A Better
Future For
Surplus
2019 Annual Report
LiquidityServices.com
Fellow Shareholders:
20 years ago, our founding team launched Liquidity
Services with a vision to deliver a more trusted and
efficient way for businesses and government agencies
to buy and sell business surplus. We would help
sellers recoup needed working capital to support
their organizations; help buyers find and buy valuable
equipment and inventory to support their own
businesses; and protect the environment by ensuring
that every surplus asset finds a home rather than be
discarded as waste in our landfill systems.
Fueled by these ambitions and with $100,000 of seed
capital, we launched an online marketplace platform with
integrated services to deliver a high-integrity experience
for our customers. Transactions started to flow, including
the $200,000 sale of the George T. Bagby marine vessel
for the State of Georgia, generating one of our first large
commission checks.
From these humble beginnings and with the help of our
many dedicated team members and business partners,
today Liquidity Services has grown into a global leader
with the world’s largest online marketplace for business
surplus. Our passion and persistence benefits millions
of buyers, sellers and the planet as we enable surplus
assets to be redeployed and sold, eliminating waste in
the process.
We have generated over $8 billion in completed
transactions and growing! Indeed, we have built a
Better Future for Surplus through our entrepreneurial
drive and agility, setting the stage for our next phase of
innovation, growth and success.
While marking our first 20 years pursuing our important
mission, 2019 was a year of continued progress and
transformation for Liquidity Services. We resumed
top-line organic growth while investing in our product,
services and people to sustain our market leadership.
Highlighting our financial achievements,
in FY19 we:
• Grew GMV by $13 million to $640 million, despite the
wind down of our DoD Surplus and Scrap Contract1;
• Achieved our first fiscal year of consolidated GMV
and GAAP Revenue growth in six years;
•
Improved our earnings results: despite an $7.6 million
decline in GAAP Net Loss, we increased our adjusted
EBITDA by $6.1 million (+83%) over the prior year;
• Grew our RSCG segment GMV organically by 19%
over the prior year driven by growth with large and
midsize retailers and manufacturers utilizing our
sales channels and services;
• Achieved record results in our GovDeals segment
as GMV grew organically by 7% over the prior year
fueled by growth in our seller base with several
notable wins including Oakland, CA, Sacramento, CA,
Corpus Christi, TX, and the Phoenix-Mesa Gateway
Airport; and
• Retained a debt free balance sheet and with $66
million in cash and short-term investments as of
September 30, 2019, providing us with strong liquidity
to pursue our growth objectives.
1 DoD chose not to extend the Scrap contract with LSI and has instead moved to a regional term sales contract structure.
This reduced our GMV by $31.5 million versus the prior year period.
CASE STUDY: Construction Company Recovers 69%
Above Expectations for 44 Buses
In 2019, we increased a construction client’s recovery by more than $500,000
through auction events on our Network International marketplace. Initially, an
independent buyer offered to purchase their 44 surplus vans and buses for $1.3
million, but our client approached Liquidity Services to see if we could further
increase the recovery potential. By leveraging our digital asset promotion
capabilities and global buyer base, we increased competition for the vehicles and
sold all vehicles, generating $2.2 million in GMV.
Highlighting our business achievements,
in FY19 we:
• Continued our mission to build the world’s largest
marketplace for surplus assets by growing our
network to over 13,000 sellers (+18%) and 3.58
million registered buyers (+7%), and completing
approximately 607,000 transactions (+7%);
•
Launched our commercial self-service solution and
increased our GMV from self-service sellers to over
50% of our total GMV, representing our continued
transformation to a more asset light,
technology-enabled business;
•
•
continuously during FY20 as we test and prioritize
functionality based on customer feedback;
Launched our MachineryHost storefront product.
This new product provides small business and
corporate customers a modern, mobile-first
storefront to market their used equipment with
seamless integration with our Machinio online
classified marketplace for used equipment; and
Implemented a new organizational structure that
unifies our sales and services delivery functions
under a new Chief Commercial Officer role. This
organizational structure enables us to take better
advantage of our new technology and e-commerce
• Deployed our new core e-commerce technology
platform to serve our sellers and buyers.
platform featuring:
•
•
•
•
a new global taxonomy used to classify and
present assets for sale in a consistent manner
across our entire business;
a new mobile responsive design with an
enhanced usability and speed, and improved
search and navigation;
a new My Account tool to help buyers manage
transaction activity; and
a multilingual and multi-currency capability to
support cross-border e-commerce.
• Additionally, the majority of our online transaction
volume now resides on a single core e-commerce
technology platform capable of supporting all of our
sales activity.
•
Launched the beta version of our new aggregated
marketplace. The new marketplace makes it easy for
buyers to find and buy every asset available for sale
across our network using a powerful new marketing
technology stack. We will be deploying new features
“Over more than ten years of partnership,
Liquidity Services has continued to find
innovative solutions to drive value in our asset
disposition strategy. They are aggressive,
creative and collaborative with a tremendous
expertise in asset management and disposal.”
- Leading Food Company
“I have been sourcing merchandise for over 15
years – the more recent nine of those years
sourcing a good portion from Liquidation.com.
With nearly 2,500 transactions, totaling over
half a million dollars in the books,
Liquidation.com is a valued supplier for my
growing business.”
- Jason Watson
CASE STUDY: Transparent International Auctions Achieved
$5.86 Million in Gross Recovery for Hershey-Lotte Partnership
In 2019, we facilitated a competitive online auction sale for a Hershey-Lotte joint
manufacturing facility in China, generating almost $6 million in gross recovery with 100%
of assets sold. As the only foreign-owned company with a Chinese auction license and a
well-established Shanghai office, Liquidity Services could support local buyer and onsite
customer support needs while facilitating exposure to international buyers – including
inspections, shipping, and customs. The sale’s success prompted internal recommendations
for other Hershey teams to use Liquidity Services’ expertise and our online marketplace.
Our Strategy
Our strategy in FY20 and beyond remains focused on
the long-term growth of our commercial and municipal
government marketplaces while capturing operating
efficiencies as we leverage our marketplace platform
and business functions.
Our growth strategy rests on four key pillars embodied
with the acronym “RISE”:
R – Recovery Maximization - Drive higher net
recovery through technology and innovation that
improves the buyer experience.
I – Increase Volume - Drive GMV growth with flexible
services offerings and pricing models to meet the needs
of existing and new sellers.
S – Service Expansion - Grow services with recurring
revenue characteristics that leverage our technology
platform, domain expertise, data, and marketplace
channels.
E – Expense Leverage - Improve operating expense
leverage by controlling costs and through technology
and innovation that increases productivity.
Consistent with our strategy, we continue to focus
on building up our sales and marketing functions to
expand the volume transacted on our platform. Our
expanded menu of services and pricing models provides
Fortune 1000 companies, small to midsize retailers,
manufacturers and public sector agencies more ways
to engage our sales channels to grow their volume on
our platform.
As we begin to utilize the investments we are making
in our people, processes, and platform, we are excited
about the tremendous potential to grow our business.
We have firmly established ourselves as a premier
provider in the $150 billion global reverse supply chain
market. We have developed an outstanding team of
professionals dedicated to building and delivering
innovative solutions that create value for our sellers
and buyers. Macro trends in globalization, the growth of
e-commerce, and increased emphasis on sustainability
will drive the need for our scalable, global solutions
to manage reverse supply chain activities and B2B
e-commerce more generally. Our strategic actions and
investments will result in a more diversified, scalable
business with more opportunities for growth and value
creation for our long-term owners.
Our entire team looks forward to working together this
year to advance our market leadership and strategic
plan, while maintaining the highest standards of integrity,
service, and quality to our clients and buying customers.
We thank our dedicated staff, clients, buyers, and
shareholders for their trust and support in 2019 and in
the years ahead.
Sincerely,
William P. Angrick, III
Chairman and Chief Executive Officer
CASE STUDY: City of Lakewood Surpasses $1 Million
Milestone with Online Auctions
In 2019, we reached $1 million in surplus asset sales for the City of Lakewood, Ohio.
Our GovDeals marketplace partnered with the city to revolutionize the way the city
sells its surplus and obsolete assets. Since 2009, the City of Lakewood has conducted
over 600 successful auctions on our marketplace across multiple categories, ranging
from emergency vehicles and equipment, to computers, playground equipment
and water meters. Surplus auctions on GovDeals are also a crucial part of the city’s
sustainability efforts to avoid landfill waste. “We want to do our part to help care for
the environment and using GovDeals is one way we do this,” says Kim Deyarmin, City
of Lakewood Purchasing Manager.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2019
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-51813
LIQUIDITY SERVICES, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6931 Arlington Road, Suite 200, Bethesda, MD.
(Address of principal executive offices)
52-2209244
(I.R.S. Employer
Identification No.)
20814
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(202) 467-6868
(Registrant's telephone number, including area code)
Title of each class
Trading Symbol(s) Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to
Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company,"
and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Non-accelerated filer
Accelerated filer
☐
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Aggregate market value of the Common Stock held by non-affiliates computed by reference to the Nasdaq closing price on March 29, 2019,
the last business day of the most recently completed second fiscal quarter, was $208.6 million.
The number of shares of Common Stock outstanding as of December 6, 2019 was 33,886,003.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 2020 Annual Stockholders' Meeting, to be filed subsequently, are incorporated by
reference into Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K.
Item
1
Business
1A. Risk Factors
1B. Unresolved Staff Comments
2
3
Properties
Legal Proceedings
4 Mine Safety Disclosures
INDEX
TABLE OF CONTENTS
Description
PART I
PART II
5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
6
7 Management's Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
8
9
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A. Controls and Procedures
9B. Other Information
10 Directors, Executive Officers and Corporate Governance
PART III
11
12
13
14
15
16
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accountant Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
Page
3
16
27
28
28
28
28
29
33
45
45
45
45
48
48
48
48
48
48
49
86
87
Unless the context requires otherwise, references in this report to "we," "us," the "Company" and "our" refer to Liquidity
Services, Inc. and its subsidiaries.
2
Item 1. Business.
Overview
PART I
The Company operates a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient,
automated environment offering over 500 product categories. The Company’s marketplaces provide professional buyers access
to a global, organized supply of new, surplus, and scrap assets presented with digital images and other relevant product
information. Additionally, 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 services include program management, valuation, asset management,
reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support,
compliance and risk mitigation, as well as self-directed service tools for its sellers. 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.govdeals.com, www.networkintl.com, www.secondipity.com, and www.go-dove.com. We also operate a global search
engine for used machinery and equipment at www.machinio.com. The Company has over 13,000 sellers, including Fortune
1000 and Global 500 organizations as well as federal, state, and local government agencies.
During November 2019, we also launched our new aggregated marketplace. This site is in early beta phase and we will deploy
capabilities and integrate more product categories incrementally throughout FY2020. This approach allows us flexibility to
prioritize functionality based on customer feedback.
We believe our ability to create liquid marketplaces for surplus and scrap assets generates a continuous flow of goods from our
sellers. This valuable and reliable flow of goods, in turn, attracts an increasing number of professional buyers to our
marketplaces. Increasing numbers of professional buyers to our marketplaces, in turn, attracts more sellers to our marketplace
which, in turn, reinforces a valuable and reliable flow of surplus assets. During the past three fiscal years, we have conducted
over 1,750,000 online transactions generating $1.9 billion in gross merchandise volume or GMV. GMV is the total sales value
of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of
time.
During 2019, the number of registered buyers grew from 3,357,000 to 3,580,000, or 6.6%. We believe the continuous flow of
goods in our marketplaces attracts a growing buyer base which creates a self-sustaining cycle for our buyers and sellers.
During the year ended September 30, 2019, we generated GMV of $639.9 million and revenue of $226.5 million through
multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from
sellers, and value-added service charges. Our GMV has grown at a compound annual growth rate of 10.6% since 2006.
On July 10, 2018, we acquired 100% of Machinio Corp. (“Machinio”), a privately-owned company based in Chicago, Illinois,
with a second office in Berlin, Germany. Machinio operates a global online platform for listing used equipment for sale in the
construction, machine tool, transportation, printing and agriculture sectors. See Note 4 for further information on this
acquisition.
We were incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
Results from our operations are organized into four reportable segments, Retail Supply Chain Group (RSCG), Capital Assets
Group (CAG), GovDeals, and Machinio. See Note 16 to the Consolidated Financial Statements for Segment Information.
Industry Overview
While a well-established forward supply chain exists for the procurement of assets, many manufacturers, retailers, corporations
and government agencies have not made significant investments in their reverse supply chain process or systems. For example,
research from Brightpearl (2018) has found that more than half of all retailers (51%) claim their margins are being squeezed by
returns, yet 69% are not deploying any technology solutions to help process them. The reverse supply chain addresses the
redeployment and remarketing of surplus and salvage assets. These assets generally consist of retail customer returns, overstock
products and end-of-life goods or capital assets from both the corporate and government sectors. The market is large, as
indicated by an Appriss Retail report in 2018 that shows $369 billion, or 10% of total sales, of merchandise is returned on an
annual basis. Estimates based on Bureau of Economic Analysis (BEA), U.S. Census, and World Bank reports, the global used
equipment market is valued at approximately $350 billion.
3
The supply of surplus and salvage assets in the reverse supply chain results from a number of factors, including:
•
•
•
•
•
•
Supply chain inefficiencies. Forecasting inaccuracies, manufacturer overruns, canceled orders, evolving market
preferences, discontinued product lines, merchandise packaging changes and seasonal fluctuations result in the growth
of surplus assets. Organizations that manufacture, distribute, sell or use finished goods regularly dispose of excess
inventory or returned merchandise.
Product innovation. Continuous innovation in technology products, such as computer and office equipment, consumer
electronics, and personal communication and entertainment devices, results in a continuous flow of surplus assets.
Innovation also results in manufacturing equipment and tooling being upgraded and replaced which generates a
separate flow of surplus capital assets.
Return policies of large national and online retailers. The flexible return practices of many large national retailers and
online shopping sites result in a continuous supply of returned merchandise, a significant portion of which must be
liquidated.
Compliance with government regulations. An increasingly stringent regulatory environment necessitates the verifiable
recycling and remarketing of surplus assets that would otherwise be disposed of as waste.
Increasing focus by corporate and government agencies to seek green solutions for surplus assets. Many
organizations appreciate the growing need to be environmentally friendly by improving their management of end of
life or surplus goods, including the need to repurpose or efficiently redistribute surplus and capital assets to minimize
waste and maximize value for themselves and the communities they serve.
Changing budgetary trends in corporate and governmental entities. As corporate and governmental entities
increasingly are being pressured to enhance efficiencies, while utilizing less resources, they are looking to the
liquidation of surplus and salvage capital assets as a source of funds.
The management and remarketing of surplus assets traditionally has been an inefficient process. While many organizations
spend considerable resources developing systems and channels supporting the flow of finished goods to their core customers
and developing procurement processes for acquiring equipment and assets to support their operations, we believe that many
have not historically dedicated significant resources to the reverse supply chain. Factors contributing to these inefficiencies in
the reverse supply chain include the lack of:
•
•
•
•
a centralized and global marketplace to sell bulk products as well as machinery and equipment in the reverse supply
chain;
awareness of effective methods and mechanisms for disposal of surplus assets;
experience in managing the reverse supply chain to seek optimal net returns and improve gross margins; and
real time market data on surplus assets.
Traditional methods of surplus and salvage asset disposition include ad-hoc, negotiated direct sales, utilization of individual
brokers or sales agents and live on-site auctions. We believe these solutions are generally highly fragmented, geographically
dispersed and poorly integrated with supply chain operations. The manual, negotiated and geographically dispersed nature of
traditional surplus resale methods results in a lack of pricing transparency for offered goods, multiple brokers/parties ultimately
involved in the final disposition and a lower number of potential buyers and bids, which we believe typically leads to lower
recovery for sellers.
A significant number of professional buyers seek surplus and salvage assets to sustain their operations and meet demands of
end-customers. They include online and offline retailers, convenience and discount stores, value-added resellers such as
refurbishers and scrap recyclers, import and export firms, and small businesses. Traditionally, these buyers have had limited
access to a reliable flow of surplus goods and assets, relying instead on their own network of industry contacts and fixed-site
auctioneers to locate, evaluate and purchase specific items of interest. Traditional methods are inefficient for buyers due to the
lack of:
•
•
•
•
•
global access to an available continuous supply of desired goods and assets;
efficient and inexpensive sourcing processes;
a professionally managed central marketplace with transparent, high quality services;
detailed information and product description for the offered goods; and
pricing transparency or ability to compare asset prices.
The Internet is a global medium enabling millions of people worldwide to share information, communicate and conduct
business electronically. Strong growth has occurred in the business-to-business (B2B) online retail market, which can be
attributed to the rapid migration of manufacturers and wholesalers to open, online platforms. Forrester Research (2018)
forecasts that US B2B eCommerce will reach $1.8 trillion and account for 17% of all B2B sales in the US by 2023. At the end
of 2018, Forrester expected eCommerce to have reached $1.1 trillion and represent 12% of total B2B sales in the US. They also
forecast a compound annual growth rate (CAGR) of 10% for B2B eCommerce over the next five years. We believe professional
4
buyers of surplus and salvage assets will increasingly use these B2B platforms to identify and source goods available for
immediate online purchase.
Our Solution
Our solution comprises e-commerce marketplaces, self-directed auction listing tools, and value-added services. Our
marketplaces and services provide sellers a comprehensive solution to quickly bring surplus assets to market and enhance the
financial value realized from the sale of their surplus assets while providing buyers with confidence in the reliable flow of
goods they purchase. We provide our sellers access to a network of liquid marketplaces with over 3.58 million professional
buyers and a suite of services including consultative surplus asset management, valuation, sales solutions, logistics capabilities,
and self-directed service tools to efficiently manage our sellers' reverse supply chain and maximize total supply chain value. We
also seek the optimal methods to maximize our sellers' net recovery using channel strategies and dedicated programs to deliver
transparent, sustained value.
Through our relationships with our sellers, we provide our buyers convenient access to a substantial and continuous flow of
surplus and salvage assets. Buyers can find products in over 500 categories in lot sizes ranging from full truck loads to pallets,
packages and individual items. Our solution combines leading e-commerce marketplaces with integrated sales, marketing,
merchandising, fulfillment, payment collection, customer support, dispute mediation and logistics services. We provide our
buyers a convenient method for sourcing surplus consumer goods and commercial capital assets, including industrial
equipment, energy equipment, and biopharma assets. We also are continually looking for new categories in which we can
expand our presence, including mobile devices and construction and heavy equipment. For any given asset, our buyers have
access to a detailed product description, product manifest, digital images, relevant transaction history regarding the seller,
shipping weights, product dimensions and estimated shipping costs to the buyer's location. This enables our solutions to become
an important source for surplus and salvage assets for many of our professional buyers and end-users.
We believe our 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 September 30, 2019, we had 3,580,000 registered buyers in our marketplaces
and access to millions of end-users through a range of existing consumer marketplaces. Aggregating this level of buyer demand
and market data enables us to generate a continuous flow of goods from corporate and government sellers, which in turn attracts
an increasing number of professional buyers. During the year ended September 30, 2019 we had over 2,085,000 auction
participants in our online auctions. During 2019, we grew our registered buyer base by 6.6% or 223,000. None of our buyers
represented more than 10% of our revenue during the year ended September 30, 2019. 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.
Our marketplaces serve clients in a large variety of industry verticals, including:
5
6
Competitive Factors
We have created liquid marketplaces for virtually any type, quantity or condition of surplus or salvage assets. The strengths of
our business model include:
Aggregation of supply and demand for surplus and salvage assets
The strength of our business model rests on our ability to aggregate sellers and buyers through our marketplaces. Sellers benefit
from a liquid, transparent market and the active participation of our large base of professional buyers, which enhances their
returns in comparison to less efficient models. Buyers benefit from our relationships with high-volume, corporate and
government sellers, which provides them with continuous access to a comprehensive selection of surplus and salvage assets.
Our solution eliminates the need for sellers and buyers to rely on the highly fragmented and geographically dispersed group of
traditional liquidators. Instead, sellers and buyers access our global e-commerce marketplaces for their entire surplus and
salvage asset needs.
Integrated and comprehensive solution
Our marketplaces provide sellers and buyers with a comprehensive solution for the online sale and purchase of surplus and
salvage assets. We offer marketplaces with full-service solutions such as Liquidation.com, GoIndustry DoveBid, and Network
International and we offer self-directed service solutions on our GovDeals marketplace, Network International,
Liquidiation.com, and our newly launched aggregated marketplace that provides transaction settlement and marketing support
while allowing sellers to save on their commissions by undertaking the work of photographing, cataloging, and building
auctions.
We also have a full suite of value-added services to simplify the sales and supply chain processes for our sellers and improve
the utility of our marketplaces for our buyers. For corporate and certain government sellers, we provide sales, marketing,
logistics and seller support services that are fully integrated with our marketplaces, creating operational and system efficiencies.
For many of these sellers, asset disposition is not a core business function to which they desire to dedicate internal resources.
With our solution, we manage each step of the transaction and reverse supply chain for our sellers, reducing complexity while
providing the ability to optimize the seller's net financial return in the sale of surplus goods and assets. Sellers simply make
goods available at their facilities or deliver them to our distribution centers and we deliver the sale proceeds (less our portion of
such proceeds and/or our commissions or fees) after the sale is completed. In response to sellers feedback, we have learned that
our sellers would like bespoke returns process management or return to vendor solutions tailored to their own systems, and
accordingly, we shifted focus from developing SaaS solutions to refining our own internal returns management processes that
we use to serve our sellers.
We have also expanded our efforts to further penetrate the mobile device category. According to Counterpoint, the Global
refurbished smartphone market is growing faster than the new smartphone market and is expected to grow to 140 million
devices in 2019.
Our buyer services include intelligent alerts, search tools, dynamic pricing, shipping and delivery, secure settlement, live buyer
support and dispute resolution to enable effective methods to source assets for their businesses.
Flexible and aligned transaction model
We offer two primary transaction models to our sellers: the purchase transaction model and the consignment transaction model.
Under the purchase transaction model, we purchase inventory from a seller that we resell in our marketplaces. Sometimes our
inventory purchase price is variable, as we may share the gross or net proceeds of such resales with the seller. Sellers that elect
the purchase transaction model are considered vendors. Under the consignment transaction model, we do not purchase
inventory from a seller; instead, we enable a seller to sell its goods in our marketplaces and we earn commission revenue based
on the proceeds received from the sale. Sellers that elect the consignment transaction model are considered consignors.
Faster transaction cycle times for our sellers and buyers
We believe our marketplace solutions allow our sellers to complete the entire sales process more rapidly than through other
liquidation methods by generally reducing the complexities in the reverse supply chain and utilizing our multi-channel
strategies to optimize recovery and velocity. As a result, our sellers can reduce surplus or less valuable inventory quickly,
generate additional working capital and reduce the cost of carrying unwanted assets. We provide a one stop solution to enable
professional buyers of any size throughout the world to purchase assets efficiently. For these buyers, we provide a broad range
of services to give them the information necessary to make an informed bid and ensure they quickly and efficiently receive the
goods purchased.
7
Solutions that promote sustainability and green solutions for improved corporate/government stewardship
Our solutions provide a range of capabilities that enable corporate and government agency sellers to directly reduce waste
generated by redistributing end-of-life products or assets, through our solutions, thereby improving the net financial recovery
generated while positively impacting the communities they serve. Some of the world's largest forward-thinking corporations
and government agencies have significantly enhanced their stewardship of communities and the environment by utilizing our
services and selling their surplus assets through our marketplaces.
Our Strategy
The focus of our growth strategy is to build the world’s leading marketplace for surplus assets to benefit buyers, sellers, and the
planet. Our strategic plan rests on four pillars, that we refer to by the acronym RISE, which pillars are as follows: (1) Recovery
maximization; (2) Increase volume; (3) Service Expansion; and (4) Expense Leverage.
Recovery Maximization
Based on feedback from our sellers, we believe recovery maximization is the single most important driver to attracting sellers to
our marketplaces. We believe that the key to achieving higher net recovery is, in turn, driven by attracting buyers to our
marketplace which we believe that we can do through technology and innovation that improves the buyer experience across our
network of marketplaces. An improved buyer experience should drive growth in our buyer base which will, in turn, improve
recovery rates for our sellers. Our new e-commerce technology platform includes:
a new global taxonomy to classify and present assets for sale consistently across our businesses;
a new mobile responsive design with enhanced usability and speed;
improved search and navigation by industry vertical, location and other parameters;
a new My Account tool to manage transaction activity; and
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• multilingual and multi-currency capabilities to support cross-border commerce.
