of September 30, 2022, the Company had $6.6 million remaining share repurchase authorization.

On December ~~31, 2017, we may~~6, 2022, the Company's Board of Directors authorized a new stock repurchase ~~an additional $10.1~~plan of up to $8.4 million inof the Company's outstanding shares ~~under this program.~~

~~Changes in Cash Flows: Three Months Ended December 31, 2017 Compared to Three Months Ended December 31, 2016~~

Net cash provided by operating activities was $3.5 million for the three months ended December 31, 2017, as compared to net cash used by operating activities of $5.0 million for the three months ended December 31, 2016. The $8.5 million increase in cash provided by operations between periods was attributable to improved profitability as well as working capital improvements primarily from collections of receivables and sales of inventory.

Net cash used in investing activities was $1.0 million for the three months ended December 31, 2017, and $2.3 million for the three months ended December 31, 2016. Net cash used in investing activities for the three months ended December 31, 2017 consisted primarily of expenditures for capitalized software, purchases of equipment, and leasehold improvements.

Net cash provided by financing activities was zero for the three months ended December 31, 2017, and net cash provided by financing activities was $0.03 million for the three months ended December 31, 2016. Net cash provided by

~~financing activities for the three months ended December 31, 2016 consisted primarily of proceeds from the exercise~~ of common stock ~~options.~~

~~Capital Expenditures.~~ ~~Our capital expenditures consist primarily~~through December 31, 2024.

On March 13, 2023, the Company’s Board of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. Capitalized software includes costs associated with our LiquidityOne platform. Directors authorized a new stock repurchase plan of up to $8.0 million of the Company’s outstanding shares of common stock through December 31, 2025.

The ~~timing and volume of such capital expenditures in~~Company repurchased 1,281,722 shares for $17.0 million during the future will be affected by the addition of new customers or expansion of existing customer relationships. We intend to fund those expenditures primarily from operating cash flows. Our capital expenditures for the threesix months ended ~~December~~March 31, ~~2017 were $1.0 million.~~2023. As of ~~December~~March 31, ~~2017, we~~2023, the Company had ~~no outstanding commitments for capital expenditures.~~

~~We believe that our existing cash and cash equivalents will be sufficient~~$6.0 million of remaining authorization 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 party to any definitive agreement 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.

repurchase shares.

Off-Balance Sheet ~~Arrangements~~

Arrangements.We do not have any transactions, ~~obligations~~agreements or ~~relationships~~other contractual arrangements that could be considered material off-balance sheet arrangements.

Changes in Cash Flows: Six Months Ended March 31, 2023 Compared to the Six Months Ended March 31, 2022

Net cash provided by operating activities was $22.3 million and $14.6 million for the six months ended March 31, 2023 and 2022, respectively. The $7.7 million increase in cash provided by operating activities between periods was attributable to $3.4 million of higher net income as adjusted for non-cash items; a $9.6 million increase in accrued expenses and other liabilities driven by changes in variable compensation payments and the management of working capital; a $6.4 million increase in accounts receivable; and a $1.5 million increase in prepaids expenses and other assets. These were partially offset by cash flows associated with our accounts payable and payables to sellers which had a net decrease of $9.0 million, and a $3.7 million decrease in inventory driven by our RSCG and CAG segments.

Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. As GovDeals real estate sales with settlement services increase through the integration with Bid4Assets, operating cash flow fluctuations from accounts payable and payables to sellers are expected to become more variable. The amount of cash received and settled will be substantially higher than our take rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.

Net cash used in investing activities was $6.4 million and $14.7 million for the six months ended March 31, 2023 and 2022, respectively. The $8.3 million decrease in cash used in investing activities was driven by the prior year $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021, net of cash acquired. See Note 3 - Bid4Assets Acquisition for further information. This decrease was offset by $3.7 million in short-term investments purchased during the six months ended March 31, 2023.

Net cash used in financing activities was $17.3 million and $21.9 million for the six months ended March 31, 2023 and 2022, respectively. The$4.6 million decrease in cash used in financing activities was primarily driven by a $3.0 million decrease in share repurchases, $1.1 million in lower taxes paid in connection with the net settlement of stock compensation awards, and $0.5 million of proceeds from the exercise of stock options.

Item 3.Quantitative and Qualitative Disclosures ~~about~~About Market ~~Risk.~~

Risk

Interest rate sensitivity. ~~We had no debt as of December 31, 2017, and thus do not have any related interest rate exposure.~~ Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss.

As of March 31, 2023, we hold cash and cash equivalents and short-term investments that are subject to varying interest rates based upon their maturities. A hypothetical 100 basis point decline in interest rates would impact our pre-tax earnings by approximately $1.0 million on an annualized basis.

As of March 31, 2023, we do not have any debt, however, should the Company draw on our Line of Credit in the future, such draw would incur interest as determined by the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%.

Exchange rate sensitivity. ~~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 13.4% percent~~rates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars.

Outside the United States, we generate revenues and incur expenses in both U.S. dollars and local currencies. Our primary foreign exchange exposures include British Pounds, Canadian Dollars, Chinese Yuan, Euros, and Hong Kong Dollars. When we translate the results and net assets of our ~~sales are denominated~~international operations into U.S. dollars for financial reporting purposes, movements in exchange rates will affect our reported results. Volatile market conditions arising from ongoing macroeconomic conditions such as rising interest rates at federal banks, the Russia-Ukraine conflict and increasing tensions between the United States and China may result in significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars. A hypothetical 10% decrease in foreign ~~currencies. We have not engaged in any hedging or other derivative transactions to date.~~

exchange rates reduce our total expected revenues by approximately 1%. The potential impact on pre-tax earnings would be less as total expected expenses would also decrease.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer ~~and Chief Accounting Officer,~~(Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

During the quarter ended December 31, 2017, as part of our LiquidityOne platform project, we continued to roll out a new enterprise resource planning system to additional areas of the company. The roll-out resulted in changes to certain internal controls over financial reporting. There has not occurred any further change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As of ~~December~~March 31, ~~2017,~~2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer ~~our Chief Financial Officer,~~ and our Chief ~~Accounting~~Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer ~~Chief Financial Officer,~~ and Chief ~~Accounting~~Financial Officer concluded that our disclosure controls and procedures were effective and were operating to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer ~~principal financial officer,~~ and principal ~~accounting~~financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended March 31, 2023, no change occurred in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~

~~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~~Proceedings

From time to time, we may become involved in litigation relating to claims arising in the United States District Court for the District of Columbia (the ‘‘District Court’’) against our company 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)ordinary course of the ~~Securities Exchange Act~~business. Information regarding the Company's legal proceedings can be found in Note 13 - Legal Proceedings and Other Contingencies, of 1934 by, among other things, misrepresenting our growth initiative, growth potential, 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, 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 relatedaccompanying Notes to the alleged misrepresentation regarding the Company’s retail division were not dismissed. On May 16, 2016, we answered the amended complaint. Plaintiffs’ class certification was granted on September 6, 2017. The scheduling order in this action requires that fact discovery be completed by April 9, 2018, and that expert discovery be completed by October 1, 2018.

~~We believe the allegations in the amended complaint are without merit and cannot estimate a range of potential liability, if any, at this time.~~

~~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 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 acondensed 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. On November 27, 2017, the Court of Chancery granted the defendants’ motion to dismiss.

Following the dismissal of the putative derivative action discussed above, former plaintiffs Girardi and Slingerland sent us a letter dated January 5, 2018 (the “Shareholder Demand”) demanding that the Board of Directors take action to remedy purported breaches of fiduciary duties allegedly related to the claims asserted in the above-discussed securities class action and derivative actions. We acknowledged the Shareholder Demand on January 22, 2018. Our Board of Directors has delegated evaluation of the Shareholder Demand to the Audit Committee of the Board of Directors.

statements.

Item 1A. Risk ~~Factors.~~

Factors

Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults, or non-performance by financial institutions, could adversely affect our business, financial condition, results of operations, or our prospects.