Most recently, we launched our new aggregated marketplace. While in beta testing today, we expect that this marketplace will
aggregate over time all of our supply surplus in a single destination for buyers to find and bid on our entire inventory of assets.
We are investing in enhanced asset promotion and marketing to our existing and target buyer base that will leverage a data-
driven recommendation engine to promote relevant assets to buyers based on stated or implied preferences. Lastly, we plan to
increase buyer participation by enhancing our mobile experience through new mobile apps for buyers to find and buy assets on
any device.
Increase Volume
We intend to grow the volume of transacted surplus on our marketplaces with flexible service offerings and pricing models to
meet the needs of existing and new sellers. We have expanded our self-directed service model to allow commercial sellers that
do not require a full-service solution to leverage the power of our marketing and online marketplaces to drive buyer demand for
their assets. This approach allows us to more completely penetrate the total addressable market by better meeting the needs of
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small and mid-sized organizations, equipment dealers, and organizations with lower volume needs. We also anticipate
increasing volume by placing a greater focus on certain categories, including construction and heavy equipment. We also
intend to grow our volume within the retail supply chain by leveraging the self-directed service model and expanding our
mobile device category. We will continue to provide flexible pricing models that allow our sellers to use either a consignment
or a principal-based model.
Service Expansion
We intend to grow our services with recurring revenue characteristics that leverage our technology platform, domain expertise,
data, and marketplace channels. By leveraging our extensive knowledge and technology, we intend to grow our revenue by
attracting more sellers and more volume through expanding our services to better support sellers and buyers in the construction
and heavy equipment and mobile device categories, expanding and improving our asset management and redeployment tools
for commercial and municipal government sellers on our new aggregated marketplace. Lastly, our recent acquisition of
Machinio expands our capabilities with respect to technology-enabled advertising and is a natural adjunct to our self-service
and full-service solutions available in our marketplaces.
Expense Leverage
We intend to improve operating expense leverage by controlling costs and through technology and innovation that increases
productivity. We intend to simplify and streamline operations and, where appropriate, consolidate business processes and
systems which will reduce our fixed costs and improve scalability. We have developed and will leverage a unified marketing
organization to improve our buyer marketing productivity and drive increased volumes of highly targeted buyers to our
marketplaces.
Future State
In sum, we intend to deliver a more diversified, asset light business with recurring revenue that focuses on profitability while
growing a solid foundation for long-term growth. As we re-establish organic growth in GMV and revenues, grow our asset light
technology enabled services, and build more recurring revenue, we believe our long-term value and ability to serve our sellers
and buyers will grow.
Our Marketplaces
Our e-commerce marketplaces are efficient and convenient methods for the sale of surplus and salvage consumer goods and
capital assets. They are designed to address the particular requirements and needs of buyers and sellers. We operate and enable
several marketplaces, including the following:
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Our www.liquidation.com marketplace enables corporations located in the United States to sell surplus and salvage
consumer goods and retail capital assets. This leading B2B marketplace and our related value-added services are
designed to meet the needs of our sellers by selling their surplus assets to domestic and international buyers.
Our www.govdeals.com marketplace provides self-directed service solutions in which sellers list their own assets, and
enables local and state government entities including city, county and state agencies, located in the United States and
Canada to sell surplus and salvage assets. GovDeals also offers a suite of self-directed solutions that include
transaction settlement and buyer marketing.
Our www.networkintl.com marketplace enables corporations to sell idle, surplus, and scrap equipment in the oil and
gas, petrochemical and power generation industries. This marketplace and our related services are designed to meet the
unique needs of energy sector sellers.
Our www.go-dove.com marketplace enables corporations located in the United States, Europe, and Asia to sell
manufacturing surplus, salvage capital assets, and scrap material. This marketplace and our related services are
designed to meet the specific needs of manufacturing sector sellers selling their surplus assets to domestic and
international buyers.
Our new aggregated marketplace leverages our 20 years of experience in the online surplus industry to create a
centralized marketplace that connects our entire global buyer base with assets from across our network of legacy
marketplaces in a single destination. This marketplace will continually evolve as we enhance our marketplace platform
technology and add new seller and buyer services.
Besides these leading business-to-business marketplaces, we recognize the need to reach end users for some assets our sellers
have entrusted to us. We have developed the capability to sell products on our sellers' behalf directly to end-users and/or
consumers using a range of existing marketplaces. Our www.secondipity.com marketplace provides consumers a trusted source
of value products through a socially conscious online experience designed to provide "Better Value, Better Life," by donating a
portion of the proceeds of every sale to charity. We also have an established global buyer base that seeks to buy in larger
quantities than are offered through our standard auction platform. We have dedicated sales teams to support their needs and
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supply chain. These range from a single truckload to ongoing flows of goods for export anywhere in the world, where we
market, handle, and support the full transaction on behalf of our buyers. We expect to continue to meet the needs of our sellers
and to access a growing range of products for all our buyers by enhancing our multi-channel strategy to ensure we create the
greatest value for assets at the end of their initial product life cycle.
On July 10, 2018, the Company acquired all of the outstanding stock of Machinio, a privately-owned company based in
Chicago, Illinois. Machinio operates a global online platform for listing used equipment for sale in the construction, machine
tool, transportation, printing and agriculture sectors. This search engine can be found at www.machinio.com.
Our Value-Added Services for Buyers and Sellers
In addition to our self-directed tools for our sellers, we have integrated value-added services to simplify the reverse supply
chain processes for both our sellers and buyers. We believe these services create the greatest operational efficiencies within this
element of the supply chain enabling the greatest value for sellers and buyers with the highest level of confidence and
transparency in the services we provide. Additionally, we believe these services improve compliance with the policies,
regulations and sale restrictions of our corporate and government sellers while supporting, or greatly enhancing, many corporate
or government environmental initiatives.
Seller services. We offer value-added services to sellers in three areas: (1) merchandising and channel optimization,
(2) logistics and (3) settlement and seller support, including compliance services.
• Merchandising and Channel Optimization. Our efforts encompass the services necessary to prepare merchandise for a
successful auction and include the following:
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Channel Optimization—we determine the marketplace and channel sales strategy that we believe will create
the most value for the individual asset using our real-time transaction systems and proprietary data to support
ongoing optimization.
◦ Marketing and promotion—we use a variety of both online and traditional marketing methods to promote our
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sellers' merchandise and generate the interest in each asset.
Asset lotting and merchandising—we leverage our industry experience to organize the merchandise we
receive into size and product combinations that meet buyer preferences within each marketplace and channel.
Product information enhancement—we provide digital images of the merchandise to be sold and combine the
images with relevant information. To increase the realized sales value, we also research, collect and use
supplemental product information to enhance product descriptions.
•
Logistics. We provide logistics services designed to support the receipt, handling, transportation and tracking of
merchandise offered through our marketplaces, including the following:
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Distribution centers—we provide sellers with the flexibility of either having us manage the sales process at
their location or delivering merchandise to one of our distribution centers.
Inventory management—sellers benefit from our management and inventory tracking system designed so
merchandise is received, processed and delivered promptly.
Cataloguing merchandise—we catalogue all merchandise, which enables us to provide useful product
information to buyers and sellers. In certain circumstances, we inspect the merchandise and provide condition
descriptions to improve quality and the financial recovery to the seller.
Testing, data wiping, de-labeling and refurbishment—we test products, wipe electronic data, refurbish and
remove labels and product markings from merchandise prior to sale in order to add value to the asset and
protect sellers' brand equity and distribution relationships.
Return to vendor or product disposition to non-sales channels—we manage the end-to-end processes for our
sellers ensuring that returned merchandise is disposed of in compliance with a variety of disposition
requirements. We provide end-to-end management of returning products to vendors, charities, or channels
outside of our leading marketplace solutions.
Outbound fulfillment—we can arrange for domestic or international shipping for all merchandise, whether it
is a small item or container load for export located in one of our distribution centers or at a seller's facility.
Settlement and seller support. Settlement and seller support services are designed for successful and reliable
completion of transactions and include:
▪
▪
Buyer qualification—we qualify buyers to ensure their compliance with government or seller
mandated terms of sale, as well as to confirm their ability to complete a transaction.
Collection and settlement—we collect payments on behalf of sellers prior to delivery of any
merchandise and disburse the proceeds to the seller after the satisfaction of all conditions of a sale.
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▪
Transaction tracking and reporting—we enable sellers and buyers to track and monitor the status of
their transactions throughout the sales process. We support the successful completion of each
transaction on behalf of the buyer and seller. We provide a range of comprehensive reporting
services to sellers upon the completion of a transaction. Our invoicing and reporting tools can be
integrated with the seller's information system, providing a more efficient flow of data.
•
Seller support and dispute resolution. We provide full support throughout the transaction process and dispute
resolution for our buyers and sellers if needed.
Buyer services. Many of the services we provide to sellers also benefit buyers by providing them with the information to
make a more informed bid and by delivering the goods they purchased. Our buyer-focused services include:
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Intelligent alerts and recommendations—we notify buyers of upcoming auctions based on their registered preferences
and prior transaction history. Registered preferences can be as broad as a product category or as specific as a part
number or key word. We use this information to ensure informed recommendations whenever we identify a product
that fits a buyer's preference. We will alert our buyers based on their preferences when auctions are initially launched
or nearing conclusion and based on various other parameters to enable our buyers to see relevant products.
Search and navigation tools—buyers can search our marketplaces for products based on a variety of criteria and
personalized settings, including product category, keyword, lot size, product condition, product geographic location
and auction ending date.
Dynamic pricing tools, product information, and shipping quotes—we offer multiple dynamic pricing tools including
outbid notification, automated bid agent and automatic auction extension. In addition, we provide buyers the
information they need to make informed decisions, including product data, seller performance, and online shipping
quotes to help understand their landed cost.
Broad and flexible range of shipping/pick-up options—we can provide packaging and shipping services for each
transaction, whether it is a small item or container loads for export, including buyer pick-up at our premises, for the
majority of transactions, or support buyer arranged transportation.
Secure settlement and buyer support—besides qualifying sellers, providing several electronic payment options and
serving as a trusted market intermediary, we verify transaction completion, which enhances buyer confidence. In
addition, we provide full reliable buyer support throughout the transaction process.
Sales and Marketing
We utilize a direct sales and marketing force to acquire and manage our seller and buyer accounts. Our sales activities are
focused on acquiring new sellers and expanding existing sellers' use of our solutions. Our marketing activities are focused on
acquiring and activating new buyers and increasing existing buyers' participation. Our marketing team also manages our
marketplace brands and drives seller lead generation efforts that support the sales team.
Sales
Our sales personnel develop seller relationships, contract to provide our services and manage the business accounts on an on-
going basis. Our sales team focuses on building long-term relationships with sellers that we believe will generate recurring
transactions. They also leverage our years of experience and market data of completed transactions to identify which of our
various services would be beneficial to each new or existing seller. Our sales team works with several auction partners globally
for both purchase and consignment transaction model projects. In addition, we have a lead generation team which tracks
announcements regarding plant closures around the world. The lead generation team uses several sources to research plant
closures, which sources include news aggregators, trade journals, industry specific web sites and bankruptcy reports on a global
basis.
We organize our sellers group into two distinct groups: large full-service sellers, and self-directed sellers. We base our approach
on our experience in understanding and serving the unique needs of each type of seller:
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Large full-service sellers. These sellers require a customized approach, using a combination of our industry-focused
sales team and our value-added services to create a comprehensive solution tailored to their needs.
Self-directed sellers. These sellers are offered a turn-key solution enabling them to self-direct the sale of their assets
on our marketplaces by accessing tools and resources to optimize their net recovery.
Our sales personnel receive salary and performance-based commissions.
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Marketing
We use a variety of online and traditional marketing strategies to attract and activate professional buyers to maximize the
number of bidders participating in our e-commerce marketplaces as well as to support our sales team:
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Buyer acquisition. We utilize marketing automation and digital online marketing, including paid search advertising,
search engine optimization, affiliate programs and cross promotion to acquire new buyers. We supplement this online
marketing with special event print media, classified advertisements and selected direct mail campaigns. Public
relations campaigns, participation in trade shows and speaking engagements also complement our overall buyer
acquisition efforts.
Buyer participation. We use many tools to increase buyer participation, including: targeted opt-in e-mail newsletters
that provide content based on the buyer's stated categories of interest and past bidding or transaction activity; special e-
mail alerts highlighting specific products of interest; personalized recommendation engines; and convenient search
tools that enable a buyer or prospective buyer to find desired items on our e-commerce marketplaces.
• Market research. In order to better target buyers by industry segment, geographic location or other criteria, our
marketing department continually gathers data and information from each of the buyer segments we serve. In addition,
the marketing department conducts regular surveys to better understand buyers' behavior and needs. We have adopted
a privacy policy and have implemented security measures to protect this information.
Sales support. Our marketing department employs a robust lead generation program, creates documentation and
research to support our sales team in presenting our company to potential sellers and buyers, including sales brochures
and white papers, and participation in selected trade shows.
•
All marketing activities are evaluated based on the level of auction participation in our marketplaces, the cost to acquire new
sellers, and the cost effectiveness of each action.
Technology and IT Infrastructure
Our marketplaces are web-based and can be accessed from any Internet-enabled device by using a standard web browser. Our
technology systems enable us to automate and streamline many of the manual processes associated with finding, evaluating,
bidding on, paying for and shipping surplus and salvage assets. The technology and content behind our marketplaces and
integrated value-added services were developed by us, providing us with control over the marketplaces and the ability to make
enhancements quickly to better fit the specific needs of our buyers and sellers. Our infrastructure provides:
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an efficient channel to sell online through a variety of pricing mechanisms (standard auction, sealed bid, make an offer,
and fixed price);
a scalable back office that enables buyers and sellers to efficiently manage transactions among remote business users
by utilizing account management tools, including payment collection, invoicing management, shipping and transaction
settlement; and
an input/output agnostic platform, including Application Programming Interface or other conduits that enable us to
integrate seamlessly with partner enterprise applications of sellers and third party service providers.
We have designed our websites and supporting infrastructure to be robust and to support new services and increased traffic. Our
servers are fully-managed and hosted by Amazon Web Services and Microsoft Azure Public Cloud Platforms. Every critical
piece of our application is regionally resilient, and we maintain off-site back-up systems and we can provision a disaster
recovery facility. Our network connectivity offers high performance and scalability to accommodate increases in website traffic.
Since January 1, 2003, we have experienced no material service interruptions on our e-commerce marketplaces.
Our applications support multiple layers of security, including password-protected log-ins, encryption technology to safeguard
information transmitted in web sessions and firewalls to help prevent unauthorized access to our network and servers. We
devote significant resources to protecting our systems from intrusion.
Further, we devote resources to continuous improvement of our technology and IT infrastructure. In 2019, we completed our
new e-commerce technology platform that includes:
a new global taxonomy to classify and present assets for sale consistently across our businesses;
a new mobile responsive design with enhanced usability and speed;
improved search and navigation by industry vertical, location and other parameters;
a new My Account tool to manage transaction activity; and
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• multilingual and multi-currency capabilities to support cross-border commerce.
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Operations
Supporting large organizations that have a recurring need to sell surplus and salvage assets requires systematic processes to
enhance the financial value and convenience received by our sellers. We believe we have integrated the required operational
processes into our solution to efficiently and to effectively support our buyers and sellers. Our operations group comprises three
functions: (1) buyer relations, (2) shipping logistics and (3) distribution center and field service operations.
Buyer relations
Our buyer relations group supports the completion of buyer transactions by managing the buyer registration and qualification
process, answering questions and requests from buyers, collecting buyer payments and resolving disputes. Our websites contain
extensive information about buying through our e-commerce marketplaces, including an online tutorial regarding the use of our
marketplaces, answers to frequently-asked buyer questions and an indexed help section. Buyers can contact a buyer support
service representative by live chat and e-mail or phone if they need additional support.
Shipping logistics
Our shipping logistics group manages and coordinates inbound and outbound shipping of merchandise for sellers and buyers.
We offer, as part of our value-added services, integrated shipping services using our own fleet or multiple vetted and pre-
qualified carrier partners. In addition, our shipping coordinators monitor the performance and service level of our network of
carriers to help ensure speed and quality of service.
Distribution center and field service operations
Our distribution center and field service operations group performs selected pre-sale and post-sale value-added services at our
distribution centers and at seller locations globally. These activities include unloading, manifesting and reporting discrepancies
for all received assets and sales preparation of offered assets, including merchandising and organizing offered assets, writing
product descriptions, capturing digital images and/or video and providing additional optional value-added services such as
returns management (RM) services, return to vendor (RTV) services and product delabelling, data cleaning/wiping, testing,
refurbishment and repackaging. Our distribution center and field service operations group personnel also arranges the outbound
shipping or pick-up of purchased assets for our buyers.
Competition
The online services market for auctioning or liquidating surplus and salvage assets is competitive and growing rapidly. We
compete with:
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other e-commerce platforms;
auction, reverse auction, and direct sale websites;
government agencies that have created websites to sell surplus and salvage assets; and
traditional liquidators and fixed-site auctioneers.
In our marketplaces for surplus and salvage assets, we compete with a variety of online, mobile, and offline channels. These
include, but are not limited to, e-commerce providers, auction websites, retailers, distributors, liquidators, import and export
companies, auctioneers, and government agencies that have created websites to sell surplus. As our product offerings continue
to broaden into new categories of surplus and salvage items, we expect to face additional competition from other online,
mobile, and offline channels.
Our markets may become even more competitive as traditional and online liquidators and auctioneers continue to develop
online and offline services for disposition, redeployment and remarketing of surplus and salvage assets. In addition,
manufacturers, retailers and government agencies may create their own websites to sell their own surplus and salvage assets and
those of third parties.
Competition may intensify as our competitors enter into business combinations or alliances and established companies in other
market segments expand to become competitive with our business. In addition, new and enhanced technologies, including
search, web and infrastructure computing services, digital content, and electronic devices, may increase our competition. The
internet facilitates competitive entry and comparison shopping, and increased competition may reduce our sales and profits.
Our Vendor Contracts with Amazon.com, Inc. and the United States Department of Defense
Our RSCG segment has multiple vendor contracts with Amazon.com, Inc., under which we acquire commercial merchandise to
sell under the purchase model. The commercial merchandise we purchased under this contract represented 43.6%, 33.7% and
21.8% of consolidated cost of goods sold for the years ended September 30, 2019, 2018 and 2017, respectively.
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DoD agreements. Historically, we had two material vendor contracts with the DoD, the Scrap Contract and the Surplus
Contract. Both contracts are included in the results of our CAG segment.
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Scrap Contract. Under the Scrap Contract, which concluded on September 30, 2019, we acquired, managed and sold
all non-electronic scrap property of the DoD turned into the Defense Logistics Agency (DLA), and paid the DLA a
revenue-sharing payment equal to 64.5% of the gross resale proceeds. Scrap property generally consisted of items
determined by the DoD to have no use beyond their base material content, such as metals, alloys, and building
materials. We bore all of the costs for the sorting, merchandising and sale of the property. The resale transactions for
scrap property sourced under this contract followed the purchase model.
Resale of scrap property that we purchased under the Scrap Contract accounted for 7.4%, 10.2%, and 11.1%, of our
total revenues, and 2.6%, 3.6%, and 4.7% of our GMV, in the years ended September 30, 2019, 2018, and 2017,
respectively.
Surplus Contract. Under the Surplus Contract, which concluded on June 30, 2018, we acquired, managed and sold
usable surplus personal property of the DoD turned into the DLA. We paid the DLA 4.35% of the DoD's original
acquisition value for the surplus property, which property consisted 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. We retained 100% of the profits from the resale
of the property and bore all of the costs for the merchandising and sale of the property. The resale transactions for
surplus property sourced under this contract followed the purchase model.
Resales of surplus property that we purchased from the DoD under the Surplus Contract, as well as services we
provided to the DoD under the Surplus Contract, accounted for 0.0%, 12.4%, and 27.6%, of our total revenues, and
0.0%, 4.1%, and 9.4%, of our GMV, for the years ended September 30, 2019, 2018, and 2017, respectively.
Government Regulation
We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public
information and regulations prohibiting unfair and deceptive trade practices. The growth and demand for e-commerce has
resulted in and may continue to result in more stringent consumer protection laws that impose additional compliance burdens on
e-commerce companies. Many jurisdictions also regulate "auctions" and "auctioneers" and may regulate online auction services.
These consumer protection laws and regulations could cause substantial compliance costs and could interfere with the conduct
of our business.
In many states, there is great uncertainty about whether or how existing laws governing issues such as property ownership, sales
and other taxes, auctions and auctioneering, libel and personal privacy apply to the Internet and commercial online services.
These issues may take years to resolve. New legislation or regulation, applying laws and regulations from jurisdictions whose
laws do not currently apply to our business or the application of existing laws and regulations to the Internet and commercial
online services could cause significant additional taxes or regulatory restrictions on our business. These potential restrictions
could have an adverse effect on our cash flows and results of operations. Further, we may be subject to significant fines or other
payments for any past failures to comply with these requirements.
For our contracts with commercial businesses and government sellers, our sellers may audit and review our performance on our
contracts, and our compliance with laws and regulations.
Within the EU, the General Data Protection Regulation ("GDPR") strengthens the existing data protection regulations in the
EU in connection with the collection, storage, retention, use, processing, transmission, sharing, disclosure and protection of
personal information and other customer data. The GDPR applies to all EU citizens' data, regardless of whether such data is
collected, stored or processed within the EU. Penalties for non-compliance with the GDPR are considerable, allowing EU
regulators to impose a monetary penalty equal to the greater of €100 million or 4% of a non-compliant organization's
worldwide annual sales. Such fines would be in addition to the rights of individuals to sue for damages in respect of any data
privacy breach which causes them to suffer loss. As Internet commerce and related technologies continue to evolve, thereby
increasing a service provider's capacity to collect, store, retain, protect, use, process and transmit large volumes of personal
information, increasingly restrictive regulation by international, federal, and state agencies becomes more likely. We believe
that the adoption of increasingly restrictive regulation in the field of data privacy and security is likely in both the United States
and in other jurisdictions, possibly as or more restrictive as the EU model. Obligations and restrictions imposed by current and
future applicable laws, regulations, contracts and industry standards may affect our ability to provide all the current features of
our products and services, and could require us to change our business practices in a manner adverse to our business.
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Intellectual Property
We regard our intellectual property, particularly domain names, copyrights and trade secrets, as critical to our success. We rely
on contractual restrictions and common law copyright and trade secret laws to protect our proprietary rights, know-how,
information and technology. These contractual restrictions include confidentiality and non-compete provisions. We generally
enter into agreements containing these provisions with our employees, contractors and third parties with whom we have
strategic relationships. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our
intellectual property without our authorization. We are the registered owners of several Internet domain names, including
www.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, and
www.machinio.com. We pursue the registration of our trademarks in the U.S. and internationally. Effective patent, copyright,
trademarks, trade secret and domain name protections are expensive to maintain and we may have to litigate to enforce our
intellectual property rights. We seek to protect our domain names in an increasing number of jurisdictions and may not succeed
in certain jurisdictions.
Employees
As of September 30, 2019, we had 578 U.S. employees, including 174 in sales and marketing, 60 in technology, 29 in buyer
and seller support service, 232 in operations and 83 in finance and administration. In addition, as of that date, we had 109
international employees, including 46 in sales and marketing, 5 in technology, 2 in buyer and seller support service, 38 in
operations and 18 in finance and administration.
None of our U.S. employees are covered by collective bargaining agreements. We believe that we have good relationships with
our employees.
Available Information
Our annual, quarterly and current reports, proxy statements, amendments to those reports and other information are provided
free of charge on our website www.liquidityservices.com, as soon as reasonably practicable after we electronically file these
materials with, or furnish them to the Securities and Exchange Commission (the “SEC”). We use our website as a channel of
distribution for material company information. We post important information, including news releases, analyst presentations,
investor presentations, and financial information regarding the Company at www.liquidityservices.com.
Cautionary Note Regarding Forward-Looking Statements
This document contains forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995.
These statements are only predictions. The outcome of the events described in these forward-looking statements are subject to
known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or
achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied
by these forward-looking statements. These risks and other factors include but are not limited to, statements regarding the
Company’s business outlook; the Company’s proprietary e-commerce marketplace platform; the migration of legacy
marketplaces to our new aggregated marketplace, the launch of the retail liquidation marketplace on our new aggregated
marketplace and the timing of these actions; restructuring efforts and refinement in our sales and marketing strategy; expected
investment in, benefits of and timing of completion of improvements to our new aggregated marketplace; the ERP rollout; the
pricing for services, and the pricing, supply, and mix of inventory from our sellers; expected future effective tax rates; and
trends and assumptions about future periods, the numerous factors that influence the supply of and demand for used equipment;
economic and other conditions in local, regional and global sectors; and those listed in Part I, Item 1A ("Risk Factors") and in
our other filings with the (SEC) from time to time. You can identify forward-looking statements by terminology such as "may,"
"will," "should," "could," "would," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential,"
"continues" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual
results to differ materially from the forward-looking statements.
All forward-looking statements apply only as of the date of this Annual Report and are expressly qualified in their entirety by
the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly
update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this Annual Report
or to reflect the occurrence of unanticipated events.
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Item 1A. Risk Factors.
You should carefully consider the risks described below, together with all of the other information in this Annual Report,
including the consolidated financial statements and related notes, before making an investment decision with respect to our
common stock. If any of the following risks occur, our business, financial condition or operating results could suffer. As a
result, the trading price of our common stock could decline and you may lose all or part of your investment in our common
stock. The risks and uncertainties described below are not in any particular order and are not the only significant risks we may
face. Other events that we do not currently anticipate or that we currently deem immaterial also may affect our results of
operations and financial condition.
The success of our business depends on our ability to successfully obtain a supply of surplus assets sufficient to attract
buyers to our platform and our ability to successfully attract and retain active professional buyers to create demand for
surplus assets sufficient to attract sellers.
Our ability to increase our revenue and earn profits depends on whether we can successfully retain existing sellers, attract new
sellers, expand the supply of merchandise available for sale on our e-commerce marketplaces and attract and retain active
professional buyers to purchase the merchandise. Our ability to attract enough quantities of suitable merchandise and buyers
will depend on various factors, some of which are out of our control. These factors include our ability to:
•
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•
•
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offer sellers liquid marketplaces for their surplus and salvage assets;
offer buyers desirable merchandise;
develop and implement effective sales and marketing strategies;
comply with regulatory and corporate seller requirements affecting marketing and disposition of certain categories of
merchandise;
efficiently catalogue, handle, store, ship and track merchandise; and
achieve high levels of seller and buyer satisfaction.
Failure to continue to offer competitive products to the marketplace, to supply products that meet applicable regulatory
requirements, or to predict market demands for, or gain market acceptance of, such products, would have a negative impact on
our business, results of operations and financial condition.
If we do not respond to rapid technological changes or upgrade our systems, we could fail to grow our business and our
revenue could decrease.
To remain competitive, we must continue to enhance and improve the functionality and features of our e-commerce business.
As an e-commerce company, we must continuously improve and upgrade our technology, transaction processing systems and
network infrastructure to allow our operations to grow in both size and scope. Without such improvements, our operations
might suffer from unanticipated system disruptions, slow transaction processing, unreliable service levels, or impaired quality
or delays in reporting accurate financial information, any of which could negatively affect our reputation and ability to attract
and retain sellers and buyers. We may also face material delays in introducing new services, products and enhancements. The
internet and the e-commerce industry are rapidly changing. If competitors introduce new products and services using new
technologies or if new industry standards and practices emerge, our existing websites and our proprietary technology and
systems may become obsolete. In addition, the expansion and improvement of our systems and infrastructure may require us to
commit substantial financial, operational and technical resources, with no assurance our business will grow as a result. If we fail
to respond to technological change or to adequately maintain, expand, upgrade and develop our systems and infrastructure
promptly, our ability to grow could be limited and our revenue could decrease.
We may not realize the anticipated benefits from our recent initiatives.
We expect that our recent initiatives will increase our efficiency and productivity, the functionality of our marketplaces and our
cross-selling opportunities, as well as decrease the cost of our systems infrastructure, all of which we expect will drive our scale
and growth and have a positive effect on our business, competitive position and results of operations over time. Many of our
previous operating and financial systems have been recently replaced, and if these new systems do not operate as expected, we
may have to incur significant additional costs and delays to modify them. We cannot assure you that these initiatives will be
beneficial to the extent, or within the timeframes, expected, or that the estimated efficiency, cost savings and other
improvements will be realized as anticipated or at all. If our initiatives are not implemented successfully and within budget, or
if the new systems, including the new Enterprise Resource Planning (“ERP”) system, do not perform in a satisfactory manner, it
could disrupt or otherwise materially adversely affect our business and results of operations, as well as divert management
resources. Similarly, if our buyers and sellers fail to accept our new platform or our new unified process for handling
transactions across all our marketplaces, it could materially adversely affect our business and results of operations.
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The information technology and digital marketing improvements that are core to our RISE strategy place a significant
strain on our management, operational, financial and other resources.
We continue to decommission non-scalable legacy IT platforms with a singular, modular technology platform with key
modules for unified management of sellers and buyers, property handling, transaction processing and finance functions across
our entire company. Our new aggregated marketplace, which was launched during Q1 of Fiscal Year 2020 and is presently in a
beta phase of testing in order to get customer feedback, is designed to provide our buyers access to all the property available in
all our marketplaces, provide a common account experience for sellers and harmonize, simplify and streamline our operations.
This program is placing significant strain on our management, personnel, operations, systems, technical performance and
financial resources and internal financial control and reporting function. Information technology and digital marketing change
requires management time and resources to educate employees, redesign internal processes and implement new ways of
conducting business. If we do not effectively manage improvements to our new aggregated marketplace, including
consolidation of other marketplaces onto our new aggregated marketplace, digital marketing and data driven improvements or
the timing, costs, and adoption by sellers and buyers, it could negatively affect our business and our operating results, as well as
damage our reputation and our prospects. In addition, the dedication of resources to the continuous improvement of our new
aggregated marketplace initiative limits the resources we have available to devote to other initiatives or growth opportunities, or
to invest in the maintenance of our internal systems. Further, the timing of completion of various remaining phases of brand
phase-outs and transitions to the new aggregated marketplace could be delayed, resulting in higher costs during implementation
and greater strain on management time and resources.
If we fail to deliver a mobile e-commerce experience that meets our users’ expectations, our business will be adversely
affected.
Mobile devices are increasingly used for e-commerce transactions. A significant and growing portion of users access our
marketplaces through mobile devices. We may not be able to grow our business as fast as we expect, and we may lose users if
we are unable to deliver a mobile e-commerce experience that meets our users’ expectations.
We have vendor contracts with Amazon.com, Inc. in our RSCG segment under which we acquire a significant portion of
our purchased inventory, and if our relationship with Amazon is disrupted, we would experience a significant decrease
in revenue and income.
We have multiple vendor contracts with Amazon.com, Inc., under which we acquire then resell merchandise. The property we
purchased under these contracts represented approximately 43.6%, 33.7% and 21.8% of cost of goods sold for the years ended
September 30, 2019, 2018 and 2017, respectively. If Amazon stopped selling inventory to us on acceptable terms, we likely
could not procure alternative inventory from other vendors in a timely and efficient manner and on acceptable terms, or at all,
and would therefore experience a significant decrease in revenue and have difficulty generating income.
We face intense competition.
Our businesses operate in intensely competitive markets. We have many competitors in different industries, including the online
services market for auctioning or liquidating surplus and salvage assets and retail markets. Competitive pressures could affect
our ability to attract and retain buyers and sellers, which could decrease our revenue and negatively affect our operating results.
Some of our other current and potential competitors have longer operating histories, larger seller and buyer bases, greater brand
recognition and greater financial, marketing and other resources than we do. They may devote greater financial resources to
marketing and promotional campaigns, secure better terms from sellers and vendors, adopt more aggressive pricing or inventory
availability policies and devote substantially more resources to technology and infrastructure than we do.
In some countries, we have competitors that may have a better understanding of local culture and commerce. We increasingly
may compete in other countries with local competitors that have advantages we do not, such as a greater ability to operate
within the local regulatory environment.
If our strategy to compete against our many competitors is not effective, we may lose market share and our results of operations
may be negatively affected. We may not be able to compete successfully against competitors and our financial condition and
results of operations may be adversely impacted and we may not be able to achieve long term earnings growth targets.
If we do not retain our senior management and other key personnel, we may not achieve our business objectives.
Our future success, including our ability to successfully implement recent initiatives, depends substantially on the continued
service of our senior management and other key personnel, particularly William P. Angrick, III, our Chairman and Chief
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Executive Officer. We do not have key-person insurance on any of our officers or employees. Losing any member of our
existing senior management team could damage key seller relationships, result in the loss of key information, expertise or
know-how, lead to unanticipated recruitment and training costs and make it more difficult to operate our business and achieve
our business goals.
Our operating results depend on our websites, network infrastructure and transaction processing systems, and our
software runs on public clouds. Service interruptions or system failures could negatively affect the demand for our
services and our ability to grow our revenue.
Any system interruptions that affect our websites or our transaction systems could impair the services we provide to our sellers
and buyers. In addition, our systems and data centers may be vulnerable to damage from a variety of other sources, including:
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damage to, or failure of, our computer software or hardware, or our connections to, and outsourced service
arrangements with, third parties;
failure of, or defects in, the third-party systems, software or equipment on which we rely to access our data centers and
other systems;
errors in the processing of data;
computer viruses, malware or software defects;
physical or electronic break-ins, sabotage, distributed denial of service, or DDoS, penetration attacks, intentional acts
of vandalism and similar events; and
telecommunications failures, power outages, pandemics, political unrest, malicious human acts and natural disasters.
Improving the reliability and redundancy of our systems may be expensive, reduce our margins and may not be successful in
preventing system failures.
Our ability to provide services depends substantially on systems provided by third parties, over whom we have little control.
We have occasionally experienced interruptions to our services due to system failures. Any disruption to our data centers,
interruptions or failures of our systems or our ability to communicate with third party systems could negatively affect the
demand for our services and our ability to grow our revenue.
We recently implemented a new e-commerce marketplace and back-office solution to upgrade the information technology
systems used to operate our business and replace them with cloud-based solutions. Our new e-commerce marketplace and back-
office solution is integrated with our new ERP system. As a result, many of our information technology systems consist of
outsourced, cloud-based infrastructure, platform, and software-as-a-service solutions not under our direct management or
control. Any disruption to either the outsourced systems or the communication links between us and the outsourced supplier
could negatively affect our ability to operate our websites or our transaction systems and could impair our ability to provide
services to our sellers and buyers. We may incur additional costs to remedy the damages caused by these disruptions.
Our inability to use software licensed from third parties or our use of open source software under license terms that
interfere with our proprietary rights could disrupt our business.
We use software licensed from third parties, including some open-source software that we use without charge. We use, among
others, the following licensed or open-source software: Microsoft Azure, Microsoft SQL Database, Amazon Web Services,
Heroku, Solr Search Engine, HARPROXY Load Balancer, The .net Framework, Linux (an operating system), MySQL
(database software), PERL (an interpreter), Apache (a web server), Java, Ruby on Rails, Cold Fusion, Angular, Node, Liferay
(content management system), Mule (enterprise service bus), ActiveMQ (message queue), Tomcat (application container), Chef
(infrastructure automation), and Jenkins (code deployment), and we may use additional open-source software. Licenses to third
party software may not continue to be available on terms that are acceptable to us, or at all.
We rely on third parties to provide us with cloud-based services. We rely on outsourced, cloud-based, platform-as-a-service
solutions not under our direct management or control.
Our inability to use third-party software or to enter into agreements on acceptable terms with providers of cloud-based solutions
could cause disruptions to our business, or delays in developing future services or enhancements of existing services, which
could impair our business. In addition, the terms of certain open source software licenses may require us to provide modified
versions of the open source software or any proprietary software that we develop that incorporates all or a portion of the open
source software to others on unfavorable license terms consistent with the open source license term. If we must license our
proprietary software under the foregoing, our competitors and other third parties could obtain access to our intellectual
property, which could harm our business.
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We are exposed to risks related to cybersecurity and protection of confidential information.
We retain highly confidential information on behalf of our buyers and sellers in our systems and databases. Although we
maintain security features in our systems designed to protect user information and prevent data loss and other security breaches,
such measures cannot provide absolute security and our operations may be susceptible to breaches, including from
circumvention of security systems, denial of service attacks or other cyber-attacks, hacking, computer viruses or malware,
technical malfunction, employee error, malfeasance, physical breaches, system disruptions or other disruptions. For example, in
2018, we experienced a data breach incident that involved an employee’s email account and may have resulted in the exposure
of personally identifiable information of our employees. We cannot be certain that the measures and processes taken by us to
address this incident will prevent harm to our employees from the incident or prevent all similar events in the future.
Disruptions from cybersecurity events may jeopardize the security of information stored in and transmitted through our
systems. An increasing number of websites, including those owned by several other large Internet and offline companies, have
disclosed breaches of their security, some of which have involved sophisticated and highly targeted attacks on portions of their
websites or infrastructure. The techniques used to obtain unauthorized access, disable, or degrade service, or sabotage systems,
change frequently, may be difficult to detect for a long time, and often are not recognized until launched against a target.
Certain efforts may be state sponsored and supported by significant financial and technological resources and therefore may be
even more difficult to detect. We may not anticipate these techniques or implement adequate preventive measures. We currently
expend, and may be required to expend significant additional capital and other resources, to protect against such security
breaches or to alleviate problems caused by such breaches. Our insurance coverage may be inadequate to compensate us for any
related losses we incur.
These issues are likely to become more difficult as we expand our operations. Any breach of our security measures, or even a
perceived breach of our security measures, could cause us to lose sellers or buyers, suffer material harm to our business,
financial condition, operating results and reputation or be subject to regulatory actions, sanctions or other statutory penalties,
litigation, or liability for failure to safeguard our sellers’ and buyers’ information. Further, losing confidential seller or buyer
information could also expose us to the risk of liability and costly litigation. In addition, if there is any perception that we
cannot protect our users’ confidential information, we may lose the ability to retain existing, and attract new, sellers and buyers,
and therefore our revenue could decline.
Shipment of merchandise sold in our marketplaces could be delayed or disrupted by factors beyond our control and we
could lose buyers and sellers.
We rely upon third-party carriers such as United Parcel Service, or UPS, for timely delivery of our merchandise shipments. We
are subject to carrier disruptions and increased costs due to factors beyond our control, including labor difficulties, inclement
weather, terrorist activity and increased fuel costs. In addition, we do not have a long-term agreement with UPS or any other
third-party carriers, and we cannot be sure that our relationship with UPS will continue on terms favorable to us, if at all. If our
relationship with UPS is terminated or impaired or if UPS cannot deliver merchandise for us, we would have to use alternative
carriers for the shipment of products to our buyers. We may not be able to engage alternative carriers timely or on terms
favorable to us. Potential adverse consequences may include:
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delays in merchandise receipt and delivery;
increased cost of shipment; and
reduced shipment quality, which may damage merchandise.
Any failure to receive merchandise at our distribution centers or deliver products to our buyers in a timely and accurate manner
could lead to seller or buyer dissatisfaction and cause us to lose sellers and buyers.
An interruption in the operations of our buyer and seller support service system or our distribution centers could
significantly harm our business and operating results.
Our business depends, to a large degree, on the provision of effective support services to our buyers and sellers, and on
effective distribution center operations (including leased commercial warehouse distribution space). These operations could be
harmed by several factors, including any material disruption or slowdown at our distribution centers resulting from labor
disputes, changes in the terms of our underlying lease agreements, telecommunications failures, power or service outages,
human error, terrorist attacks, natural disasters or other events.
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If we fail to accurately predict our ability to sell merchandise in which we take inventory risk and credit risk, our
margins may decline.
Under our purchase transaction model, we purchase merchandise and assume the risk that the merchandise may sell for less
than we paid for it. We assume general and physical inventory and credit risk. These risks are especially significant because
some of the goods we purchase and resell on our websites are impacted by rapid technological change, obsolescence and price
erosion, and because we sometimes make large purchases of particular types of inventory or industrial equipment when
manufacturing facilities or campuses close. In addition, we do not typically receive warranties on the merchandise we purchase
and, as a result, we must resell or dispose of any returned goods on an as-is basis, which limits the types of buyers willing to
purchase our merchandise. Historically, the amount of disposed goods (which includes returned goods we have not resold) has
been less than 2% of the goods we have purchased. To manage our inventory successfully, we must maintain enough buyer
demand to sell merchandise for a reasonable financial return. We may overpay for the acquired merchandise if we miscalculate
buyer demand or the acquired merchandise is not as desirable as we predicted. If merchandise is not attractive to our buyer
base, we may have to take significant losses resulting from lower sale prices, which could reduce our revenue and margins.
Declines in commodity prices may also reduce the profit we can realize in reselling scrap or salvage assets. For example, we
may not sell our scrap or salvage inventory for amounts above its cost and we may incur a loss in products we handle for our
commercial sellers.
Occasionally, in our capital assets marketplace, we make very significant inventory acquisitions, such as the purchase of semi-
conductor and oil and gas equipment and biopharma and metal-working machinery, for later resale on our energy and industrial
marketplaces. We plan to continue to opportunistically make such acquisitions. The risks described above are heightened in
these acquisitions due to their size and, at times, the limited market for the assets we acquire. If we obtain financing to fund
such acquisitions, such financing will increase our costs, which will decrease any profits we receive from the sale of the
acquired assets.
As we grow our business, we may increase the merchandise we purchase directly from sellers, resulting in increased inventory
levels and related risks, including increased risk of losses on the sale of the inventory acquired. Any such increase would
require the use of additional working capital and any funds so used would not be available for other purposes.
Our quarterly operating results have fluctuated in the past and may do so in the future, which could cause volatility in
our stock price.
Our prior operating results have fluctuated due to changes in our business and the e-commerce industry. Similarly, our future
operating results may vary significantly from quarter to quarter due to many factors, including factors beyond our control. You
should not rely on period-to-period comparisons of our operating results as an indication of our future performance. Factors that
may, among others, affect our quarterly operating results include the following:
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our ability to increase sales to existing buyers, attract and retain new buyers and satisfy buyer demands;
our ability to retain and expand our base of sellers;
entry into, or the modification, termination or expiration of, material contracts;
the volume, size, timing and completion rate of transactions in our marketplaces, including variability due to the
timing of large, project-based activities;
changes in the supply and demand for and the volume, price, mix and quality of our supply of surplus and salvage
assets;
introduction of new or enhanced websites, services or product offerings by us or our competitors, which may affect our
margins;
implementation costs of new contracts, particularly those requiring custom integrations and value-added services;
changes in our pricing policies or the pricing policies of our competitors;
changes in the conditions and economic prospects of the e-commerce industry or the economy generally, which could
alter current or prospective buyers' and sellers' priorities;
the extent to which use of our services is affected by spyware, viruses, phishing and other spam emails, denial of
service attacks, data theft, computer intrusions, outages and similar events;
event-driven disruptions such as war, terrorism, armed hostilities, disease and natural disasters;
changes in energy and commodities prices, including the timing and speed of recovery in energy sector macro
conditions;
seasonal patterns in selling and purchasing activity; and
costs related to acquisitions of technology or equipment.
Our operating results may fall below the expectations of market analysts and investors in some future periods. If this occurs,
even temporarily, it could cause volatility in our stock price.
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If we cannot attract and retain skilled employees, our business may be harmed.
Our future success depends on our ability to continue to attract, retain and motivate highly skilled employees, particularly
employees with sales, marketing, operations and technology expertise. Competition for employees in our industry is intense.
We have experienced occasional difficulty in attracting the personnel to support the growth of our business, and we may
experience similar difficulties. If we cannot attract, assimilate and retain employees with the skills we require, we may not grow
our business and revenue as expected and we could experience increased turnover, decreased levels of buyer and seller service,
low morale, inefficiency or internal control failures.
The seasonality of our business places increased strain on our operations.
We experience seasonality in each portion of our business. We expect a disproportionate amount of transactions on our
marketplaces to occur at certain times during the year. If we cannot effectively manage increased demand, or the increased flow
of goods we typically experience during these times, it could adversely affect our revenue and our future growth. If too many
buyers and sellers access our websites within a short period of time due to increased demand, we may experience system
interruptions that make our websites unavailable or prevent us from providing efficient service, which may reduce our GMV
and the attractiveness of our value-added services. In addition, we may not adequately staff our distribution centers during these
peak periods. If we cannot staff warehouses adequately, we may not be able to process surplus assets quickly enough which, in
turn, could mean dissatisfaction of sellers and reduced GMV or increased third party storage costs and reduced profitability.
If we fail to identify, finance and integrate acquisitions, our future operating results may be materially adversely
affected.
We have expanded our business in part through acquisitions and may continue to do so in the future. The success of any future
growth strategy involving acquisitions will depend on our ability to identify, and the availability of, suitable acquisition
candidates. We may incur costs in connection with a potential acquisition but may ultimately be unable or unwilling to
consummate the proposed transaction for various reasons. In addition, acquisitions involve numerous risks, including our ability
to successfully integrate the acquired businesses and operations with our other businesses and realize the anticipated benefits of
the acquisitions. If we cannot achieve these objectives in a cost-effective and timely manner, we may not realize the anticipated
benefits of the acquisition or it may take us longer to realize the benefits of the acquisition than we expect. Acquired operations
outside the U.S. may present unique challenges or increase our exposure to risks associated with foreign operations, including
foreign currency risks and risks associated with local regulatory regimes.
The integration process could cause the loss of key employees, buyers, sellers or other vendors, increase our operating or other
costs, decrease our profit margins or disrupt our other businesses, each of which could impair our ability to achieve the
anticipated benefits of the acquisition. Our efforts to integrate acquired businesses will divert management's attention and
resources from our other businesses. Any failure to timely and cost-effectively realize the anticipated benefits of the acquisition
could have a material adverse effect on our revenues, expenses and operating results.
Acquisitions could cause dilutive issuances of equity securities, the incurrence of debt, one-time write-offs of goodwill and
substantial amortization expenses of other intangible assets. We may not obtain any required acquisition financing on favorable
terms, or at all, which could make it impossible or costlier to acquire other businesses. If we can obtain financing, the terms
may be onerous and restrict our operations. Further, certain acquisitions may be subject to regulatory approval, which can be
time-consuming and costly to obtain, and the terms of such regulatory approvals may impose limitations on our ongoing
operations or require us to divest assets or lines of business.
Damage to our reputation could harm our business.
Our positive reputation is based on our core values of integrity, customer focus, relentless improvement, innovation to support
leadership, mutual trust and accountability, shared success and doing well and doing good. Our ability to attract and retain
highly skilled employees, clients and buyers, and to successfully do business would be harmed if our reputation was damaged.
Harm to our reputation can arise from numerous sources, including, among others, employee misconduct, security breaches,
compliance failures, litigation or regulatory outcomes or governmental investigations. Our reputation could also be harmed by
the failure or perceived failure of an affiliate, joint-venture, or a vendor or other third party with which we do business, to
comply with laws or regulations. In addition, our reputation or prospects may be significantly damaged by adverse publicity or
negative information regarding us, whether or not true, that may be posted on social media, non-mainstream news services or
other parts of the internet, and this risk can be magnified by the speed and pervasiveness with which information is
disseminated through those channels. Should any of these or other events or factors that can undermine our reputation occur,
the additional costs and expenses that we may need to incur to address the issues giving rise to the damage to our reputation
may adversely affect our earnings and results of operations. Any damage to our reputation could impair our ability to retain
existing or attract new customers, investors and employees.
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We face legal uncertainties relating to the internet in general and to the e-commerce industry in particular and may
become subject to costly government regulation.