The closures of Silicon Valley Bank and Signature Bank in March 2023 created significant concerns about bank-specific risks and broader financial institution liquidity risks. Although we did not have any funds in Silicon Valley Bank or Signature Bank, we cannot guarantee that the banks or other financial institutions that do hold our funds will not experience similar issues.

The Company maintains its cash balances in non-interest bearing and interest-bearing accounts which exceed applicable U.S. Federal Deposit Insurance Corporation (FDIC) and local jurisdiction (foreign banking institutions) insurance limits. Management continually monitors the financial institutions with whom we conduct business and takes appropriate measures, when necessary, to manage potential risk exposure to our cash balances above the insurance limits. Should events, including limited liquidity, defaults, non-performance, or other adverse developments occur with respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or should concerns or rumors about any events of these kinds or other similar risks arise, our liquidity may be adversely affected.

We also cannot be certain that the buyers and sellers who use our marketplaces or the vendors who deliver goods and services to us did not maintain deposits or lending relationships with Silicon Valley Bank, Signature Bank, or in other financial institutions which may be susceptible to liquidity risk. As a result, we may be exposed to additional risk, including limitations on the ability of marketplace users to pay amounts they owe to us, or the inability of our vendors to continue delivering goods and services used in our operations. Additionally, further instability in the financial services industry could lead to a deterioration in consumer confidence in economic conditions, which may lead to fewer transactions occurring on our marketplaces.

More generally, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs, tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, any which could make it more difficult for us to acquire financing on terms that are acceptable to us.

In addition to the other information set forth in this report, you should carefully consider the factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017,~~2022, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Unregistered Sales of Equity Securities

None.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

The following table presents information about our repurchases of common stock during the three months ended March 31, 2023 (in thousands, except share and per share amounts).


					Total Number of Shares		Approximate Dollar Value
	Total Number of	Average Price			Purchased as a Part of a		of Shares that May Yet be
Period	Total Number of	Average Price							Publicly Announced	Purchased Under the
Period		Shares Purchased1		Paid Per Share			Program		Programs (in million)
January 1, 2023, to January 31, 2023	78,739	$	14.02		78,739		$	6.6
February 1, 2023, to February 28, 2023	166,240	$	12.91		166,240	$		4.5
March 1, 2023, to March 31, 2023	506,344	$	12.90		504,924	$		6.02
Total	751,323				749,903

1 Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due. During the three months ended March 31, 2023, participants surrendered 1,420 shares of common stock in the exercise of stock options, respectively. Any shares surrendered to the Company in this manner are not available for future grant.

2 On March 13, 2023, the Company’s Board of Directors authorized a new stock repurchase plan of up to $8.0 million of the Company’s outstanding shares of common stock through December 31, 2025.

From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. Repurchase programs may be discontinued or suspended at any time and will be funded using our available cash.

As of March 31, 2023, the Company had $6.0 million of remaining authorization to repurchase outstanding shares of common stock.

Item 5. Other Information

None

Item 6. ~~Exhibits.~~

Exhibits



Exhibit No.	Description
~~3.1~~
3.1	Fourth Amended and Restated Certificate of Incorporation (the "Fourth A&R Certificate"), incorporated herein by reference to Exhibit 3.1 to Amendment No. 2 to theCompany’s Registration Statement on Form S-1 (Registration No. 333-129656), filed with the SEC on January 17, 2006.
~~3.2~~
3.2	Certificate of Amendment of the Fourth A&R Certificate, incorporated herein by reference to Appendix A to the Company’s Schedule 14A, filed with the SEC on January 24, 2023.

3.3	Amended and Restated ~~Bylaws dated~~Bylaws, incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with the SEC on August ~~2, 2016~~.5, 2022.
~~10.1~~		~~Executive Employment Agreement, dated January 10, 2018, by and between Roger Gravley and the Company.#~~
~~31.1~~ 10.1	First Amendment to Credit Agreement incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on April 3, 2023.

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
~~31.2~~
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
~~31.3~~		~~Certification of Chief Accounting Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.~~
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.2~~
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~32.3~~		~~Certification of Chief Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
101		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~December~~March 31, ~~2017,~~2023, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and ~~(iv)~~(vi) Notes to the Unaudited Condensed Consolidated Financial Statements.

104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

~~# Designates management or compensation plans.~~

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 February 1, 2018.~~

authorized.



	LIQUIDITY SERVICES, INC.
		(Registrant)
May 4, 2023
By:
~~By:~~	/s/ William P. Angrick, III
		William P. Angrick, III
		Chairman of the Board of Directors
		and Chief Executive Officer (Principal Executive Officer)
May 4, 2023
By:
~~By:~~	/s/ Jorge A. Celaya
		Jorge A. Celaya
	~~Executive Vice President and~~	Chief Financial Officer


~~By:~~	~~/s/ Michael Sweeney~~
	~~Michael Sweeney~~
	~~Vice President and Chief Accounting Officer~~ (Principal Financial Officer)



Delaware		52-2209244
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

6931 Arlington Road, Suite 200, Bethesda ~~MD.~~ , MD		20814
(Address of Principal Executive Offices)		(Zip Code)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value	LQDT	Nasdaq



Large accelerated filer o ☐			Accelerated filerx ☒

Non-accelerated filer o ☐			Smaller reporting company o☐

			Emerging growth company o☐



	December 31, 2017			September 30, 2017
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	96,766		$	94,348
Accounts receivable, net of allowance for doubtful accounts of $685 and $668 at December 31, 2017 and September 30, 2017, respectively	7,442			11,598
Inventory	17,053			20,736
Prepaid taxes	2,517			2,466
Prepaid expenses and other current assets	4,878			9,774
Total current assets	128,656			138,922
Property and equipment, net	16,531			16,793
Intangible assets, net	425			427
Goodwill	45,466			45,388
Net deferred long-term tax assets	962			962
Other assets	12,809			12,737
Total assets	$	204,849		$	215,229
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	11,509		$	13,099
Accrued expenses and other current liabilities	26,469			30,193
Distributions payable	2,388			3,081
Payables to sellers	25,377			24,383
Total current liabilities	65,743			70,756
Deferred taxes and other long-term liabilities	6,584			11,837
Total liabilities	72,327			82,593
Commitments and contingencies (Note 12)	0			0
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 31,889,679 shares issued and outstanding at December 31, 2017; 31,503,349 shares issued and outstanding at September 30, 2017	29			29
Additional paid-in capital	228,626			227,264
Accumulated other comprehensive loss	(6,482		)	(6,431		)
Retained earnings (accumulated deficit)	(89,651		)	(88,226		)
Total stockholders’ equity	132,522			132,636
Total liabilities and stockholders’ equity	$	204,849		$	215,229


	March 31, 2023			September 30, 2022
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	95,583		$	96,122
Short-term investments		5,615			1,819
Accounts receivable, net of allowance for doubtful accounts of $313 and $449		5,960			11,792
Inventory, net		15,290			11,679
Prepaid taxes and tax refund receivable		1,994			1,631
Prepaid expenses and other current assets		6,135			6,551
Total current assets		130,577			129,594
Property and equipment, net		18,245			19,094
Operating lease assets		11,414			13,207
Intangible assets, net		14,274			16,234
Goodwill		89,464			88,910
Deferred tax assets		11,104			13,628
Other assets		8,019			7,437
Total assets	$	283,097		$	288,104
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	42,915		$	41,982
Accrued expenses and other current liabilities		24,755			23,304
Current portion of operating lease liabilities		4,505			4,540
Deferred revenue		4,530			4,439
Payables to sellers		47,342			49,238
Total current liabilities		124,047			123,503
Operating lease liabilities		7,776			9,687
Other long-term liabilities		200			378
Total liabilities		132,023			133,568
Commitments and contingencies (Note 13)
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 36,049,719 shares issued and outstanding at March 31, 2023; 35,724,057 shares issued and outstanding at September 30, 2022		36			36
Additional paid-in capital		262,118			258,275
Treasury stock, at cost; 5,096,341 shares at March 31, 2023, and 3,813,199 shares at September 30, 2022		(79,586	)		(62,554	)
Accumulated other comprehensive loss		(8,769	)		(10,285	)
Accumulated deficit		(22,725	)		(30,936	)
Total stockholders’ equity		151,074			154,536
Total liabilities and stockholders’ equity	$	283,097		$	288,104