The laws and regulations related to the internet and e-commerce are evolving. These laws and regulations relate to issues such
as user privacy, freedom of expression, pricing, fraud, quality of products and services, taxation, advertising, intellectual
property rights and information security. Laws governing issues such as property ownership, copyrights and other intellectual
property issues, taxation, libel and defamation, obscenity and personal privacy could also affect our business. Laws adopted
prior to the advent of the internet may not contemplate or address the unique issues of the Internet and related technologies and
it is not clear how they will apply. Current and future laws and regulations could increase our cost of doing business and/or
decrease the demand for our services.
Our auction business may be subject to a variety of additional costly government regulations.
Many states and other jurisdictions have regulations governing the conduct of traditional "auctions," the liability of traditional
"auctioneers" in conducting auctions and handling property by "secondhand dealers", which may apply to online auction
services. In addition, certain states have laws or regulations that expressly apply to online auction services. We expect to
continue to incur costs in complying with these laws and could be subject to fines or other penalties for any failure to comply
with these laws. We may be required to make changes in our business to comply with these laws, which could increase our
costs, reduce our revenue, cause us to prohibit the listing of certain items or restrict certain listing formats in some locations,
which may adversely affect our financial condition or operating results.
In addition, the body of law regarding the potential liability of an online auction service for the activities of its users is not clear.
Users of our websites may not always comply with our terms and conditions or with laws and regulations applicable to them
and their transactions. It is possible that we may be subject to allegations of civil or criminal liability for any unlawful activities
conducted by sellers or buyers. Any costs we incur because of any such allegations, or because of actual or alleged unlawful
transactions using our marketplaces, or in our efforts to prevent any such transactions, may harm our opportunities for future
revenue growth. In addition, any negative publicity we receive regarding any such transactions or allegations may damage our
reputation, our ability to attract new sellers and buyers and our business.
In addition, if our sellers violate laws or regulations, or implement practices regarded as unethical, unsafe, or hazardous to the
environment, it could damage our reputation, limit our growth, and negatively affect our business, prospects, financial condition
and results of operations
If we violate increasing levels of regulation relating to privacy, our business could suffer harm.
We are subject to regulation at the federal, state and international levels relating to privacy and the use of third-party data,
including personal user information and employee data. These statutory and regulatory requirements are evolving, increasing in
complexity and number, and may change significantly. How companies collect, process, use, store, share or transmit personal
and employee data is subject to increasing scrutiny by governments and the public, which could accelerate the adoption of
additional legislation or regulation. New statutory or regulatory developments may restrict our ability to collect and use
demographic and personal information from our buyers and our sellers, which could be costly or harm our marketing efforts.
Further, there may be conflicts among the privacy and data protections laws adopted by the countries in which we operate.
Judicial and regulatory application and interpretation of these statutory and regulatory requirements are often uncertain and may
also limit our marketing efforts. Compliance with regulations regarding privacy, security and protection of user and employee
data, increased government or private enforcement, and changing public attitudes about data privacy, may increase the cost of
growing our business and require us to expend significant capital and other resources. Our failure to comply with these federal,
state and international laws and regulations could subject us to lawsuits, fines, criminal penalties, statutory damages, adverse
publicity and other costs which could decrease our profitability.
Certain categories of merchandise sold on our marketplaces are subject to government restrictions.
We sell merchandise, such as scientific instruments, information technology equipment and aircraft parts, that is subject to
export control and economic sanctions laws, among other laws, imposed by the United States and other governments. Such
restrictions include the U.S. Export Administration Regulations, the International Traffic in Arms Regulations, and economic
sanctions and embargo laws administered by the Office of the Foreign Assets Control Regulations. These restrictions prohibit
us from selling property to (1) persons or entities that appear on lists of restricted or prohibited parties maintained by the United
States or other governments or (2) countries, regimes, or nationals that are the target of applicable economic sanctions or other
embargoes.
We may incur significant costs or be required to modify our business to comply with these requirements. If we are alleged to
have violated these laws or regulations we may be subject to civil and criminal penalties and administrative sanctions, including
termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing business
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with U.S. federal government agencies. In addition, we could suffer serious harm to our reputation if allegations of impropriety
are made against us, whether or not true.
We are regularly subject to general litigation and other claims that could adversely affect our business.
Our business is regularly subject to claims, lawsuits and other proceedings regarding intellectual property, securities, labor and
employment, commercial disputes, the provision of services and other matters. The outcome and impact of such claims,
lawsuits and proceedings cannot be predicted with certainty. Regardless of the outcome, such proceedings can have an adverse
impact on us because of legal costs, diversion of management resources and other factors. It is possible that a resolution of one
or more of such proceedings could require us to make substantial payments to satisfy judgments, fines or penalties or to settle
claims or proceedings, any of which could harm our business.
We may be subject to product liability claims if people or property are harmed by the products we sell.
Some products we sell through our e-commerce marketplaces may expose us to product liability claims relating to personal
injury, death, or environmental or property damage, and may be the subject of product recalls or other actions. Our exposure to
product liability claims may be increased if, for example, the manufacturers of the relevant products do not have enough
protection from such claims. Defense of any such actions could be costly and involve significant time and attention of our
management and commitment of other resources, may cause us to incur monetary liabilities or penalties, and may require us to
change our business in ways adverse to us. We cannot be certain that our insurance coverage will be adequate for liabilities
actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. In addition,
some of our agreements with our vendors and sellers do not indemnify us against product liability.
Unfavorable findings resulting from audit or investigation could subject us to a variety of penalties and sanctions, could
negatively impact our future operating results and could force us to adjust previously reported operating results.
Many of our sellers, including large commercial corporations and federal, state and local governments, have the right to audit
our performance under our contracts. Any adverse findings from audits or reviews of our performance could result in a
significant adjustment to our previously reported operating results. The results of an audit could significantly limit the volume
and type of merchandise made available to us, resulting in lower GMV, revenue and profitability. If such a government audit
uncovers improper or illegal activities, we could be subject to civil and criminal penalties, administrative sanctions and could
suffer serious harm to our reputation. Government and law enforcement agencies may also investigate our activities under
contracts with commercial businesses and federal, state, local and municipal governments. If such an investigation alleges that
we engaged in improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions,
including termination of contracts, forfeiture of profits, suspension of payments, fines, and suspension or debarment from doing
business with government agencies. If, as the result of a government audit or investigation, or for any other reason, we are
suspended or debarred from contracting with the federal or other governments generally, or any specific agency, if our
reputation or relationship with government agencies is impaired, or if any government otherwise ceases doing business with us
or significantly decreases the amount of business it does with us, our revenue and profitability could substantially decrease.
Our operations are subject to extensive anti-corruption laws and regulations.
Due to the international scope of our operations, we are subject to the U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act
and similar anti-corruption laws of other countries. These laws generally prohibit companies and their intermediaries from
making improper payments or providing anything of value to improperly influence foreign government officials to obtain or
retain business or obtain an unfair advantage. Global enforcement of these laws has increased substantially in recent years. Our
practices and policies to promote compliance with such laws and regulations may not be effective and violations of anti-
corruption laws or regulations by our employees or by intermediaries acting on our behalf may result in severe criminal or civil
sanctions, disrupt our business and adversely affect our reputation, business and results of operations or financial condition.
Our international operations expose us to several risks.
Our international activities are significant to our revenues and profits, and we may continue to expand internationally, including
through acquisitions, organic growth and through joint ventures or strategic alliances with third parties. We are required to
comply with the laws of the countries or markets in which we operate. In addition, because our services are accessible
worldwide and facilitate the sales of goods and provide services to users worldwide, one or more jurisdictions may claim that
we or our users are required to comply with their laws based on the location of our servers, or one or more of our users, or
location of the products or service being sold or provided.
It is costly to establish, develop, and maintain international operations and websites, and promote our brand internationally. Our
international operations may not be profitable on a sustained basis or at all. In addition to the risks described elsewhere in this
section, our international operations are subject to several risks, including:
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local economic and political conditions, or civil unrest that may disrupt economic activity in affected countries;
government regulation of e-commerce and other services, competition, and restrictive governmental actions (such as
trade protection measures, including export duties and quotas and custom duties and tariffs), nationalization, and
restrictions on foreign ownership;
restrictions on sales or distribution of certain products or services and uncertainty regarding liability for products and
services, including uncertainty because of less Internet-friendly legal systems, local laws, lack of legal precedent, and
varying rules, regulations, and practices regarding the enforcement of intellectual property rights;
business licensing or certification requirements, such as for imports, exports, and web services;
limitations on the repatriation and investment of funds and foreign currency exchange restrictions;
shorter payable and longer receivable cycles and the resultant negative impact on cash flow;
laws and regulations regarding consumer and data protection, privacy, network security, encryption, payments, and
restrictions on pricing or discounts;
lower levels of consumer spending and fewer opportunities for growth compared to the U.S.;
lower levels of credit card usage and increased payment risk;
different employee/employer relationships and the existence of works councils;
compliance with the U.S. Foreign Corrupt Practices Act and other applicable U.S. and foreign laws prohibiting certain
payments to government officials and other third parties;
laws and policies of the U.S. and other jurisdictions affecting trade, foreign investment, loans, and taxes; and
geopolitical events, including war and terrorism.
If we expand internationally through joint ventures or strategic alliances, we will also face counterparty risk in addition to the
risks described above. If any counterparty to our joint ventures or strategic alliances is unwilling or unable to perform its
obligations to us, we may not realize the benefits of such arrangements and we may experience material unanticipated
problems, expenses and liabilities.
If one or more states assert that we should collect sales or other taxes on the sale of our merchandise or the merchandise
of third parties we offer for sale on our websites, our business could be harmed.
Applying indirect taxes (such as sales and use tax, value-added tax, or VAT, goods and services tax, including “digital services
tax”, business tax and gross receipt tax) to e-commerce businesses is a complex and evolving issue. Many of the fundamental
statutes and regulations that impose these taxes were established before the adoption and growth of the Internet and e-
commerce. Often, it is not clear how existing statutes apply to e-commerce services. In addition, governments around the world
are looking for ways to increase revenues, which has resulted in legislative action, including new taxes on services and gross
revenues and through other indirect taxes. Many transactions occur during the ordinary course of business for which the
ultimate tax determination is uncertain.
We are required to collect and remit sales taxes under certain agreements that we have with sellers. We also collect and remit
sales or other similar taxes relating to shipments of goods into states in which we have a substantial presence. In addition, as we
grow our business, any new operation in states in which we do not collect and remit sales taxes could subject shipments into
such states to state sales taxes under current or future laws.
In June 2018, the U.S. Supreme Court ruled in favor of South Dakota in a case involving a South Dakota law that requires out-
of-state sellers to collect sales tax from South Dakota customers if the sellers satisfy certain thresholds. This decision overrules
a previous case that required a company to have a physical presence in a state before it could require tax collection. A number
of states have adopted or are considering laws that require marketplace facilitators to collect and remit taxes on behalf of its
marketplace sellers. These rules increase our tax compliance costs and risks related to transactions conducted on our
marketplaces. Changes in state or federal laws, or our business model, business strategy, or marketing initiatives may require us
to collect tax where we do not currently collect such tax. These developments may cause a decrease in future sales, may
decrease our ability to compete, increase our compliance costs or otherwise harm our business.
Similar issues exist outside of the United States, where the application of VAT or other indirect taxes on e-commerce providers
is complex and evolving. For example, we pay input VAT on applicable taxable purchases within the various countries in
which we operate. Usually, we may reclaim this input VAT from the relevant countries. However, the application of the laws
and rules that allow such reclamation is sometimes uncertain. A successful assertion by one or more countries that we may not
reclaim VAT could harm our business. In certain jurisdictions, we collect and remit indirect taxes on our fees and pay taxes on
our purchases of goods and services. However, tax authorities may raise questions about our calculation, reporting and
collection of taxes and may ask us to remit additional taxes. Should any new taxes become applicable or if the taxes we pay are
deficient, our business could be harmed.
24
Our international operations expose us to foreign exchange fluctuations that could harm our operations.
We conduct business in many countries around the world and receive fees and pay expenses (including salaries to our
international workforce) in several different currencies despite reporting our financial results in U.S. dollars. As a result, our
financial results are impacted by fluctuations in foreign currency rates. The results of our foreign subsidiaries are translated
from the local currency to US dollars for financial reporting purposes. For example, if the U.S. dollar weakens against foreign
currencies, the translation of these foreign currency denominated revenues and expenses will result in increased U.S. dollar
denominated revenues and expenses. These factors and others may harm our business and our results of operations. In addition,
currency exchange rates may negatively affect our results if we pay for inventory using a different currency than we receive
when we sell the inventory.
Fraudulent activities involving our websites and disputes relating to transactions on our websites may cause us to lose
sellers and buyers and hurt our ability to grow our business.
We periodically receive complaints of fraudulent activities of buyers or sellers on our marketplace, including disputes over the
quality of goods and services, unauthorized use of credit card and bank account information and identity theft, potential
breaches of system security, and infringement of third-party copyrights, trademarks and trade names or other intellectual
property rights. From time to time, we have received complaints that our sellers or buyers trading in our marketplaces are
alleged to have engaged in fraudulent or unlawful activity. In addition, we may suffer losses because of purchases paid for
with fraudulent credit card data even though the associated financial institution approved payment. If a transaction is disputed,
we may not be able to require users of our services to make required payments or to deliver promised goods. We also may
receive complaints from buyers about the quality of purchased goods, requests for reimbursement or communications
threatening or commencing legal actions against us. Negative publicity generated because of fraudulent conduct by third parties
or failure to satisfactorily settle disputes related to transactions on our websites could damage our reputation, cause us to lose
sellers and buyers and hurt our ability to grow our business.
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our
business, operating results and stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing management's
assessment of the effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement
as to whether or not such internal controls are effective. Compliance with these requirements has resulted in, and is likely to
continue to result in, significant costs and the commitment of time and operational resources. Recently completed initiatives, as
well as other changes in our business, including initiatives to invest in information systems or to transition particular functions
to third party providers, have and will necessitate modifications to our internal controls. We cannot be certain that our design
for internal control over financial reporting, or any changes to be made, will enable management to determine that our internal
controls are effective for any period. If we cannot conclude that our internal controls over financial reporting are effective,
market perception of our financial condition and the trading price of our stock may be adversely affected, and seller and buyer
perception of our business may suffer.
Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our
employees or agents, or by third parties with whom we work. Internal controls may become less effective over time because of,
among other things, changes in conditions, failures to comply with our policies and procedures or new business that strains our
system of internal controls.
Changes in accounting and reporting policies or practices may affect our financial results, which may affect our stock
price.
Our accounting policies are fundamental to determining and understanding our financial results and condition. Some require
our management to use estimates and make subjective and complex judgments about matters that are uncertain. Factors may
arise over time that lead us to change our estimates and judgments. Sometimes, our management must select the accounting
policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances, yet may
cause us to report materially different results than would have been reported under a different alternative. Any changes in
accounting policies or methods could reduce our net income, which reductions may be independent of changes in our
operations. These reductions in reported net income could cause our stock price to decline. For example, our operating results
for the year ended September 30, 2019 were affected by the required adoption of ASC 606, Revenue from Contracts with
Customers. Similar impacts related to changes in accounting policies may occur in the future.
Our stock price has been volatile, and your investment in our common stock could decline in value.
The worldwide financial crisis led to an increase in the overall volatility of the stock market. Despite improved stock market
performance, the increased volatility and other broad market and industry factors may adversely affect the market price of our
25
common stock, regardless of our actual operating performance. Other factors that could cause fluctuation in our stock price may
include:
•
•
•
•
•
•
•
•
•
•
•
•
actual or anticipated variations in quarterly operating results;
changes in financial estimates by us or by a securities analyst who covers our stock;
publication of research reports about our company or industry;
conditions or trends in our industry;
stock market price and volume fluctuations of other publicly traded companies and, in particular, those whose business
involves the Internet and e-commerce;
announcements by us or our competitors of significant contracts (or the amendment or loss of such contracts),
acquisitions, commercial relationships, strategic partnerships or divestitures;
announcements by us or our competitors of technological innovations, new services or service enhancements;
announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;
the passage of legislation or other regulatory developments that adversely affect us, our sellers or buyers, or our
industry;
additions or departures of key personnel;
sales of our common stock, including sales of our common stock by our directors and officers or specific stockholders;
and
general economic conditions and slow or negative growth of related markets.
Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices
they view as attractive. In the past, securities class action litigation has often been instituted against companies following
periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management's
attention and resources.
Some provisions of our charter, bylaws and Delaware law inhibit potential acquisition bids that some investors may
consider favorable to management.
Our corporate documents and Delaware law contain provisions that may enable our board of directors to resist a change in
control of our company even if a change in control were to be considered favorable by you and other stockholders. These
provisions include:
•
•
•
•
•
•
a staggered board of directors;
a prohibition on actions by our stockholders by written consent;
limitations on persons authorized to call a special meeting of stockholders;
the authorization of undesignated preferred stock, the terms of which may be established and shares of which may be
issued without stockholder approval;
advance notice procedures required for stockholders to nominate candidates for election as directors or to bring matters
before an annual meeting of stockholders; and
the requirement that board vacancies be filled by a majority of our directors then in office.
These provisions could discourage, delay or prevent a transaction involving a change in control of our company. These
provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of
your choosing and cause us to take other corporate actions you desire. In addition, our bylaws provide that the Delaware Court
of Chancery will be the exclusive forum for certain types of legal action (or, if the Court of Chancery does not have jurisdiction,
another state court or a federal court within Delaware). This provision may make it more difficult for you and other
stockholders to challenge certain corporate actions we take.
We may need additional financing in the future, which may not be available on favorable terms, if at all.
We may need additional funds to finance our operations, as well as to enhance our services, acquire inventory for our
businesses, fund initiatives, respond to competitive pressures, acquire complementary businesses or technologies or otherwise
support our growth. We may also require additional funds if vendors and other third parties from whom we purchase inventory,
other goods or services extend less favorable credit terms to us. Our business may not generate the cash needed to finance such
requirements. We do not have a credit facility with third-party lenders from which we may draw funds. If we raise additional
funds by issuing equity or convertible debt securities, the percentage ownership of our existing stockholders would be reduced,
and these securities may have rights, preferences or privileges senior to those of our common stock. The general economic and
capital market conditions in the United States and other parts of the world can deteriorate significantly, limiting access to
capital and increasing the cost of capital. A large degree of economic uncertainty remains both domestically and abroad, which
can adversely affect access to capital, and the cost of capital. If adequate funds are not available or are not available on
26
acceptable terms, our ability to enhance our services, fund strategic initiatives, respond to competitive pressures, take advantage
of business opportunities or grow our business would be limited, and we might need to restrict our operations and initiatives.
We may not adequately protect or enforce our intellectual property rights, which could harm our reputation and
negatively affect the growth of our business.
We regard our intellectual property, particularly domain names, copyrights and trade secrets, as critical to our success. We rely
on contractual restrictions and copyright and trade secret laws to protect our proprietary rights, know-how, information and
technology. Despite these protections, a third party could copy or otherwise obtain and use our intellectual property without
authorization or independently develop similar intellectual property.
We currently are the registered owners of several Internet domain names, including www.liquidation.com, www.govdeals.com,
www.networkintl.com, www.secondipity.com, www.go-dove.com and www.machinio.com. We pursue the registration of our
domain names in the U.S. and internationally. We have no patents or registered copyrights. Effective patent, copyright,
trademark, service mark, trade secret and domain name protection are expensive to maintain and may require litigation to
enforce. We have licensed in the past, and expect to license in the future, certain of our proprietary rights, such as trademarks or
copyrighted material, to others. These licensees may take actions that diminish the value of our proprietary rights or harm our
reputation. Our competitors may adopt trade names or domain names similar to ours, impeding our ability to promote our
marketplaces and possibly leading to buyer or seller confusion. In addition, we could face trade name, trademark or service
mark infringement claims brought by owners of other registered or unregistered trademarks or service marks, including
trademarks or service marks that may incorporate variations of our marketplace names. Any claims related to our intellectual
property or confusion related to our marketplaces could damage our reputation and negatively affect the growth of our business.
Assertions that we infringe on intellectual property rights of others could result in significant costs and substantially
harm our business and operating results.
Third parties may assert that we have infringed their intellectual property rights in technology or otherwise. We use internally
developed systems and licensed technology to operate our online auction platform and related websites. Third parties could
assert intellectual property infringement claims against us based on our internally developed systems or use of licensed third-
party technology. Third parties also could assert intellectual property infringement claims against parties from whom we license
technology. If we are forced to defend against any infringement claims, whether they are with or without merit or are
determined in our favor, we may face costly litigation, diversion of technical and management personnel and/or delays in
completion of sales. Furthermore, the outcome of a dispute may require us to change technology, develop non-infringing
technology or enter into royalty or licensing agreements. A switch to different technology could interrupt our business. Internal
development of a non-infringing technology may be expensive and time-consuming, if we are able to successfully develop such
technology at all. Royalty or licensing agreements, if required, may be unavailable on terms acceptable to us, or at all.
Incurrence of any of these costs could negatively impact our operating results.
Global and regional economic conditions could harm our business.
Our operations and performance depend significantly on global and economic conditions. Adverse economic conditions and
events, including uncertainties and instability in economic and market conditions caused by the United Kingdom’s vote to exit
the European Union, could have an adverse and negative impact on companies and customers with which we do business. This
could have a material adverse effect on our business including by reducing the volume and prices of transactions on our
marketplaces. Separately, any factors that reduce cross border trade or make such trade more difficult could harm our business.
Increasing costs, such as increasing tariffs, would make international trade less profitable and adversely affect our global
business.
Item 1B. Unresolved Staff Comments.
Not Applicable
27
Warehouse
Warehouse
Warehouse
Administrative
Administrative
Administrative
Administrative
Storage Lot
Warehouse
Item 2. Properties.
We lease the following properties as of September 30, 2019:
Purpose
Corporate Headquarters
Location
Segment
Square Feet
Lease Expiration Date
Bethesda, Maryland, USA
Corporate & Other
18,412 April 30, 2023
Dallas, Texas, USA
Plainfield, Indiana, USA
North Las Vegas, Nevada,
USA
Scottsdale, Arizona, USA
RSCG
RSCG
RSCG
CAG
127,144 December 31, 2020
187,704 April 30, 2024
102,400 March 31, 2021
23,536 December 31, 2020
Plano, Texas USA
Corporate & Other
12,234 December 31, 2021
Montgomery, Alabama, USA
GovDeals
14,950 December 31, 2023
Houston, Texas, USA
CAG
Fontana, California, USA
GovDeals
Florence, Kentucky, USA
Administrative
London, GBR
Warehouse
Warehouse
Administrative
Administrative
Warehouse
Brampton, Canada
E. Brunswick, NJ, USA
Berlin, Germany
Chicago, Illinois, USA
Atlanta, Georgia, USA
RSCG
CAG
RSCG
CAG
Machinio
Machinio
GovDeals
9,693 May 31, 2020
511,830 May 31, 2022
102,616
January 31, 2021
3,430
June 5, 2022
53,621 August 31, 2020
9,600 December 31, 2020
3,143
July 31, 2022
4,298 December 31, 2021
47,636 May 31, 2021
In addition, we lease various administrative spaces in North America totaling 18,952 square feet, in Europe, 1,690 square feet,
and in Asia, 4,980 square feet. We also own a 420,000 square foot warehouse located in North Wilkesboro, North Carolina,
USA.
Item 3. Legal Proceedings.
From time to time, we may become involved in litigation relating to claims arising in the ordinary course of the business. There
are no other claims or actions pending or threatened against us that, if adversely determined, would in the Company's
management's judgment have a material adverse effect on the Company.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Price Range of Common Stock
Our common stock has been traded on Nasdaq Stock Market under the symbol LQDT since February 23, 2006.
As of December 6, 2019, there were approximately 1,825 beneficial holders of our common stock and 26 holders of record of
our common stock.
28
_______________________________________________________________________________
*$100 invested on 9/30/14 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Copyright© 2019 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2019 Russell Investment
Group. All rights reserved.
Item 6. Selected Financial Data.