ý ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.~~1934



o ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF ~~1934.~~1934



			~~Page~~ INDEX
~~Part~~
		Page
PART I. FINANCIAL INFORMATION ~~(UNAUDITED)~~

Item 1.	~~Consolidated~~ Financial Statements (Unaudited)	3

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Operations	4

	Condensed Consolidated Statements of Comprehensive ~~Loss~~Income	5

	Condensed Consolidated Statement of Stockholders' Equity	6

	Condensed Consolidated Statements of Cash Flows	6 7

	Notes to the Unaudited Condensed Consolidated Financial Statements	7 8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33 31

Item 4.	Controls and Procedures	33 31

~~Part~~ PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	35 32

Item 1A.	Risk Factors	35 32

Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	36 32

~~SIGNATURES~~Item 5.	37Other Information	33

Item 6.	Exhibits	34

SIGNATURES		35



	Three Months Ended December 31,
	2017			2016
Revenue	$	40,280		$	47,980
Fee revenue	20,863			22,816
Total revenue	61,143			70,796
Costs and expenses from operations:
Cost of goods sold	27,631			32,271
Seller distributions	3,312			4,548
Technology and operations	18,100			21,892
Sales and marketing	8,310			9,987
General and administrative	7,572			9,857
Depreciation and amortization	1,211			1,429
Other operating expenses (income)	1,459			(928		)
Total costs and expenses	67,595			79,056
Loss from operations	(6,452		)	(8,260		)
Interest and other (income) expense, net	(425		)	34
Loss before provision for income taxes	(6,027		)	(8,294		)
(Benefit) provision for income taxes	(4,815		)	103
Net loss	$	(1,212	)	$	(8,397	)
Basic and diluted loss per common share	$	(0.04	)	$	(0.27	)
Basic and diluted weighted average shares outstanding	31,876,603			31,261,603



Goodwill (in thousands)	CAG		GovDeals		Total
Balance at September 30, 2017	21,657		23,731		45,388
Translation adjustments	78		—		78
Balance at December 31, 2017	$	21,735	$	23,731	$	45,466



	Future Amortization
Years ending September 30,	(in thousands)
2018 Remaining nine months	$	58
2019	71
2020	69
2021	58
2022 and thereafter	169
Total	$	425



	Options		Weighted- Average Exercise Price
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 granted	531,300		4.65
Options exercised	—		—
Options canceled	(225,516	)	12.39
Options outstanding at December 31, 2017	2,010,757		11.23
Options exercisable at December 31, 2017	1,109,171		15.30



	Restricted Shares		Weighted- Average Fair Value
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
Restricted shares granted	77,600		3.66
Restricted shares vested	(386,330	)	9.19
Restricted shares canceled	(280,997	)	10.18
Unvested restricted shares at December 31, 2017	1,600,704		7.70



	Level 3 Assets

Balance at September 30, 2017	$	491
Acquisition of financial assets	—
Settlements	(375		)
Change in fair value of financial assets	(110		)
Balance at December 31, 2017	$	6



	Three Months Ended December 31,
Qualified Defined Benefit Pension Plan	2017			2016
	(dollars in thousands)
Service cost	$	—		$	—
Interest cost	166			144
Expected return on plan assets	(252		)	(204		)
Settlement cost	(4		)	—
Total net periodic (benefit)	$	(90	)	$	(60	)



(in thousands)	Liability Balance at September 30, 2017		Business Realignment Expenses		Cash Payments			Liability Balance at December 31, 2017
Employee severance and benefit costs:
CAG	793		751		(207		)	1,337
Corporate & Other	399		474		(737		)	136
Total employee severance and benefit costs	$	1,192	$	1,225	$	(944	)	$	1,473
Occupancy costs:
CAG	—		94		(55		)	39
Corporate & Other	1,988		28		(331		)	1,685
Total occupancy costs	$	1,988	$	122	$	(386	)	$	1,724
Total business realignment	$	3,180	$	1,347	$	(1,330	)	$	3,197