You should read the following selected consolidated financial data together with our consolidated financial statements and the
related notes, and with "Management's Discussion and Analysis of Financial Condition and Results of Operations," included
elsewhere in this Annual Report on Form 10-K. The consolidated statement of operations data for the years ended
September 30, 2019, 2018 and 2017 and the consolidated balance sheet data as of September 30, 2019 and 2018 are derived
from, and are qualified by reference to, our consolidated financial statements that are included in this Annual Report on
Form 10-K. The consolidated statement of operations data for the years ended September 30, 2016 and 2015, and the
consolidated balance sheet data as of September 30, 2017, 2016 and 2015 are derived from our audited consolidated financial
statements that are not included in this Annual Report on Form 10-K, adjusted for the retrospective adoption of new accounting
standards as applicable.
29
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*Among Liquidity Services, Inc, the Russell 2000 Index, the S&P Smallcap 6000 Index, and aPeer GroupLiquidity Services, IncRussell 2000S&P Smallcap 600Peer Group9/30/201412/31/20143/31/20156/30/20159/30/201512/31/20153/31/20166/30/20169/30/201612/31/20163/31/20176/30/20179/30/201712/31/20173/31/20186/30/20189/30/201812/31/20183/31/20196/30/20199/30/2019050100150200250300 Consolidated Statement of
Operations Data:
Revenue
Fee revenue
Total revenue
Costs and expenses:
Cost of goods sold
Seller distributions
Technology and operations
Sales and marketing
General and administrative (8)
Depreciation and amortization
Acquisition costs and impairment of
goodwill and long-lived assets
Business disposition loss
Other operating expenses (1)
Total costs and expenses
Loss from operations
Interest income and other income, net
(8)
Loss before provision for income taxes
Provision (benefit) for income taxes
Net loss
Basic earnings per common share
Diluted earnings per common share
Basic weighted average shares
outstanding
Diluted weighted average shares
outstanding
Non-GAAP Financial Measures:
EBITDA (2)
Adjusted EBITDA (2)
Supplemental Operating Data:
Gross merchandise volume (3)
Completed transactions (4)
Total registered buyers (5)
Total auction participants (6)
$
$
$
$
$
Year ended September 30,
2015
2016
2017
2018
2019
(dollars in thousands, except per share data)
$
315,668
$
233,828
$
188,570
$
149,677
$
81,457
397,125
82,626
316,454
81,445
270,015
74,837
224,514
147,889
78,636
226,525
166,009
143,127
126,227
100,087
102,414
28,093
99,550
41,465
41,560
9,235
147,414
7,963
273
541,562
(144,437)
(51)
(144,386)
(39,571)
11,214
93,405
37,570
39,969
6,502
19,037
—
—
350,824
(34,370)
(1,469)
(32,901)
27,025
19,298
82,988
35,211
36,079
5,796
1,009
—
3,651
310,259
(40,244)
(606)
(39,638)
(451)
14,715
60,786
33,703
30,493
4,599
467
—
1,392
246,242
(21,728)
(785)
(20,943)
(9,328)
10,831
51,594
36,703
34,249
5,091
102
—
5,049
246,033
(19,508)
(1,448)
(18,060)
1,200
(104,815) $
(59,926) $
(39,187) $
(11,615) $
(19,260)
(3.50) $
(3.50) $
(1.96) $
(1.96) $
(1.25) $
(1.25) $
(0.36) $
(0.36) $
(0.58)
(0.58)
29,987,985
30,638,163
31,402,921
32,095,491
33,062,976
29,987,985
30,638,163
31,402,921
32,095,491
33,062,976
(134,980) $
(27,616) $
(34,204) $
(16,794) $
33,075
3,668
(21,595)
(7,334)
798,977
$
642,078
$
629,330
$
626,406
$
567,000
2,845,000
2,483,000
600,000
2,986,000
2,417,000
576,000
3,171,000
2,290,000
567,000
3,357,000
2,079,000
(14,417)
(1,596)
639,876
607,000
3,580,000
2,085,000
30
2015
2016
2017
2018
2019
As of September 30,
(in thousands)
Consolidated Balance Sheet Data
Cash, cash equivalents and short-term
investments
Working capital (7)
Total assets
Total liabilities
Total stockholders' equity
$
$
95,465
119,225
288,488
72,486
216,002
$
134,513
99,424
260,109
97,498
162,611
$
94,348
68,166
215,229
82,593
132,636
$
78,448
34,512
201,832
72,178
129,654
66,497
21,103
187,283
71,108
116,175
_______________________________________________________________________________
(1) The Company has reclassified certain business realignment expenses in 2015 to conform to the current year
presentation. The reclassification had no effect on total operating expenses, net income, or cash flows.
(2) EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures. GAAP means generally accepted
accounting principles in the United States. EBITDA is equal to net income plus (a) interest income (expense) and other
income (expense), net; (b) provision (benefit) for income taxes; and (c) depreciation and amortization. Our definition
of Adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation
expense, acquisition costs such as transaction expenses and changes in contingent consideration estimates, losses on
business dispositions, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill
and long-lived asset impairment. For a description of our use of EBITDA and adjusted EBITDA and a reconciliation
of these non-GAAP financial measures to net income, see the discussion and related table below.
(3) Gross merchandise volume is the total sales value of all merchandise sold by us or our sellers through our
marketplaces or by us through other channels during a given period of time.
(4) Completed transactions represent the number of transactions in a given period from which we have recorded revenue.
Certain prior period amounts have been revised to conform with the current period presentation, which now includes
completed B2C transactions.
(5) Total registered buyers as of a given date represent the aggregate number of persons or entities who have registered on
one of our marketplaces.
(6) For each auction we manage, the number of auction participants represents the total number of registered buyers who
have bid one or more times on that auction, and total auction participants for a given period is the sum of the auction
participants in each auction conducted during that period.
(7) Working capital is defined as current assets minus current liabilities.
(8) As a result of adoption of ASU 2017-07 the Company retrospectively reclassified in the consolidated statement of
operations the components of net periodic benefit other than the service cost component from General and
administrative, a component of loss from operations, to Interest and other income, net, which is outside of loss from
operations. See Note 2 for impact for the years ended September 30, 2019, 2018 and 2017. The impact for the years
ended September 30, 2016 and 2015 was $252 thousand and $222 thousand, respectively.
We believe non-GAAP financial measures, such as EBITDA and adjusted EBITDA, are useful to an investor in evaluating our
performance for the following reasons:
1. Depreciation and amortization expense relates to property and equipment, and intangible assets. Both of these
expenses are non-cash charges that have significantly fluctuated over the past five years. As a result, we believe that
adding back these non-cash charges to net income is useful in evaluating the operating performance of our business on
a consistent basis from year to year.
2. 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.
3. The authoritative guidance for stock-based compensation requires all share-based payments to employees, including
grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income
statement based on their estimated fair values. We believe adjusting net income for this stock-based compensation
expense is useful to investors when evaluating the operating performance of our business on a consistent basis from
year to year.
4. We believe adjusting net income for acquisition and disposition related transaction expenses and changes in contingent
consideration is useful to investors when evaluating the operating performance of our business on a consistent basis
from year to year.
31
5. 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.
6. 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.
7. 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.
8. 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:
1.
2.
3.
4.
5.
as measurements of operating performance because they assist us in comparing our operating performance on a
consistent basis by removing the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budget;
to allocate resources to enhance the financial performance of our business;
to evaluate the effectiveness of our operational strategies; and
to evaluate our capacity to fund capital expenditures and expand our business.
EBITDA and adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other
companies. In addition, EBITDA and adjusted EBITDA: (a) do not represent net income or cash flows from operating activities
as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be
considered as alternatives to net income, income from operations, cash provided by operating activities or our other financial
information as determined under GAAP.
We prepare adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our
core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate
for supplemental analysis. As an analytical tool, adjusted EBITDA is subject to all of the limitations applicable to EBITDA.
Our presentation of adjusted EBITDA should not be construed as an implication that our future results will be unaffected by
unusual or non-recurring items.
The table below reconciles income from continuing operations to EBITDA and adjusted EBITDA from continuing operations
for the periods presented.
2015
2016
2017
2018
2019
Year ended September 30,
(in thousands)
$
(104,815) $
(59,926) $
(39,187) $
(11,615) $
(19,260)
Net loss
Interest expense and other (income)
expense, net1
Provision (benefit) for income taxes
Depreciation and amortization
EBITDA from continuing operations
Stock compensation expense2
Acquisition costs and impairment of
goodwill and long-lived assets3
Business disposition loss
Business realignment expenses4
Fair value adjustment to acquisition
earn-out liability3
Deferred revenue purchase accounting
adjustment
171
(39,571)
9,235
(134,980)
12,405
147,414
7,963
273
—
—
(1,217)
27,025
6,502
(27,616)
12,247
19,037
—
—
—
—
(362)
(451)
5,796
(34,204)
7,377
1,009
—
4,223
—
—
(450)
(9,328)
4,599
(16,794)
6,597
467
—
1,942
—
454
Adjusted EBITDA from continuing
(7,334) $
operations
(1) Interest expense and other income, net excludes non-services pension and other postretirement benefit expense.
(21,595) $
33,075
3,668
$
$
$
32
(1,101)
1,200
5,091
(14,070)
6,823
102
—
1,578
3,500
818
(1,249)
(2) Excludes the impact of forfeitures of stock awards by employees terminated by business realignment actions. That impact is
included in the business realignment expense line.
(3) Acquisition costs and impairment of long-lived assets, and fair value adjustments to acquisition earn-out liability are included
in Other operating expenses on the Statements of Operations.
(4) Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 14 to the
Consolidated Financial Statements, and the related impacts of business realignment actions subject to other accounting
guidance. Those related impacts were $317 thousand for the year ended September 30, 2019, due to forfeitures of stock awards
by terminated employees. No related impacts were associated with the other periods presented.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our consolidated financial statements and related notes and the
information contained under the caption "Selected Consolidated Financial Data" contained elsewhere in this Annual Report on
Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could
vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors,
including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
About us. We operate a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient,
automated environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global,
organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information.
Additionally, we enable our 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 services include program management, valuation, asset management, reconciliation, refurbishment and recycling,
fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-
directed service tools for its sellers. 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 marketplaces are: www.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, and www.go-
dove.com. We also operate a global search engine for used machinery and equipment at www.machinio.com. We have
over 13,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government
agencies. We have four reportable segments, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and
Machinio. See Note 16 to the Consolidated Financial Statements for further information on our reportable segments.
We believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from
our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our
marketplaces. During 2019, the number of registered buyers grew from 3,357,000 to 3,580,000, or 6.6%. During the past three
years, we have conducted over 1,750,000 online transactions generating $1.9 billion in gross merchandise volume or GMV. We
believe the continuous flow of goods in our marketplaces attracts a growing buyer base, in turn, attracts more sellers and
transactions.
On July 10, 2018, we acquired 100% of Machinio Corp., (“Machinio”), a privately-owned company based in Chicago, Illinois,
with a second office in Berlin, Germany. Machinio operates a global online platform for listing used equipment for sale in the
construction, machine tool, transportation, printing and agriculture sectors. See Note 4 to the Consolidated Financial
Statements for further information on this acquisition.
Our revenue. Substantially all of our revenue is earned through the following transaction models:
Purchase model. Under our purchase transaction model, we recognize revenue within the Revenue line item on the
Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers
to be our vendors. We pay our 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 principal in purchase transaction model sales, we recognize as revenue the sale
price paid by the buyer upon completion of a transaction. The proceeds paid by buyers also include transaction fees, referred to
as buyer premiums. Revenue from our purchase transaction model accounted for 65.3%, 66.7% and 69.8%, of our total
revenue for the years ended September 30, 2019, 2018 and 2017, respectively. These amounts included sales of commercial
merchandise sourced from multiple vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial
merchandise we purchased under this contract represented 43.6%, 33.7% and 21.8%, of Cost of goods sold for the years ended
September 30, 2019, 2018 and 2017, respectively. Purchase model revenues also include revenue earned from the sale of
property obtained under the Scrap Contract, which concluded on September 30, 2019, and accounted for 7.4%, 10.2% and
33
11.1%, of our total revenue for the years ended September 30, 2019, 2018 and 2017, respectively. The merchandise sold under
our purchase transaction model accounted for 23.0%, 22.9% and 28.6%, of our GMV for the years ended September 30, 2019,
2018 and 2017.
Consignment model—fee revenue. Under our consignment transaction model, we enable our sellers to sell goods they own in
our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales. The
revenue from our consignment transaction model is recognized within the Fee Revenue line item on the Consolidated
Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer
to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary
the percentage amount of the seller commission depending on the various value-added services we provide to the seller to
facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession,
handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by
deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the
transaction. In addition to seller commissions, we also collect buyer premiums. Revenue from our consignment model
accounted for 29.4%, 30.3% and 24.4%, of our total revenue for the years ended September 30, 2019, 2018 and 2017,
respectively, and for 77.0%, 77.1% and 71.4%, of our GMV for the years ended September 30, 2019, 2018 and 2017,
respectively.
We also earn non-consignment fee revenue from Machinio's sales listing subscription service, as well as other services
including returns management and refurbishment of assets. Prior to the to the wind-down of our operations under the Surplus
Contract, we also earned non-consignment fee revenue from services provided under that contract.
Industry trends. We believe there are several industry trends positively impacting the growth of our business including: (1) the
increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a
percentage of overall retail sales; (2) the increase in government regulations and the need for corporations to have sustainability
solutions necessitating verifiable recycling and remarketing of surplus assets; (3) the increase in outsourcing 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; (4) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive
goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods
vertical, and (5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence
and, therefore, increase the supply of surplus assets.
Our Vendor Agreements
DoD agreements. Historically, we had two material vendor contracts with the DoD, the Scrap Contract and the Surplus
Contract. Both contracts are included in the results of our CAG segment.
Scrap Contract. Under the Scrap Contract, which concluded on September 30, 2019, we acquired, managed and sold all non-
electronic scrap property of the DoD turned into the DLA, and paid the DLA a revenue-sharing payment equal to 64.5% of the
gross resale proceeds. Scrap property generally consisted of items determined by the DoD to have no use beyond their base
material content, such as metals, alloys, and building materials. We bore all of the costs for the sorting, merchandising and sale
of the property. The resale transactions for scrap property sourced under this contract followed the purchase model.
Resale of scrap property that we purchased under the Scrap Contract accounted for 7.4%, 10.2% and 11.1% of our total
revenues, and 2.6%, 3.6% and 4.7%, of our GMV, in the years ended September 30, 2019, 2018, and 2017, respectively.
Surplus Contract. Under the Surplus Contract, which concluded on June 30, 2018, we acquired, managed and sold usable
surplus personal property of the DoD turned into the DLA. We paid the DLA 4.35% of the DoD's original acquisition value for
the surplus property, which consisted 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. We retained 100% of the profits from the resale of the property and bore all of the costs for the
merchandising and sale of the property. The resale transactions for surplus property sourced under this contract followed the
purchase model.
Resale of surplus property that we purchased under the Surplus Contract, as well as services we provided to the DoD under the
Surplus Contract, accounted for accounted for 0.0%, 12.4% and 27.6% of our total revenues, and 0.0%, 4.1% and 9.4% of our
GMV, in the years ended September 30, 2019, 2018, and 2017, respectively.
Commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell
commercial merchandise. The property we purchased under this contract represented 43.6%, 33.7% and 21.8%, of cost of
34
goods sold for the years ended September 30, 2019, 2018 and 2017, respectively. This contract is included within our RSCG
segment. Our agreements 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 (GMV). GMV is the total sales value of all merchandise sold by us or our sellers through our
marketplaces or by us through other channels during a given period of time. 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 GMV of goods sold in our
marketplace during 2019 totaled $639.9 million.
Total registered buyers. We grow our buyer base through a combination of marketing and promotional efforts. A person
becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we
collect business and personal information, including name, title, company name, business address and contact information, and
information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and
conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail
address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal
government. After the verification process, which is completed generally within 24 hours, the registration is approved and
activated, and the prospective buyer is added to our registered buyer list.
Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of
our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total
registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers
who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers
that are no longer in business, we remove them from our database. As of September 30, 2019 and 2018, we had 3,580,000 and
3,357,000 registered buyers, respectively.
Total auction participants. For each auction we manage, the number of auction participants represents the total number of
registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in
more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction
participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this
metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and
traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity
level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the
years ended September 30, 2019, 2018, and 2017, 2,085,000, 2,079,000, and 2,417,000 total auction participants participated in
auctions on our marketplaces, respectively. Largely as a result of the wind-down of the Surplus Contract, there has been a
decrease in auction participants during 2019 and 2018 compared with 2017.
Completed transactions. Completed transactions represents the number of auctions in a given period from which we have
recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an
additional measurement of the volume of activity flowing through our marketplaces. During the years ended September 30,
2019, 2018, and 2017, we completed 607,000, 567,000 and 576,000 transactions, respectively.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements, included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K with
their accompanying notes, have been prepared in accordance with GAAP, which requires management of the Company to make
assumptions, judgments and estimates that affect amounts reported in its consolidated financial statements. Accounting policies
and estimates are considered to be "critical" when then the nature of the estimate includes subjective or sensitive assumptions or
judgments that can have a material impact on the financial condition or operating performance of the Company. Actual results
may differ these estimates.
We consider the following accounting policies to be critical: revenue recognition, business combinations, valuation of goodwill
and other intangible assets, and income taxes. Refer to Note 2 - Summary of Significant Accounting Policies to the Company's
consolidated financial statements for further details on these accounting policies.
35
We consider the following accounting estimates to be critical: business combinations (Note 4 and Note 12), valuation of
goodwill and other intangible assets (Note 6 and 7), and income taxes (Note 10). Refer to these individually referenced notes
and Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details
on these accounting estimates. The following discussion is a supplement to the disclosures referenced.
Valuation of goodwill. Goodwill is allocated to our reporting units. The Company's reporting units are GovDeals, CAG, RSCG
and Machinio. As of July 1, 2019, the Company performed its annual impairment testing using a fair-value based test for all
reporting units, and determined the fair value for each of its reporting units with goodwill balances substantially exceeded their
carrying values except for the Machinio reporting unit, which exceeded its carrying value by approximately 11%. The Machinio
reporting unit, which includes $14.6 million of goodwill, was acquired by the Company on July 10, 2018.
The Company determined the fair value of the Machinio reporting unit using a discounted cash flow (DCF) analysis. The DCF
analysis relied on significant assumptions and judgments surrounding the forecasts of future cash flows over the five-year
projection period, and the terminal growth rate of 2.5% applied thereafter. The cash flows were discounted at a weighted
average cost of capital of 26%. The weighted average cost of capital includes a 20% company specific risk premium that
captured the fact that Machinio business is smaller in size than comparable companies in its small stock risk premium decile, is
in the earlier stages of developing its business models, and has limited historical financial results. The Company identified the
company specific risk premium as being the most critical assumption in the DCF analysis and performed a sensitivity analysis
that noted that the company specific risk premium would need to increase by over 250 basis points to impact the impairment
testing result. The Company will continue to monitor this reporting unit for changes that could impact the recoverability of
goodwill, which will depend on Machinio's ability to grow in size, enhance its business models, and accumulate historical
financial results, which will affect the company specific risk premium used in subsequent impairment tests.
Components of Revenue and Expenses
Revenue. Refer to the discussion in the Our revenue section above, and to Note 2 - Summary of Significant Accounting
Policies to the Company's consolidated financial statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for
discussion of the Company's related accounting policies.
Cost of goods sold. Refer to Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial
statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for discussion of the Company's costs of goods sold
and related accounting policies.
Seller distributions. Under the Scrap Contract, we acquired scrap property from the DLA for resale and paid the DLA seller
distributions equal to 64.5% of the gross resale proceeds.
Technology and operations. Technology expenses consist primarily of the cost of technical staff who develop, deploy, and
maintain our marketplaces and corporate infrastructure. These personnel also develop and upgrade the software systems that
support our operations, such as sales processing. Technology expenses also includes certain costs associated with our e-
commerce platform.
Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have
determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs
as incurred. However, where we determine that the useful life of the internally developed software will be greater than one
year, we capitalize development costs in accordance with ASC 350-40, Internal-use software. As such, we are capitalizing
certain development costs associated with our e-commerce platform, as well as other software development activities.
Operations expenses consist primarily of operating costs, including buyer relations, shipping logistics and distribution center
operating costs.
Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of
marketing and promotional activities. These activities include online marketing campaigns such as paid search advertising.
General and administrative. General and administrative expenses include all corporate and administrative functions that
support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in
nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through
our marketplaces.
Depreciation and amortization. Depreciation and amortization expenses consist of depreciation of property and equipment,
amortization of internally developed software, and amortization of intangible assets.
36
Acquisition costs and impairment of goodwill and long-lived assets. Acquisition costs and impairment of goodwill and long-
lived assets consist of expenses incurred to complete a business combination, and impairment of goodwill and long-lived assets.
Other operating expenses (income). Other operating expense includes the change in fair value of financial instruments and
contingent consideration, as well as business realignment expenses, including those associated with restructuring initiatives and
the exit of certain business operations.
Interest (income) expense and other expense, net. Interest (income) expense and other expense, net consists of interest income
on short-term investments and the promissory note issued to JTC, the components of net periodic pension (benefit) other than
the service component, and impacts of foreign currency fluctuations.
Income taxes. During 2019, 2018 and 2017, we had an effective income tax rate for continuing operations of (6.6)%, 44.6%
and 1.1%, respectively, which included federal, state and foreign income taxes.
37
Results of Operations
The following table presents segment revenue, gross profit, and gross profit margin for the periods indicated:
GovDeals:
GMV
Total revenue
Gross profit
Gross profit margin
CAG:
GMV
Total revenue
Gross profit
Gross profit margin
RSCG:
GMV
Total revenue
Gross profit
Gross profit margin
Machinio:
GMV
Total revenue
Gross profit
Gross profit margin
Corporate & Other:
GMV
Total revenue
Gross profit
Gross profit margin
Consolidated:
GMV
Total revenue
Gross profit
Gross profit margin
Year Ended September 30,
2019
2018
2017
$
$
327,455
32,936
30,386
92.3 %
$
305,628
30,214
27,990
92.6 %
265,999
26,853
25,172
93.7 %
155,855
60,242
32,679
54.2 %
156,096
127,321
44,967
35.3 %
—
5,599
5,196
92.8 %
469
428
52
12.2 %
186,071
88,025
48,873
55.5 %
131,042
101,954
33,009
32.4 %
—
652
501
76.9 %
3,665
3,668
(661)
(18.0)%
242,271
145,131
71,934
49.6 %
116,295
95,032
30,050
31.6 %
—
—
—
— %
4,765
2,999
(2,666)
(88.9)%
639,876
226,526
113,281
50.0 %
626,406
224,514
109,712
48.9 %
629,330
270,014
124,489
46.1 %
Year Ended September 30, 2019 Compared to Year Ended September 30, 2018
Segment Results
GovDeals. Revenue from our GovDeals segment increased 9.0%, or $2.7 million, due to a 7.1%, or $21.8 million, increase in
GMV resulting from additional sales volume from existing sellers and an increase in the number of new sellers. As a result of
the increase in revenues, gross profit within this segment increased 8.6%, or $2.4 million. Gross profit margin was consistent
between the periods.
CAG. Revenue and GMV from the CAG segment decreased 31.6%, or $27.8 million, and 16.2%, or $30.2 million, respectively.
The conclusion of the Scrap and Surplus Contracts caused revenue and GMV to decline by $33.8 million and $31.5 million,
respectively. Excluding the impact of the completed Scrap and Surplus Contracts, revenue increased by $6.1 million, or 16.3%,
38
driven by a $1.3 million, or 1.0% increase in GMV, and an increase in the mix of transactions conducted under the purchase
model. Gross profit within the CAG segment decreased 33.1%, or $16.2 million, due to a $14.2 million impact from the
conclusion of the Scrap and Surplus Contracts, and the impact of the increase in mix of transactions conducted under the
purchase model. Gross profit margin declined from 55.5% to 54.2% due the increase in the mix of transactions conducted
under the purchase model, partially offset by the conclusion of the Scrap and Surplus Contracts, which had lower gross profit
margins than the remaining business.
RSCG. Revenue from our RSCG segment increased 24.9%, or $25.4 million due to a 19.1%, or $25.1 million, increase in
GMV, an increase in the mix of transactions conducted under the purchase model, and an increase in the non-consignment fee
services provided. Gross profit within the RSCG segment increased 36.2%, or $12.0 million, due to the impacts of the increased
revenues, as well as improved margins on certain retail programs. Gross profit margin increased from 32.4% to 35.3% due the
improved margins on certain retail programs, and the increase in non-consignment fee services provided.
Machinio. Machinio's revenues for the period represent $3.5 million related to new subscriptions and subscription renewals
during fiscal 2019, and $2.1 million related to revenues recognized for subscriptions that started prior to fiscal 2019. Because
Machinio was acquired on July 10, 2018, the prior period results only include revenues recognized subsequent to that date.
Corporate & Other. The changes in revenue, GMV, gross profit and gross profit margin are due to the Company's decision to
exit from the IronDirect business in January 2019.
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
Year Ended September 30,
2019
2018
$ Change
% Change
Revenue
Fee revenue
Total revenue from operations
Costs and expenses from operations:
$
147,889 $
149,677 $
78,636
226,525
74,837
224,514
Cost of goods sold (excludes depreciation and
amortization)
102,414
100,087
Seller distributions
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Acquisition costs and impairment of goodwill
and long-lived assets
Other operating expenses
Total costs and expenses
Loss from operations
Interest income and other income, net
Loss before provision for income taxes
Provision (benefit) for income taxes
10,831
51,594
36,703
34,249
5,091
102
5,049
246,033
(19,508)
(1,448)
(18,060)
1,200
14,715
60,786
33,703
30,493
4,599
467
1,392
246,242
(21,728)
(785)
(20,943)
(9,328)
Net loss
$
(19,260) $
(11,615) $
(1,788)
3,799
2,011
2,327
(3,884)
(9,192)
3,000
3,756
492
(365)
3,657
(209)
2,220
(663)
2,883
10,528
(7,645)
(1.2)%
5.1
0.9
2.3
(26.4)
(15.1)
8.9
12.3
10.7
(78.2)
262.7
(0.1)
(10.2)
84.5
(13.8)
(112.9)
65.8 %
Total Revenue. Total consolidated revenue increased $2.0 million, or 0.9%. Refer to the discussion of Segment Results above
for discussion of the increase in revenue.
Cost of goods sold. Cost of goods sold increased $2.3 million, or 2.3%. This included decreases of $15.8 million due to the
conclusion of the Surplus Contract and $4.0 million due to the Company's decision to exit the IronDirect business in January
2019. These decreases were primarily offset by increases of $13.4 million in RSCG and $7.9 million in CAG (excluding the
Surplus Contract), driven by increases in revenues and the mix of transactions conducted under the purchase model.
39
Seller distributions. Seller distributions decreased $3.9 million, or 26.4%, due to lower sales under the Scrap Contract, which
concluded on September 30, 2019.
Technology and operations expenses. Technology and operations expenses decreased $9.2 million, or 15.1%. The decrease
included $6.9 million due to the conclusion of the Scrap and Surplus contracts, $4.6 reductions in Corporate and CAG
(excluding the Scrap and Surplus Contract) driven by benefits from restructuring and other organizational changes, and $0.5
million from the Company's decision to exit the IronDirect business in January 2019. These decreases were partially offset by a
$3.0 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued
growth in those segments.
Sales and marketing expenses. Sales and marketing expenses increased $3.0 million, or 8.9%, due to a $1.6 million increase in
sales expenses driven by the increases in revenues, and a $1.4 million increase in marketing expenses driven by increased
promotional activities related to our new e-commerce technology platform and development of our consolidated marketplace.
General and administrative expenses. General and administrative expenses increased $3.8 million, or 12.3%, and was impacted
by increases in compensation expenses, as well as external costs associated with new accounting standard adoptions.
Depreciation and amortization expenses. Depreciation and amortization expenses increased $0.5 million, or 10.7%, primarily
due to a full year amortization expense recognized during 2019 on intangible assets acquired as part of Machinio acquisition on
July 10, 2018.
Acquisition costs and impairment of goodwill and long-lived assets. Acquisition costs and impairment of goodwill and long-
lived assets were $0.1 million, for the year ended September 30, 2019, compared to $0.5 million for the year ended
September 30, 2018. The acquisition costs incurred during the years ended September 30, 2019 and 2018 related to the
acquisition of Machinio. There were no impairments recorded during either year.
Other operating expense. Other operating expense of $5.0 million represents $1.6 million of business restructuring costs
related to organizational changes, the conclusion of the Scrap Contract, and other cost saving actions, and $3.5 million related
to the increase in fair value of the Machinio earn-out liability. Other operating expense of $1.4 million during the year ended
September 30, 2018 represents $1.9 million related to business restructuring costs, partially offset by $0.6 million of other
miscellaneous income.
Interest income and other income, net. Interest income and other income, net, increased $0.7 million, primarily due to increased
holdings of short-term investments.
(Benefit) provision for income taxes. Income taxes increased $10.5 million, to an expense of $1.2 million for the year ended
September 30, 2019, from a benefit of $9.3 million for the year ended September 30, 2018 due to benefits derived from the new
Tax Act in fiscal year 2018, a valuation allowance charge and the impact of foreign, state, and local taxes and permanent tax
adjustments. The Company’s effective income tax rate was (6.6)% for the twelve months ended September 30, 2019. The 2019
effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the valuation allowance change and
the impact of permanent tax adjustments.
Net loss. Net loss for the year ended September 30, 2019, increased $7.6 million, to $19.3 million, compared to a loss of $11.6
million for the year ended September 30, 2018, due to the reasons described above.
Year Ended September 30, 2018 Compared to Year Ended September 30, 2017
Segment Results
GovDeals. Revenue from our GovDeals segment increased 12.5%, or $3.4 million, due to additional sales volume from existing
sellers and an increase in the number of new sellers. GMV from our GovDeals segment increased 14.9%, or $39.6 million, also
due to additional sales volume from existing sellers and an increase in the number of new sellers. Gross profit within this
segment increased 11.2%, or $2.8 million, to $28.0 million for the year ended September 30, 2018, from $25.2 million for the
year ended September 30, 2017, due to higher sales volume.
CAG. Revenue from the CAG segment decreased 39.3%, or $57.1 million. Approximately $46.7 million of this change is due to
the wind-down of the Surplus Contract. Additionally, revenue under the Scrap Contract decreased by approximately $7.0
million as it experienced a lower volume of goods sold, as well as a change in mix of commodities to lower value commodities.
The lower volume and unfavorable mix were partially offset by improved commodity prices. Also contributing to the decrease
is lower sales volume within our CAG Commercial business for both purchase and consignment transaction models. GMV from
our CAG segment decreased 23.2%, or $56.2 million. The wind-down of the Surplus contract resulted in a decrease in GMV of
approximately $33.7 million. Approximately $15.4 million of the decrease in GMV related to reductions in both our purchase
and consignment transaction models in our CAG Commercial business. Furthermore, a lower volume of goods sold under our
40
Scrap Contract, as well as a change in mix of commodities to lower value commodities sold under that contract, partially offset
by improved commodity prices, led to a further $7.0 million reduction in GMV. Gross profit within the CAG segment
decreased 32.1%, or $23.1 million, to $48.9 million for the year ended September 30, 2018, from $71.9 million for the year
ended September 30, 2017. This decrease can be attributed to the wind-down of the Surplus Contract and lower sales volumes
described above.
RSCG. Revenue from our RSCG segment increased 7.3%, or $6.9 million for the year ended September 30, 2018. The increase
is driven by growth in both purchase and consignment model transaction revenue. GMV from our RSCG segment increased
12.7%, or $14.7 million for the year ended September 30, 2018. The increase is again attributable to growth in both our
purchase and consignment model transaction GMV during 2018. The lower overall increase in revenue compared to the
increase in GMV is due to a change in mix from purchase to consignment model transactions. Gross profit within the RSCG
segment increased 9.8%, or $3.0 million, to $33.0 million for the year ended September 30, 2018, from $30.1 million for the
year ended September 30, 2017, due to the overall increase in revenue described above.
Machinio. Machinio was acquired on July 10, 2018. Revenue from Machinio relates to subscription fees charged to customers
for promotional placement on its search engine.
Corporate & Other. Revenue from Corporate & Other primarily relates to IronDirect and certain TruckCenter operations. The
increase in revenue of approximately $0.7 million, is made up of a $2.6 million increase in revenue related to our IronDirect
business, partially offset by a $2.0 million decrease in revenue related to our decision to exit certain TruckCenter operations in
January 2017. Gross profit within Corporate & Other increased $2.0 million over prior year, attributable to a $1.9 million
inventory write-down recorded within IronDirect during the third quarter of 2017.
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
Year Ended September 30,
2018
2017
$ Change
% Change
Revenue
Fee revenue
Total revenue from operations
Costs and expenses from operations:
$
149,677 $
188,570 $
74,837
224,514
81,445
270,015
Cost of goods sold (excludes depreciation and
amortization)
100,087
126,227
Seller distributions
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Acquisition costs and impairment of goodwill
and long-lived assets
Other operating expenses
Total costs and expenses
Loss from operations
Interest income and other income, net
Loss before provision for income taxes
Provision (benefit) for income taxes
14,715
60,786
33,703
30,493
4,599
467
1,392
246,242
(21,728)
(785)
(20,943)
(9,328)
19,298
82,988
35,211
36,079
5,796
1,009
3,651
310,259
(40,244)
(606)
(39,638)
(451)
Net loss
$
(11,615) $
(39,187) $
(38,893)
(6,608)
(45,501)
(26,140)
(4,583)
(22,202)
(1,508)
(5,586)
(1,197)
(542)
(2,259)
(64,017)
18,516
(179)
18,695
(8,877)
27,572
(20.6)%
(8.1)
(16.9)
(20.7)
(23.7)
(26.8)
(4.3)
(15.5)
(20.7)
(53.7)
(61.9)
(20.6)
(46.0)
29.5
(47.2)
1968.3
(70.4)%
Total Revenue. Total consolidated revenue decreased $45.5 million, or 16.9%, to $224.5 million for the year ended
September 30, 2018, from $270.0 million for the year ended September 30, 2017, due primarily to a $57.1 million decrease in
revenue from our CAG segment, partially offset by a $3.4 million increase in revenue from our GovDeals segment, and a $6.9
million increase in revenue from our RSCG segment. Total consolidated GMV decreased $2.9 million, or 0.5%, to $626.4
41
million for the year ended September 30, 2018, from $629.3 million for the year ended September 30, 2017, due primarily to a
$56.2 million decrease in GMV from our CAG segment, offset by a $39.6 million increase in GMV from our GovDeals
segment, and an $14.7 million increase in GMV related to our RSCG segment.
Cost of goods sold. Cost of goods sold decreased $26.1 million, or 20.7%, to $100.1 million, for the year ended September 30,
2018, from $126.2 million for the year ended September 30, 2017. Cost of goods sold decreased approximately $28.3 million
attributable to a lower volume of sales under our Surplus Contract during the year ended September 30, 2018, due to the wind-
down of that contract, as well as $1.7 million resulting from the exit of the TruckCenter land-based, live auction business in
2017. These decreases are slightly offset by an increase of $4.0 million in cost of goods sold within our RSCG business due to
increased sales.
Seller distributions. Seller distributions decreased $4.6 million, or 23.8%, to $14.7 million for the year ended September 30,
2018, from $19.3 million for the year ended September 30, 2017, due to lower sales under our Scrap Contract during the year
ended September 30, 2018.
Technology and operations expenses. Technology and operations expenses decreased $22.2 million, or 26.7%, to $60.8 million
for the year ended September 30, 2018, from $83.0 million for the year ended September 30, 2017. Approximately $13.4
million of this decrease is due to a reduction in operations related costs. Approximately $9.2 million of this amount is the result
of business realignment activities within our CAG and IronDirect businesses, as well as the exit of the TruckCenter land-based,
live auction business in 2017. The remaining $8.9 million reduction in overall technology and operations expenses can be
attributed to an approximate $6.2 million reduction in technology costs related to internal and contract IT labor, with the
remainder of the balance related to other miscellaneous IT costs, including those to various service providers.
Sales and marketing expenses. Sales and marketing expenses decreased $1.5 million, or 4.3%, to $33.7 million for the year
ended September 30, 2018, from $35.2 million for the year ended September 30, 2017, due to a decreased spend on marketing
and promotion materials.
General and administrative expenses. General and administrative expenses decreased $5.5 million, or 15.3%, to $30.5 million
for the year ended September 30, 2018, from $36.1 million for the year ended September 30, 2017. Included within this
decrease are reductions in overall staff cost of approximately $4.8 million primarily resulting from business realignment and
restructuring initiatives.
Depreciation and amortization expenses. Depreciation and amortization expenses decreased $1.2 million, or 20.7%, to $4.6
million for the year ended September 30, 2018, from $5.8 million for the year ended September 30, 2017, due to an intangible
asset having been fully amortized in 2017.
Acquisition costs and impairment of goodwill and long-lived assets. Acquisition costs and related fair value adjustments and
impairment of goodwill and long-lived assets amounted to approximately $0.5 million, for the year ended September 30, 2018,
compared to $1.0 million for the year ended September 30, 2017. The acquisition costs incurred during the year ended
September 30, 2018 related to the acquisition of Machinio. During 2017, the Company recorded $1.9 million of long-lived asset
impairment charges, partially offset by a $0.9 million reversal of an earn-out liability. There were no impairments recorded
during 2018.
Other operating expense. Other operating expense of $1.4 million represents $1.9 million related to business restructuring
costs (for further information, see Note 15), partially offset by an approximate $0.6 million increase in other miscellaneous
income for the year ended September 30, 2018. Other operating expense of $3.7 million during 2017 represents $4.2 million
related to business restructuring costs, partially offset by an approximate $0.6 million increase in the fair value of a right the
Company held from its participation in certain principal transactions in the Company's CAG business, for the year ended
September 30, 2017.
Interest (income) expense and other expense, net. Interest income and other income, net, increased $0.2 million, to $0.8 million
of income for the year ended September 30, 2018, from $0.6 million of income for the year ended September 30, 2017.
(Benefit) provision for income taxes. Income taxes decreased $8.8 million, to a benefit of $(9.3) million for the year ended
September 30, 2018, from a benefit of $(0.5) million for the year ended September 30, 2017 due to benefits derived from the
new Tax Act, a valuation allowance charge and the impact of foreign, state, and local taxes and permanent tax adjustments. The
Company’s effective income tax rate was 44.6% for the twelve months ended September 30, 2018. The 2018 effective tax rate
differed from the statutory federal rate of 24.5% primarily as a result of benefits derived from the new Tax Act, the valuation
allowance charge and the impact of foreign, state, and local income taxes and permanent tax adjustments.
Net loss. Net loss for the year ended September 30, 2018, improved $27.6 million, to $11.6 million, compared to a loss of
$39.2 million for the year ended September 30, 2017, due to the reasons described above.
42
Liquidity and Capital Resources
Our operational cash needs primarily relate to working capital, including capital used for inventory purchases, which we have
funded through cash generated from operations. From time to time, we may use our capital resources for other activities, such
as acquisitions. As of September 30, 2019, we had $36.5 million in cash and cash equivalents, as well as $30.0 million in short-
term investments.
In fiscal 2019, we deployed our new e-commerce technology platform. We expect to continue investment as we prepare for the
launch of a new consolidated marketplace and for the implementation of tools for data-driven product recommendation, omni-
channel behavioral marketing and predictive analytics. In addition, the retail supply transaction volume, which has a unique set
of services, remains a part of our future integration plans. We may also invest in new business ventures, such as Machinio in
July 2018, for which we paid $16.7 million in cash and have contingent consideration in an amount up to $5.0 million payable
in 2020.
We did not record a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries because we
intend to indefinitely reinvest the earnings of these foreign subsidiaries outside the United States. The amount of such
undistributed foreign earnings was $2.8 million as of September 30, 2019. As of September 30, 2019, and September 30, 2018,
$21.0 million and $14.4 million, respectively, of cash and cash equivalents was held overseas and not available to fund
domestic operations without incurring taxes upon repatriation.
We are 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 years ended September 30, 2019 or 2018. As of
September 30, 2019, we are authorized to repurchase up to an additional $10.1 million in shares under this program.
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal,
an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as
goods are generally not shipped before payment is received.
Changes in Cash Flows: 2019 Compared to 2018
Net cash used in operating activities was $6.2 million for the year ended September 30, 2019, and net cash provided by
operating activities was $0.6 million for the year ended September 30, 2018. The $6.9 million increase in cash used in
operations between periods was primarily attributable to increase in net loss as well as changes in working capital from
collections of receivables, sales of inventory and payables to sellers. Our working capital accounts are subject to natural
variations depending on the timing of cash receipts and payments, however, there have been no significant changes to the
working capital requirements for the Company, other than the Machinio earn-out that will be paid in fiscal 2020.
Net cash used in investing activities was $15.7 million for the year ended September 30, 2019, and $37.1 million for the year
ended September 30, 2018. The decrease was driven by the $16.7 million related to the acquisition of Machinio in fiscal 2018,
and a $10.0 million decrease in short-term investments purchased. These decreases were partially offset by $3.0 million related
to the JTC Note, as we received the 2019 annual payment in October 2019, after our fiscal year end. As discussed in Note 2 -
Summary of Significant Accounting Policies to the Company's consolidated financial statements, the Company concluded that it
remains probable that the Company will collect the amounts related to the promissory note issued to JTC. However, the
Company will continue to monitor for changes that could impact the recoverability of the promissory note, which will depend
on JTC's subsequent operating performance and ability to make the payments required by the new repayment schedule. There
was also a $1.8 million increase in capital expenditures, primarily related to our new e-commerce technology platform.
Net cash provided by financing activities was $0.5 million for the year ended September 30, 2019, and net cash provided by
financing activities was $0.4 million for the year ended September 30, 2018. The change was primarily driven from an increase
in proceeds from stock option exercises.
Changes in Cash Flows: 2018 Compared to 2017
Net cash provided by operating activities was $0.6 million for the year ended September 30, 2018, and net cash used in
operating activities was $31.7 million for the year ended September 30, 2017. The $32.3 million increase in cash provided by
43
operations between periods was primarily attributable to improved profitability as well as changes in working capital from
collections of receivables and sales of inventory.
Net cash used in investing activities was $37.1 million for the year ended September 30, 2018, and $7.9 million for the year
ended September 30, 2017. Net cash used in investing activities during 2018 consisted primarily of purchasing short-term
investments and the acquisition of Machinio, and to a lesser extent, expenditures for capitalized software, purchases of
equipment and leasehold improvements. Net cash used in investing activities during 2017 only consisted of expenditures for
capitalized software, purchases of equipment and leasehold improvements.
Net cash provided by financing activities was $0.4 million for the year ended September 30, 2018, and net cash used in
financing activities was $1.1 million for the year ended September 30, 2017. Net cash provided by financing activities for 2018
consisted primarily of proceeds from the exercise of stock options.
Capital Expenditures. Our capital expenditures consist primarily of capitalized software, 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 operating cash flows. Our capital expenditures for the twelve months ended
September 30, 2019 were $5.9 million. As of September 30, 2019, we had no significant outstanding commitments for capital
expenditures.
We believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next
twelve 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.
Contractual and Commercial Commitments
The table below represents our significant commercial commitments as of September 30, 2019. Operating and capital leases
represent commitments to rent office and warehouse space, as well as equipment used in our operations. Other contractual cash
obligations represent information technology commitments related to licensing fees, hardware maintenance and other. These
items are not reflected on our balance sheets.
Operating leases
Capital leases
Other contractual cash obligations
Total
(in thousands)
13,447
$
$
Less than
1 year
1 to 3
years
3 to 5
Years
5+ years
5,572
$
5,830
$
2,044
$
372
4,770
52
3,461
106
1,309
214
—
Total contractual cash obligations
$
18,589
$
9,085
$
7,245
$
2,258
$
Off-Balance Sheet Arrangements
—
—
—
—
We do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.
Inflation
Inflation generally affects us by increasing our cost of labor and equipment. We do not believe that inflation had any material
effect on our results of operations during the years ended September 30, 2019, 2018 and 2017.
New Accounting Pronouncements
Information regarding our adoption of new accounting and reporting standards is discussed in Note 2 to the consolidated
financial statements included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K.
44
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest rate sensitivity. As of September 30, 2019, we do not have any debt, but we do hold $30.0 million of short-term
investments with interest rates between 1.97% and 2.8%. Changes in interest rates on these short-term investments are not
expected to have a significant impact to our consolidated results of operations. Our investment policy requires us to invest funds
in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal,
provide liquidity and maximize income consistent with minimizing risk of material loss.
Exchange rate sensitivity. Because of the number of countries and currencies we operate in, movements in currency exchange
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 predominantly generate revenues and
expenses in the local currency. When we translate the results and net assets of these operations into U.S. dollars for reporting
purposes, movements in exchange rates will affect reported results and net assets.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and accompanying notes are included in Part IV, Item 15(a)(1) of this Annual Report on
Form 10-K.
Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
Attached as exhibits to this Form 10-K are certifications of our Chief Executive Officer and Chief Financial Officer, which are
required in accordance with Rule 13a-14 of the Securities Exchange Act of 1934, as amended. This "Controls and Procedures"
section includes information concerning the controls and controls evaluation referred to in the certifications. The report of
Ernst & Young LLP, our independent registered public accounting firm, regarding its audit of our internal control over financial
reporting is set forth below in this section. This section should be read in conjunction with the certifications and the Ernst &
Young LLP report for a more complete understanding of the topics presented.
Evaluation of Disclosure Controls and Procedures
Management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures
and our internal control over financial reporting as of the end of the period covered by this Form 10-K. The controls evaluation
was conducted under the supervision and with the participation of our Chief Executive Officer, Chief Financial Officer, and
Chief Accounting Officer. Disclosure controls and procedures are controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (“Securities Exchange Act reports”),
such as this Form 10-K, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules
and forms. Disclosure controls and procedures are also designed to reasonably assure that such information is accumulated and
communicated to our management, including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting
Officer, as appropriate to allow timely decisions regarding required disclosure. Our quarterly evaluation of disclosure controls
includes an evaluation of some components of our internal control over financial reporting, and internal control over financial
reporting is also separately evaluated on an annual basis for purposes of providing the management report which is set forth
below.
The evaluation of our disclosure controls included a review of the controls' objectives and design, our implementation of the
controls and their effect on the information generated for use in this Form 10-K. In the course of the controls evaluation, we
reviewed identified data errors, control deficiencies and, where appropriate, sought to confirm that appropriate corrective
actions, including process improvements, were being undertaken. This type of evaluation is performed on a quarterly basis so
that the conclusions of management, including the Chief Executive Officer, Chief Financial Officer, and Chief Accounting
Officer, concerning the effectiveness of the disclosure controls can be reported in our periodic reports on Form 10-Q and
Form 10-K. Many of the components of our disclosure controls are also evaluated on an ongoing basis by our finance
organization. The overall goals of these various evaluation activities are to monitor our disclosure controls, and to modify them
as necessary. Our intent is to maintain the disclosure controls as dynamic systems that change as conditions warrant.
Based upon the controls evaluation, our Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer have
concluded that, as of the end of the period covered by this Form 10-K, our disclosure controls were effective to ensure
assurance that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized
and reported within the time periods specified by the SEC, and that material information related to Liquidity Services and our
consolidated subsidiaries is made known to management, including the Chief Executive Officer, Chief Financial Officer, and
45
Chief Accounting Officer, particularly during the period when our periodic reports are being prepared. We reviewed the results
of management's evaluation with the Audit Committee of our Board of Directors.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external
purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with GAAP; and (iii) provide reasonable assurance regarding authorization to effect the
acquisition, use or disposition of company assets, as well as the prevention or timely detection of unauthorized acquisition, use
or disposition of the company's assets that could have a material effect on the financial statements.
Management assessed our internal control over financial reporting as of September 30, 2019, the end of our fiscal year.
Management based its assessment on criteria established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013 Framework). Management's assessment included evaluation of
such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting
policies and our overall control environment. This assessment is supported by testing and monitoring performed by our finance
organization.
Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the
end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with GAAP.
Our independent registered public accounting firm, Ernst & Young LLP, independently assessed the effectiveness of the
company's internal control over financial reporting. Ernst & Young LLP has issued an attestation report, which is included at
the end of this section.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the
control system's objectives will be met. The design of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Other inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can
also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of
the controls. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls
may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or
procedures.
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2019, the Company implemented accounting system and process changes related
to the deployment of its new core e-commerce technology platform, and in preparation for the adoption of ASC 2016-02,
Leases (Topic 842), on October 1, 2019. These implementations and process changes resulted in changes to the Company's
internal control over financial reporting. There have not been any other changes in the Company's internal control over
financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control
over financial reporting.
46
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Liquidity Services, Inc. and Subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Liquidity Services, Inc. and Subsidiaries’ internal control over financial reporting as of September 30, 2019,
based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Liquidity Services, Inc. and Subsidiaries
(the Company) maintained, in all material respects, effective internal control over financial reporting as of September 30, 2019,
based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the 2019 consolidated financial statements of the Company and our report dated December 10, 2019 expressed an
unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report
on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Tysons, Virginia
December 10, 2019
47
Item 9B. Other Information.
On December 4, 2019, the Board of Directors of the Company increased the size of the Board of Directors from seven to eight
members and appointed Kathy Dyer to the Board as a Class III director, effective January 1, 2020. Ms. Dyer’s term will expire
at the Company’s 2021 Annual Meeting of Stockholders. She will serve on the Board’s Compensation Committee.
Ms. Dyer, age 62, is the founder and Chief Executive Officer of PivotWise, a strategic advisory firm and was Global Partner
and a member of the senior leadership team at IBM Global Business Services from 2016 to 2018. From 2013 to 2015, she
served as EVP and General Manger, Global Chief Marketing Officer, Merchant Services at American Express Company. She
has been a Director of Noora Health since 2018.
Ms. Dyer’s compensation for her service as a director will be consistent with that of the Company’s other directors who are not
employees of the Company, as described in the Company’s definitive proxy statement filed with the Securities and Exchange
Commission on January 22, 2019 under the caption “Compensation of Non-Employee Directors,” which portion of such proxy
statement is incorporated herein by reference.
There are no arrangements or understandings between Ms. Dyer and any other persons pursuant to which Ms. Dyer was
selected as a director. There have been no transactions involving the Company or any of its subsidiaries in which Ms. Dyer has
or will have a direct or indirect material interest that are required to be disclosed by Item 404(a) of Regulation S-K.
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Incorporated by reference from the Company's Proxy Statement relating to its 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after September 30, 2019.
Code of Ethics, Governance Guidelines and Committee Charters
We have adopted a Code of Conduct that applies to all of our directors, officers and employees, including our principal
executive, principal financial and principal accounting officers, or persons performing similar functions. The Code of Conduct
is available on our website at http://investors.liquidityservices.com/phoenix.zhtml?c=195189&p=irol-govhighlights. We intend
to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to
executive officers and directors, on the website within four business days following the date of the amendment or waiver.
Item 11. Executive Compensation.
Incorporated by reference from the Company's Proxy Statement relating to its 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after September 30, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Incorporated by reference from the Company's Proxy Statement relating to its 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after September 30, 2019.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference from the Company's Proxy Statement relating to its 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after September 30, 2019.
Item 14. Principal Accountant Fees and Services.
Incorporated by reference from the Company's Proxy Statement relating to its 2020 Annual Meeting of Stockholders to be filed
with the SEC within 120 days after September 30, 2019.
48
Item 15. Exhibits and Financial Statement Schedules.
PART IV
(a)
(1)
The following documents related to the financial statements are filed as part of this report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2019 and 2018
Consolidated Statements of Operations for the years ended September 30, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Loss for the years ended September 30, 2019, 2018
and 2017
Consolidated Statements of Stockholders' Equity for the years ended September 30, 2019, 2018
and 2017
Consolidated Statements of Cash Flows for the years ended September 30, 2019, 2018 and 2017
Notes to the Consolidated Financial Statements
(2)
The following financial statement schedule is filed as part of this report:
Schedules for the three years ended September 30, 2019, 2018 and 2017:
II—Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required or are inapplicable and therefore have been
omitted.
(3)
The documents required to be filed as exhibits to this report under Item 601 of Regulation S-K are
listed in the Exhibit Index included elsewhere in this report, which list is incorporated herein by
reference.
Page
50
51
52
53
54
55
56
83
49
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Liquidity Services, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc. and Subsidiaries (the Company) as
of September 30, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders' equity
and cash flows for each of the three years in the period ended September 30, 2019, and the related notes and financial statement
schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at September
30, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended September
30, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of September 30, 2019, based on criteria established in
Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated December 10, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2001.
Tysons, Virginia
December 10, 2019
50
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $291 and $337
Inventory
Prepaid taxes and tax refund receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Intangible assets, net
Goodwill
Deferred tax assets
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Distributions payable
Deferred revenue
Payables to sellers
Total current liabilities
Deferred taxes and other long-term liabilities
Total liabilities
Commitments and contingencies (Notes 8 and 15)
Stockholders' equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 33,687,115 shares issued
and outstanding at September 30, 2019; 32,774,118 shares issued and outstanding at
September 30, 2018
Additional paid-in capital
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
September 30,
2019
2018
$
36,497
$
30,000
6,704
5,843
2,531
8,350
89,925
18,846
6,043
59,467
866
12,136
58,448
20,000
4,870
10,122
1,727
7,816
102,983
16,610
7,366
59,819
930
14,124
$
$
187,283
$
201,832
15,051
$
28,794
1,675
3,049
20,253
68,822
2,286
71,108
13,859
21,373
2,128
2,142
28,969
68,471
3,707
72,178
34
242,686
(7,973)
(118,572)
116,175
$
187,283
$
33
236,115
(6,449)
(100,045)
129,654
201,832
See accompanying notes to the consolidated financial statements.
51
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
Revenue
Fee revenue
Total revenue from operations
Costs and expenses from operations:
Year Ended September 30,
2019
2018
2017
$
147,889
$
149,677
$
188,570
78,636
226,525
74,837
224,514
81,445
270,015
Cost of goods sold (excludes depreciation and amortization)
102,414
100,087
126,227
Seller distributions
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Acquisition costs and impairment of goodwill and long-lived assets
Other operating expenses
Total costs and expenses
Loss from operations
Interest income and other income, net
Loss before provision for income taxes
Provision (benefit) for income taxes
Net loss
Basic and diluted loss per common share
10,831
51,594
36,703
34,249
5,091
102
5,049
246,033
(19,508)
(1,448)
(18,060)
1,200
14,715
60,786
33,703
30,493
4,599
467
1,392
246,242
(21,728)
(785)
(20,943)
(9,328)
19,298
82,988
35,211
36,079
5,796
1,009
3,651
310,259
(40,244)
(606)
(39,638)
(451)
$
$
(19,260) $
(11,615) $
(39,187)
(0.58) $
(0.36) $
(1.25)
Basic and diluted weighted average shares outstanding
33,062,976
32,095,491
31,402,921
See accompanying notes to the consolidated financial statements.
52
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Dollars In Thousands)
Net loss
Other comprehensive (loss) income:
Defined benefit pension plan—unrecognized amounts, net of taxes
Foreign currency translation
Other comprehensive (loss) income, net of taxes
Comprehensive loss
Year Ended September 30,
2019
2018
2017
$
(19,260) $
(11,615) $
(39,187)
(540)
(984)
(1,524)
773
(791)
(18)
1,589
551
2,140
$
(20,784) $
(11,633) $
(37,047)
See accompanying notes to the consolidated financial statements.
53
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars In Thousands)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Balance at September 30, 2016
30,742,662
$
29
$
220,192
$
(8,571) $
(49,039) $
162,611
Exercise of common stock options and vesting of
restricted stock
760,687
Compensation expense and incremental tax benefit
from grants of common stock options and restricted
stock
Net loss
Defined benefit pension plan—unrecognized
amounts, net of taxes
Foreign currency translation
—
—
—
—
—
—
—
93
6,979
—
—
—
—
—
1,589
551
—
—
(39,187)
—
93
6,979
(39,187)
1,589
551
Balance at September 30, 2017
31,503,349
$
29
$
227,264
$
(6,431) $
(88,226) $
132,636
Exercise of common stock options and vesting of
restricted stock
973,755
Compensation expense and incremental tax benefit
from grants of common stock options and restricted
stock
—
Issuance of common stock for acquisition activity
297,014
Cumulative adjustment related to adoption of ASU
2016-09
Net loss
Defined benefit pension plan—unrecognized
amounts, net of taxes
Foreign currency translation and other
—
—
—
1
—
3
—
—
403
6,346
2,002
100
—
—
—
—
—
—
—
773
(791)
—
—
—
404
6,346
2,005
(207)
(11,615)
(107)
(11,615)
773
(788)
3
Balance at September 30, 2018
32,774,118
$
33
$
236,115
$
(6,449) $
(100,045) $
129,654
Exercise of common stock options, grants of
restricted stock awards, and vesting of restricted
stock units
Tax settlements associated with stock compensation
expense
Forfeiture of restricted stock awards
Stock compensation expense
Cumulative adjustment related to adoption of ASC
606
Net loss
Defined benefit pension plan—unrecognized
amounts, net of taxes
Foreign currency translation and other
953,066
(6,906)
(33,163)
—
—
—
—
—
1
—
—
—
—
—
—
—
589
(44)
—
6,026
—
—
—
—
—
—
—
—
—
—
(540)
(984)
—
—
—
—
730
590
(44)
—
6,026
730
(19,260)
(19,260)
—
3
(540)
(981)
Balance at September 30, 2019
33,687,115
$
34
$
242,686
$
(7,973) $
(118,572) $
116,175
See accompanying notes to the consolidated financial statements.
54
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Year Ended September 30,
2019
2018
2017
$
(19,260) $
(11,615) $
(39,187)
Depreciation and amortization
Change in fair value of earnout liability
Stock compensation expense
Inventory adjustment to net realizable value
Provision for doubtful accounts
Deferred tax expense (benefit)
Impairment of goodwill and long-lived assets
Change in fair value of financial instruments
Incremental tax loss from exercise of common stock options and restricted stock
Gain on disposal of property and equipment
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid and deferred taxes
Prepaid expenses and other assets
Accounts payable
Accrued expenses and other current liabilities
Distributions payable
Deferred revenue
Payables to sellers
Other liabilities
Net cash (used in) provided by operating activities
Investing activities
Increase in intangibles
Purchases of property and equipment, including capitalized software
Proceeds from note receivable
Proceeds from sale of property and equipment
Purchase of short-term investments
Maturities of short-term investments
Cash paid for business acquisition, net of cash acquired
Net cash used in investing activities
Financing activities
Short-term borrowings, net
Proceeds from exercise of common stock options (net of tax)
Taxes paid associated with net settlement of share-based compensation
Incremental tax loss from exercise of common stock options and restricted stock
Net cash provided by (used in) financing activities
Effect of exchange rate differences on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information
Earnout liability for acquisition activity
Issuance of common stock for acquisition activity
Cash (paid) received for income taxes, net
5,091
3,500
6,508
331
178
136
—
—
—
(15)
(2,012)
3,948
(811)
1,554
1,191
1,999
(453)
906
(8,716)
(317)
(6,242)
(23)
(5,938)
—
247
(70,000)
60,000
—
(15,714)
—
590
(44)
—
546
(541)
(21,951)
58,448
36,497
$
— $
— $
4,599
100
6,597
2,494
199
(10,945)
—
90
—
(480)
6,582
8,120
739
(689)
670
(9,576)
(953)
743
4,586
(642)
619
(35)
(4,174)
3,000
828
(20,000)
—
(16,673)
(37,054)
—
404
—
—
404
131
(35,900)
94,348
58,448
1,200
2,005
$
$
$
(1,008) $
(916) $
5,796
(954)
7,377
10,381
357
(620)
1,963
(573)
1,198
—
(1,611)
(3,507)
730
(1,024)
3,192
(14,882)
1,359
—
(4,519)
2,871
(31,653)
(119)
(7,805)
—
—
—
—
—
(7,924)
—
92
—
(1,198)
(1,106)
518
(40,165)
134,513
94,348
—
—
793
$
$
$
$
See accompanying notes to the consolidated financial statements.
55
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Liquidity Services, Inc. (the Company) operates a network of e-commerce marketplaces that enable Buyers and Sellers to
transact in an efficient, automated environment offering over 500 product categories. The Company’s marketplaces provide
professional Buyers access to a global, organized supply of new, surplus and scrap assets presented with digital images and
other relevant product information. Additionally, the Company enables 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 services include program management, valuation, asset
management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation,
Buyer support, compliance and risk mitigation, as well as self-directed service tools for its Sellers. 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.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com. The Company also operates a global
search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has four reportable
segments: Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals and Machinio. See Note 16 for
Segment Information.
On July 10, 2018, the Company acquired 100% of Machinio Corp., (“Machinio”), a privately-owned company based in
Chicago, Illinois, with a second office in Berlin, Germany. Machinio operates a global online platform for listing used
equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors. See Note 4 for further
information on this acquisition.
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, the effect of general business and
economic trends, the Company's susceptibility to rapid technological change, actual and potential competition by entities with
greater financial and other resources, and the potential for the commercial Sellers from which the Company derives a significant
portion of its inventory to change the way they conduct their disposition of surplus assets or to otherwise not renew their
contracts with the Company.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect amounts in the consolidated financial statements and
accompanying notes. Actual results could differ from those estimates.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Certain prior period amounts have been reclassified to conform to the current year's presentation related to the adoption of ASU
2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which is
discussed further in this note. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. In
addition, in the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a
fair presentation of the results for the periods presented have been included.
Business Combinations
The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration
at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed
as incurred. Restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent
changes to the purchase price (i.e., working capital adjustments) or other fair value adjustments determined during the
measurement period are recorded as an adjustment to goodwill, with the exception of contingent consideration, which is
recognized in the statement of operations in the period it is modified. All subsequent changes to a valuation allowance or
uncertain tax position that relate to the acquired company and existed at the acquisition date that occur both within the
measurement period and as a result of facts and circumstances that existed at the acquisition date are recognized as an
adjustment to goodwill. All other changes in valuation allowances are recognized as a reduction or increase to income tax
expense or as a direct adjustment to additional paid-in capital as required.
56
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with an initial maturity of three months or less to be cash
equivalents.
Short-term Investments
The Company's short-term investments at September 30, 2019 and 2018 consisted of various certificates of deposit with
maturities of six months or less with interest rates between 1.97% and 2.8%.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are non-interest bearing. The Company maintains an allowance
for doubtful accounts to reserve for potentially uncollectible receivables. Allowances are based on management’s judgment,
which considers historical bad debt experience, a specific review of all significant outstanding invoices, and an assessment of
general economic conditions.
Inventory
Inventory consists of property obtained for resale, generally through the online auction process, and is stated at the lower of cost
or net realizable value. Cost is generally determined using the specific identification method. Costs associated with our
warehouse operations are expensed as incurred and included within Technology and operations expenses in the Statements of
Operations. Charges for unsellable inventory, as well as for inventory written down to net realizable value, are included in Cost
of goods sold in the period in which they have been determined to occur. As of September 30, 2019, and September 30, 2018,
the Company's inventory reflects write-downs of $0.3 million and $0.5 million, respectively.
Prepaid expenses and other current assets
Prepaid expenses and other current assets includes the short-term portion of a promissory note (described in "Other Assets"), as
well as other miscellaneous prepaid expenses.
Other Assets
On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC
("Tanager"). In connection with the disposition, Tanager assumed certain liabilities related to the Jacobs Trading business.
Tanager issued a $12.3 million 5-year interest bearing promissory note to the Company. Of the $12.3 million owed to the
Company under the promissory note, $4.0 million has been repaid as of September 30, 2019.
On October 10, 2019, the Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and
Guaranty Agreement (the "Forbearance Agreement") with Tanager (now known as Jacobs Trading, LLC) and certain of its
affiliates (collectively, "JTC"). In exchange for additional collateral, security, and a higher interest rate, the Company granted
JTC a new repayment schedule that requires quarterly payments to be made from August 2020 to August 2023. On that date,
JTC repaid $2.5 million in principal, plus $0.4 million of accrued interest. JTC has the opportunity to prepay the full amount
remaining before May 15, 2020 at a $500,000 discount.
The Company considered the terms of the Forbearance Agreement and the cash flows expected to be received from JTC under
the new repayment schedule in concluding that it remains probable that the Company will collect the amounts due to the
Company as of September 30, 2019 and that no impairment loss has been incurred. Of the $8.3 million outstanding at
September 30, 2019, $5.5 million was recorded in Other assets, and $2.8 million in Prepaid expenses and other current assets as
of September 30, 2019.
57
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Property and Equipment
Property and equipment are recorded at cost, and depreciated or amortized on a straight-line basis over the following estimated
useful lives:
Computers and purchased software
Office/operational equipment
Furniture and fixtures
Internally developed software for internal-use
Leasehold improvements
Buildings
Vehicles
Land
One to five years
Three to five years
Five to seven years
Five years (1)
Shorter of lease term or useful life
Thirty-nine years
Five years
Not depreciated
(1) As part of our reassessment of the estimated useful lives of our property and equipment, our estimate of the useful life of internally developed software for
internal-use changed from seven years to five years in the fourth quarter of the year ended September 30, 2019. This change in estimate was applied
prospectively and it increased amortization expense by $0.1 million for the year ended September 30, 2019 and is expected to increase amortization expense by
approximately $0.7 million for the year ended September 30, 2020.
Intangible Assets
Intangible assets consist of contract intangibles, brand and technology, and patent and trademarks. Intangible assets are
amortized using the straight-line method over their estimated useful lives.
Impairment of Long-Lived Assets
Long-lived assets, including definite-lived intangible assets, are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an impairment indicator is present,
the Company evaluates recoverability by comparing the carrying amount of the assets to future undiscounted net cash flows
expected to be generated by the assets. If the assets are impaired, the impairment recognized is measured by the amount by
which the carrying amount exceeds the estimated fair value of the assets. No impairment charges were recorded during the
years ended September 30, 2019 and 2018. During the year ended September 30, 2017, the Company's IronDirect and
TruckCenter businesses recorded impairment charges of $1.3 million for contract intangibles and $0.6 million for leasehold
improvements. See Notes 5 and 7 for further information.
Goodwill
The Company reviews goodwill for impairment annually on July 1, or more frequently if events or circumstances indicate
impairment may exist. Examples of such events or circumstances could include a significant change in business climate or the
loss of a significant contract.
In evaluating goodwill for impairment, the Company may first assess qualitative factors to determine whether it is more likely
than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount. If
the Company concludes that it is not more likely than not that the fair value of the reporting unit is less than its carrying value,
no further testing of goodwill assigned to the reporting unit is required. If the Company concludes that it is more likely than not
that the fair value of a reporting unit is less than its carrying value, the Company applies a fair value-based test.
The Company generally tests its goodwill for impairment using a fair-value based test, where the Company determines the fair
value of each of its reporting units and compares that amount to the carrying amount of the respective reporting units, including
goodwill. If the fair value of the reporting unit exceeds its carrying amount, no impairment loss is recognized. If, instead, the
carrying value of the reporting unit exceeds its fair value, an impairment loss is recognized in the amount of the excess carrying
value. Under previous accounting guidance applied to goodwill impairment tests performed in fiscal 2018 and prior, a second
step was required. The second step involved comparing the carrying amount of a reporting unit's goodwill to the implied fair
value of its goodwill, and recognizing an impairment loss in the amount that the carrying amount of goodwill exceeded the
implied fair value of goodwill.
Deferred Revenue
Deferred revenue is primarily derived from subscription fees charged to customers for promotional placement on Machinio's
search engine over periods ranging from one to fifteen months. Subscription fees are recognized ratably over the term of the
agreements.
58
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Short-Term Borrowings
The Company may enter into collateralized short-term borrowing agreements with banks to facilitate certain international
transactions conducted under the purchase model. During the year ended September 30, 2019, the Company borrowed and
fully repaid its borrowings under such arrangements. No borrowings were performed during the years ended September 30,
2018 and 2017. No short-term debt was outstanding as of September 30, 2019 or 2018.
Revenue Recognition
In the Consolidated Statements of Operations, revenue from the resale of inventory that the Company purchases from Sellers is
recognized within Revenue. Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-
consignment fee revenue, which includes Machinio's sales listing subscription service, service revenue from the Surplus
Contract (defined below), as well as other services including returns management and refurbishment of assets, is recognized
within Fee Revenue.
The Company adopted the Financial Accounting Standard Board's (FASB) Accounting Standards Codification (ASC) Topic
606, Revenue from Contracts with Customers (ASC 606) effective October 1, 2018.
The Company recognizes revenue when or as performance obligations are satisfied and control is transferred to the customer.
Revenue is recognized in the amount that reflects the consideration to which the Company expects to be entitled.
Revenue is also evaluated to determine whether the Company should report the gross proceeds as revenue, when the Company
acts as the principal in the arrangement, or the Company should report its revenue on a net basis, when the Company acts as an
agent. Specifically, when other parties are involved in providing goods or services to a customer, the Company must determine
whether the nature of its promise is a performance obligation to provide the specified goods or services itself, or to arrange for
another party to provide them. The Company evaluates the following factors to determine if it is acting as a principal: (1)
whether the Company is primarily responsible for fulfilling the promise to provide the asset or assets; (2) whether the Company
has inventory risk of the asset or assets before they are transferred to the Buyer; and (3) whether the Company has discretion in
establishing the price for the asset or assets.
The Company enters into contracts with Buyers and Sellers. The Company has master agreements with some Sellers pertaining
to the sale of a flow of surplus assets over the term of the master agreement; however, a revenue contract for accounting
purposes exists when the Company agrees to sell a specific asset or assets. When acting as a principal (a “purchase”
arrangement), the Company purchases an asset or assets from a Seller and then the Company seeks to sell the asset or assets to a
Buyer. The Company recognizes as Revenue the gross proceeds from the sale, including Buyer's premiums. In purchase
arrangements, the contract with the Seller is not a revenue contract in the scope of the revenue recognition guidance; rather, it is
a purchase of inventory. When the Company is acting as an agent (a “consignment” arrangement), its performance obligation is
to arrange for the Seller to sell an asset or assets to the Buyer directly. The Company recognizes Fee Revenue based on the sales
commissions that are paid to the Company by the Sellers for utilizing the Company's services; in this situation, sales
commissions represent a percentage of the gross proceeds from the sale that the Seller pays to the Company upon completion of
the transaction.
In both purchase and consignment contracts, the Company sometimes provides distinct services to the Seller, such as returns
management, refurbishment of assets, or valuation services. These services are distinct because the Seller could benefit from the
services separately from the asset sale, and as such they are treated as separate performance obligations. Some services
provided to Sellers are not distinct, like providing access to the Company’s e-commerce marketplaces or promoting the asset or
assets for sale, because they could not benefit the Seller separately from the sale of the asset or assets.
The consideration received from Buyers and Sellers includes (1) Buyer’s premiums, (2) Seller’s commissions, and (3) fees for
services, including reimbursed expenses. Consideration is variable based on units, final auction prices, or other factors, until the
Buyer’s purchase of the asset or assets is complete, or the service has been provided. Recognition of variable consideration that
is based on the results of auctions or purchases by Buyers is constrained until those transactions have been finalized. The
Company estimates and recognizes amounts related to sales returns, discounts or rebates promised to customers, and
reimbursed expenses, however, those estimates are not significant relative to the Company's consolidated revenues. The total
transaction price is allocated to each distinct performance obligation and revenue is recognized when or as the performance
obligation is satisfied. Variable consideration is allocated to individual performance obligations when the variable consideration
is related to satisfying that performance obligation and consistent with the allocation objective. The Company's revenue is
generally recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers and PayPal, an Internet-
based payment system, as methods of payments. Goods are generally not shipped before payment is received. For certain
transactions, payment is due upon invoice and the payment terms vary depending on the business segment.
59
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company collects and remits sales taxes on merchandise that it purchases and sells and has elected the practical expedient
to report such amounts under the net method in its Consolidated Statements of Operations. The Company also provides
shipping and handling services in some arrangements and has elected the practical expedient to treat those activities as a
fulfillment cost. If the Company is acting as a principal for the combined obligation, amounts received from customers for
shipping are recognized as Revenue, and amounts paid for shipping are recognized as costs of goods sold. If the Company is
acting as an agent for the combined obligation, shipping revenue and costs will be netted and recognized within costs of goods
sold.
The Company’s performance obligations are satisfied when control of the asset is transferred to the Buyer or when the service
is completed. The Company determines when control has transferred by evaluating the following five indicators: (1) whether
the Company has a present right to payment for the asset or assets; (2) whether the Buyer has legal title to the asset; (3) whether
the Buyer has physical possession of the asset or assets; (4) whether the Buyer has the significant risks and rewards of
ownership; and (5) whether the Buyer has accepted the asset or assets.
For the Company's Machinio business segment, the performance obligation is satisfied over time as the Company provides the
sales listing services over the term of the subscription. At September 30, 2019, the Machinio business segment had a remaining
performance obligation of $3.0 million; the Company expects to recognize the substantial majority of that amount as Fee
Revenue over the next 12 months.
Cost of Goods Sold
Cost of goods sold includes the costs of purchasing and transporting property for auction, shipping and handling costs, as well
as credit card transaction fees. The Company purchases the majority of its inventory at a percentage of the vendor's original
acquisition cost under the Surplus Contract and certain commercial contracts, and at a percentage of the vendor's last retail price
under certain commercial contracts. Title for the inventory passes to the Company at the time of purchase and the Company
bears the risks and rewards of ownership. The Company does not have title to assets sold on behalf of its commercial or
government Sellers when it performs under a consignment arrangement and, as such, recognizes no inventory and related cost
of goods sold associated with those sales.
Contract Assets and Liabilities
Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a Seller. The contract asset balance
was $0.7 million as of October 1, 2018 and $0.3 million as of September 30, 2019 and is included in the line item Prepaid
expenses and other current assets on the consolidated balance sheets.
Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and
generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability
balance was $2.1 million as of October 1, 2018, and $3.0 million as of September 30, 2019 and is included in the line item
Deferred revenue on the consolidated balance sheets. Of the October 1, 2018 contract liability balance, $2.1 million was earned
as Fee Revenue during the year ended September 30, 2019.
Contract Costs
Contract costs relate to sales commissions paid on consignment contracts that are capitalized. Contract costs are amortized over
the expected life of the customer contract. The contract cost balance was $0.1 million as of October 1, 2018 and $0.5 million as
of September 30, 2019 and is included in the line item Prepaid expenses and other current assets and Other assets on the
consolidated balance sheet. Amortization expense was immaterial during the year ended September 30, 2019.
Risk Associated with Certain Concentrations
For the majority of Buyers that receive goods before payment to the Company is made, credit evaluations are performed.
However, for the remaining Buyers, goods are not shipped before payment is made, and as a result the Company is not subject
to significant collection risk 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 equivalents in the consolidated financial statements. The Company releases the
funds to the Seller, less the Company's commission and other fees due, after the Buyer has accepted the goods or within 30
days, depending on the state where the Buyer and Seller conduct business. The amount of cash held on behalf of the Sellers is
recorded as Payables to sellers in the accompanying Consolidated Balance Sheets.
60
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of
Cash and cash equivalents in banks over FDIC limits, Short-term investments, and Accounts receivable. The Company deposits
its Cash and cash equivalents with and acquires Short-term investments from financial institutions that the Company considers
to be of high credit quality.
During the years ended September 30, 2019, 2018, and 2017, the Company had two material vendor contracts with the
Department of Defense (DoD) under which it acquired, managed and sold government property. Revenue from the sale of
property acquired, as well as provision of services, under the Surplus Contract accounted for 0%, 12.4%, and 27.6%, of the
Company's consolidated revenue for the years ended September 30, 2019, 2018, and 2017, respectively. Revenue from the sale
of property acquired under the Scrap Contract accounted for 7.4%, 10.2% and 11.1% of the Company's total revenue for the
years ended September 30, 2019, 2018, and 2017, respectively. These contracts are included within the Company's CAG
segment. See Note 3, Significant Contracts, for further information related to the Scrap and Surplus Contracts.
Additionally, the Company has multiple vendor contracts with Amazon.com, Inc. under which it acquires and sells commercial
merchandise. The property purchased under this contract represented 43.6%, 33.7%, and 21.8% of cost of goods sold for the
years ended September 30, 2019, 2018, and 2017, respectively. This contract is included within the RSCG segment.
Income Taxes
The Company accounts for income taxes using an asset and liability approach for measuring deferred taxes based on temporary
differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date
using enacted tax rates for the years in which the taxes are expected to be paid or recovered. The Company recognizes deferred
tax assets to the extent that it believes that these assets are more likely than not to be realized. In making such determination, the
Company considers all available positive and negative evidence to estimate whether future taxable income will be generated to
permit use of the existing deferred tax asset. The resulting net tax asset reflects management's estimate of the amount that will
be realized.
The Company applies the authoritative guidance related to uncertainty in income taxes. Accounting Standards Codification
(ASC) 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the
position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of
technical merits. During the year ended September 30, 2019, the Company recorded a charge of $0.3 million for unrecognized
tax benefits related to foreign operations. The Company’s policy is to recognize interest and penalties in the period in which
they occur in the income tax provision. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction,
various state and local jurisdictions and in foreign jurisdictions including, among others, Canada and the U.K.
Stock-Based Compensation
The Company has incentive plans under which stock options, restricted stock units, restricted stock awards, and stock
appreciation rights are issued. The awards issued can contain service conditions, performance conditions based upon Company
financial results, and/or market conditions based upon changes in the Company's stock price.
Service- and performance-based stock awards are measured at fair value on their grant date. Stock options and stock
appreciation rights are measured at fair value using the Black-Scholes option-pricing model. However, because the stock
appreciation rights are cash settled, they are also measured at fair value in each reporting period. The Black-Scholes option-
pricing model includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in
reference to the Company's historical results. Restricted stock units and restricted stock awards are measured at fair value using
the closing price of the Company's stock on the grant date. For service-based stock awards, the Company recognizes expense
on a straight-line basis over the service period, which is generally a period one to four years. For performance-based stock
awards, the Company recognizes expense on a straight-line basis over the derived service period expected to be required to
achieve the performance condition. The Company records a cumulative adjustment to compensation expense for performance-
based awards if there is a change in determination of whether it is probable that the performance condition will be achieved.
Market-based stock awards are measured at fair value on their grant date using a Monte Carlo simulation. The Monte Carlo
simulation includes assumptions for the expected term, volatility, and dividend yield, each of which are determined in reference
to the Company's historical results. For market-based stock option and restricted stock awards, the Company recognizes
expense on a straight-line basis over the derived service period determined by the Monte Carlo simulation, for each stock price
target within the award. The Company accelerates expense when a stock price target is achieved prior to the derived service
period. The Company, however, does not reverse expense recognized if the stock price target(s) are not ultimately achieved, as
required by equity accounting for market-based awards. For market-based stock appreciation rights, because they are cash
settled, they are measured at fair value in each reporting period. The Company recognized expense on a straight-line basis over
the derived service period determined by the Monte Carlo simulation in each reporting period, for each stock price target within
61
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
the award. The Company accelerates expense when a stock price target is achieved prior to the derived service period, and
reverses expense recognized if the stock price target(s) are not ultimately achieved, as required by liability accounting for
market-based awards.
The Company recognizes the impact of forfeitures in the period they occur. This policy was adopted in the first quarter of 2018
due to the adoption of ASU 2016-09, which resulted in a $0.2 million retained earnings adjustment as of October 1, 2017.
Compensation expense from the stock awards is included in the same lines on the consolidated statements of operations as the
cash compensation to the employees receiving the stock awards.
Excess tax benefits realized from stock awards are reported as cash flows from operating activities on the consolidated
statement of cash flows.
Advertising Costs
Advertising expenditures are expensed as incurred. Advertising costs charged to expense were $2.7 million, $3.6 million and
$5.2 million for the years ended September 30, 2019, 2018 and 2017, respectively.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is primarily the local currency. The translation of the subsidiary's
financial statements into U.S. dollars is performed for balance sheet accounts using exchange rates in effect at the balance sheet
date and for revenue and expense accounts using an average exchange rate during the period. The resulting translation
adjustments are recognized in accumulated other comprehensive (loss) income, a separate component of stockholders' equity.
Realized and unrealized foreign currency transaction gains and losses for 2019, 2018 and 2017 are included in interest and other
income (expense), net in the Consolidated Statements of Operations.
Accumulated Other Comprehensive Income (loss)
The following table shows the changes in accumulated other comprehensive income (loss), net of taxes (in thousands):
Foreign
Currency
Translation
Adjustments
Net Change
Pension
and Other
Postretirement
Benefit Plans
Accumulated
Other
Comprehensive
Loss
Balance at September 30, 2016
$
(7,345) $
(1,226) $
Current-period other comprehensive (loss) income
Balance at September 30, 2017
Current-period other comprehensive (loss) income
Balance at September 30, 2018
Current-period other comprehensive (loss) income
551
(6,794)
(791)
(7,585)
(984)
1,589
363
773
1,136
(540)
Balance at September 30, 2019
$
(8,569) $
596
$
(8,571)
2,140
(6,431)
(18)
(6,449)
(1,524)
(7,973)
Net Income (Loss) Per Share (EPS)
The Company calculates basic EPS by dividing net income (loss) by the weighted-average number of common shares
outstanding during the reporting period. Unvested restricted stock awards, which are included in shares issued and outstanding
on the consolidated balance sheets, are excluded from weighted-average number of common shares outstanding during the
reporting period because they do not have nonforfeitable rights to dividends.
The Company calculates diluted EPS giving effect to potentially dilutive common shares using the treasury stock method. The
Company's potentially dilutive common shares include stock options, restricted stock units, and restricted stock awards. For
such awards that have performance- or market-conditions, they are considered only when those performance- or market-
conditions have been satisfied as of the reporting date. However, in periods of a net loss, the Company's diluted EPS will equal
its basic EPS, as all its potential common shares are anti-dilutive in that case.
For the years ended September 30, 2019, September 30, 2018 and 2017, the Company operated at a net loss, and basic and
diluted weighted average common shares were the same because the inclusion of potentially dilutive common shares would
have been anti-dilutive. See Note 11 for outstanding stock options, restricted stock units, and restricted stock awards, all of
which are anti-dilutive as of September 30, 2019.
62
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Recent Accounting Pronouncements
Accounting Standards Adopted
On October 1, 2018, the Company adopted ASC 606 using the modified retrospective transition method. The Company applied
the new revenue standard to all contracts that were not completed as of October 1, 2018 on a modified retrospective basis and
recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of
retained earnings. The comparative period information has not been restated and continues to be reported under the accounting
standards in effect for those periods.
The cumulative effect of the changes made to the consolidated October 1, 2018 balance sheet for the adoption of ASC 606 was
as follows (in thousands):
Balance at September
30, 2018
Adjustment due to
adoption of ASC 606
Balance as adjusted at
October 1, 2018
Prepaid expenses and other current assets $
Other assets
Accumulated deficit
$
$
7,816 $
14,124 $
(100,045) $
671 $
59 $
730 $
8,487
14,183
(99,315)
The impact of adopting ASC 606 on the Company’s consolidated statement of operations and the consolidated balance sheet for
the year ended September 30, 2019 was as follows (in thousands):
Year ended September 30, 2019
Balance without
adoption of ASC 606
Effect of change
Higher/(lower)
As reported
Consolidated statement of operations:
Fee revenue
78,636
78,989
(353)
As reported
September 30, 2019
Balance without
adoption of ASC 606
Effect of change
Higher/(lower)
Consolidated balance sheet:
Prepaid expenses and other current assets
Other assets
Accumulated deficit
8,350
12,136
(118,572)
7,844
11,827
(117,757)
506
309
(815)
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. The adoption of ASU 2017-07 on October 1, 2018, using the retrospective method, did not have a
material impact on the Company's consolidated financial statements. As a result of adopting this standard $347 thousand,
$335 thousand and $244 thousand for years ended September 30, 2019, 2018 and 2017, respectively, were reclassified in the
consolidated statement of operations from General and administrative, a component of loss from operations, to Interest and
other income, net, which is outside of loss from operations.
63
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company also adopted the following ASUs during the year ended September 30, 2019 that did not have a significant
impact on the consolidated financial statements or the related footnote disclosures:
Accounting Standards Update
2017-09
Scope of Modification Accounting
2017-01
Clarifying the Definition of a Business
2016-16
Intra-Entity Transfers of Assets Other Than Inventory
2016-15
Classification of Certain Cash Receipts and Cash Payments
2016-01
Recognition and Measurement of Financial Assets and Liabilities, as updated by 2018-03
2017-04
Simplifying the Test for Goodwill Impairment
2018-14
Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
2018-13
Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurements
Effective Date
October 1, 2018
October 1, 2018
October 1, 2018
October 1, 2018
October 1, 2018
July 1, 2019
September 30, 2019
September 30, 2019
Accounting Standards Not Yet Adopted
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), or ASC 842. ASC 842, including all amendments and
related guidance, will change the way the Company recognizes its leased assets. It 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. ASC 842 will also require disclosures to help investors and other financial statement users better
understand the amount, timing and uncertainty of cash flows arising from leases. The guidance will be effective for the
Company beginning on October 1, 2019. A modified retrospective transition approach is required for lessees for capital and
operating leases existing at, or entered into, after either the adoption date or the beginning of the earliest comparative period
presented in the financial statements. In its adoption of ASU 842, the Company will not adjust its comparative periods. In
addition, the Company will elect to use the package of practical expedients offered by ASC 842, which will permit the
Company to not reassess whether a contract is or contains a lease, lease classification, or initial direct costs. The Company will
not apply hindsight when determining the lease term. For all of its asset classes, the Company will account for both lease and
non-lease components as a single component and account for it as a lease, and the Company will not recognize right-of-use
assets or lease liabilities for its short-term leases. The Company will use incremental borrowing rates that average between 6%
and 7%, which are consistent with the lease term determined at the lease's commencement. The Company is substantially
complete with its adoption of ASC 842, and expects to recognize $11.0 to $12.5 million of operating right-of-use assets and
$12.0 to $13.5 million of operating lease liabilities in the Company's consolidated balance sheets on October 1, 2019. The
Company does not expect to have significant finance lease assets or liabilities. Adopting ASC 842 will also require the
Company to make quantitative and qualitative disclosures about its leases.
In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement that is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs
in a cloud computing arrangement with the requirement for capitalizing implementation costs incurred to develop or obtain
internal-use software. This ASU will become effective for the Company beginning October 1, 2020. The Company is currently
evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or ASC
326. ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more
useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASC 326
will require estimation of expected credit losses using a methodology that takes into consideration a broad range of reasonable
and supportable information. The guidance will be effective for the Company beginning on October 1, 2023 and will be
applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption
date. The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and
expects to estimate credit losses on its financial assets such as its Accounts Receivable, Short-term Investments, and Promissory
Note. 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.
64
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company has also completed its evaluation of the following ASUs, which are not expected to have a significant impact on
the consolidated financial statements or the related footnote disclosures:
Accounting Standards Update
2018-07
Improvements to Nonemployee Share-based Payment Accounting
2018-02
Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
Effective Date
October 1, 2019
October 1, 2019
3. DoD Contracts with DLA Disposition Services
Historically, the Company had two material vendor contracts with the DoD, the Scrap Contract and the Surplus Contract. Both
contracts have concluded as of September 30, 2019.
Under the Scrap Contract, which concluded on September 30, 2019, the Company was the remarketer of all DoD non-electronic
scrap turned into the Defense Logistics Agency (DLA) available for sale within the United States, Puerto Rico, and Guam. The
Company paid a revenue-sharing payment to the DLA under this contract equal to 64.5% of the gross resale proceeds of the
scrap property, and the Company bore all of the costs for the sorting, merchandising and sale of the property. Revenue from the
Scrap Contract accounted for 7.4%, 10.2%, and 11.1% of the Company's consolidated revenue for the years ended September
30, 2019, 2018 and 2017, respectively.
Under the Surplus Contract, which concluded on June 30, 2018, the Company managed and sold usable DoD surplus personal
property turned into the DLA. Surplus property generally consisted of items the DoD determined were no longer needed, and
not claimed for reuse by any federal agency, such as consumer electronics, industrial equipment, office supplies, scientific and
medical equipment, aircraft parts, clothing and textiles. The Surplus Contract required the Company to purchase all usable
surplus property offered to the Company by the DoD at 4.35% of the DoD's original acquisition value. The Company retained
100% of the profits from the resale of the property and bore all of the costs for the merchandising and sale of the property.
Revenue from the Surplus Contract accounted for 0%, 12.4% and 27.6%, of the Company's consolidated revenue for the years
ended September 30, 2019, 2018 and 2017, respectively.
4. Acquisition
Machinio
On July 10, 2018, the Company, acquired 100% of the issued and outstanding capital stock of Machinio. Machinio operates a
global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and
agriculture sectors. The reason for the acquisition was to expand the services and channels the Company offers to its Sellers,
and to grow the Company's network of Buyers. For segment reporting purposes, Machinio is a separate reportable segment.
The consideration paid to the Sellers for the acquisition of Machinio equity was $19.9 million in cash, earn-out consideration,
and Company equity, including the acquisition of Machinio cash of $1.5 million at the closing and a closing working capital
purchase price adjustment (for a net cash consideration of $16.7 million). Shares of restricted stock of the Company issued in a
private placement to Machinio executives in exchange for their shares of Machinio stock valued at $2.0 million were included
in the consideration. In addition, the Machinio sellers are eligible to receive earn-out consideration up to $5.0 million, based
upon Machinio's adjusted EBITDA performance for the calendar year ended December 31, 2019. The earn-out consideration
was valued at $1.2 million at the acquisition date. The earn-out consideration is subsequent to fair value measurement each
reporting period until its expected settlement in the third quarter of fiscal 2020, see Note 12 for further details.
In connection with the acquisition, the Company issued restricted stock units and restricted stock awards valued at $4.7 million
in the aggregate to Machinio’s executives and employees. The restricted stock units and restricted stock awards are subject to
performance-based vesting, based upon Machinio's achievement of certain annual revenue and adjusted EBITDA targets
through calendar year 2021, in each case, subject to each recipient’s continued employment with the Company on such vesting
dates and other standard terms and conditions set forth in the respective grant agreements.
65
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Under the acquisition method of accounting, the total estimated purchase price is allocated to Machinio's net tangible and
intangible assets acquired based on their estimated fair values as of July 10, 2018. Based on management's valuation of the fair
value of tangible and intangible assets acquired and liabilities assumed, goodwill of $14.6 million was recorded, of which zero
is deductible for tax purposes. The purchase price was allocated as follows:
Other Current Assets
Goodwill
Customer relationships intangible asset
Developed technology intangible asset
Trade name intangible asset
Property and equipment and other long-term assets
Liabilities excluding deferred revenue
Deferred revenue
Total consideration
Consideration
Amount
(in thousands)
$
$
106
14,558
3,100
2,700
1,500
252
(956)
(1,400)
19,860
Related to the recognition of intangible assets for customer relationships, developed technology, and trade name, as well as the
earn-out consideration and deferred revenue, certain nonrecurring fair value measurements were performed as of the acquisition
date under the provisions of ASC 805. The fair value measurements were classified as Level 3 assets within the fair value
hierarchy under the provisions of ASC 820 and ASC 805. The significant unobservable inputs used in the fair value
measurements categorized within Level 3 of the fair value hierarchy were discount rates ranging from 30% to 35% for the
identifiable intangible assets and deferred revenue and 12% to 17% for the contingent consideration. The valuation processes
used included the relief from royalty method and the multi-period excess earnings method for the identifiable intangible assets,
cost to fulfill method for the deferred revenue, and a Monte Carlo simulation to estimate the fair value of the contingent
consideration.
The net sales and operating losses of Machinio included within the Consolidated Financial Statements since the date of
acquisition was $0.7 million and $(0.9) million for the year ended September 30, 2018.
The following pro-forma financial information presents the Company's results as if the acquisition had occurred on October 1,
2016:
Revenue
Net loss
Year Ended September 30,
2018
2017
(in thousands)
$
$
$
228,484
(12,857) $
272,231
(42,289)
This pro-forma information includes nonrecurring adjustments for the amortization of intangible assets and the recognition of
deferred revenue.
66
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
5. Property and Equipment
Property and equipment, including equipment under capital lease obligations, consists of the following:
Computers and purchased software
Internally developed software for internal-use
Office/Operational equipment
Leasehold improvements
Building
Furniture and fixtures
Vehicles
Land
Construction in progress
Total property and equipment
Less: Accumulated depreciation and amortization
Total property and equipment, net
September 30,
2019
2018
(in thousands)
$
2,234
$
12,166
6,154
2,965
2,604
1,075
1,091
754
369
29,412
(10,566)
$
18,846
$
2,488
8,094
5,957
2,918
2,572
1,056
858
754
2,991
27,688
(11,078)
16,610
Depreciation and amortization expense related to property and equipment for the years ended September 30, 2019, 2018 and
2017, was $3.7 million, $4.2 million and $4.8 million, respectively. Included in those amounts is amortization of internally
developed software for internal-use of $1.2 million, $1.4 million and $0.4 million, respectively.
There were no property and equipment impairment charges for the years ended September 30, 2019 and 2018. During the year
ended September 30, 2017, the Company recorded $0.6 million in leasehold improvement impairment charges associated with
its IronDirect business. These impairment charges are recorded in the Acquisition costs and impairment of goodwill and long-
lived assets line item in the Consolidated Statements of Operations.
6. Goodwill
The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:
Goodwill (in thousands)
Balance at September 30, 2016
Translation adjustments
Balance at September 30, 2017
Business acquisition
Translation adjustments
Balance at September 30, 2018
Translation adjustments
Balance at September 30, 2019
$
$
$
$
RSCG
CAG
GovDeals
Machinio
Total
— $
—
— $
—
—
21,403
254
21,657
—
(127)
— $
21,530
—
(352)
— $
21,178
$
$
$
$
23,731
—
23,731
—
—
23,731
—
23,731
$
$
$
$
— $
—
— $
14,558
—
14,558
—
14,558
$
$
45,134
254
45,388
14,558
(127)
59,819
(352)
59,467
Accumulated goodwill impairment losses as of September 30, 2019 and 2018 were $168.6 million.
Impairment Analysis
As of July 1, 2019, the Company performed a fair-value based test for all reporting units and determined each of its reporting
units with goodwill balances substantially exceeded their carrying values, except for the Machinio reporting unit. The fair
value of the Machinio reporting unit, which was acquired by the Company on July 10, 2018, exceeded its carrying value by
approximately 11%. No impairment charge was recorded as a result of the annual test.
As of July 1, 2018, and July 1, 2017, the Company performed a fair-value based test for all reporting units and determined each
of its reporting units with goodwill balances substantially exceeded their carrying values. No impairment charge was recorded
as a result of these annual tests.
67
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The fair values of the Company's reporting units were determined using discounted cash flow models, where cash flows were
based upon Company estimates of future operating results for each reporting unit, and were discounted by a rate that reflected
the risk inherent in each reporting unit's estimated cash flows.
7. Intangible Assets
Intangible assets consist of the following:
Balance as of September 30, 2019
Balance as of September 30, 2018
Useful
Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
(in thousands)
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
(in thousands)
Net
Carrying
Amount
Weighted
average
useful
Life
(in years)
6.0 $
3,100
$
(646) $
2,454
$
3,100
$
(129) $
2,971
5.0
2,700
(675)
2,025
2,700
(135)
2,565
7 - 10
2,276
(712)
1,564
2,269
(439)
1,830
6.0
5.0
7.8
$
8,076
$
(2,033) $
6,043
$
8,069
$
(703) $
7,366
Contract
intangibles
Brand and
technology
Patent and
trademarks
Total intangible
assets, net
Future expected amortization of intangible assets at September 30, 2019, is as follows:
Year Ending September 30,
2020
2021
2022
2023
2024
2025 and after
Total
Amortization
(in thousands)
1,336
1,331
1,322
1,178
640
236
6,043
$
$
Amortization expense related to intangible assets for the years ended September 30, 2019, 2018 and 2017 was $1.3 million,
$0.4 million and $1.0 million, respectively.
Impairment Analysis
The Company did not record intangible asset impairment charges during the years ended September 30, 2019 and 2018. During
the year ended September 30, 2017, the Company recorded a $1.3 million impairment charge for contract intangibles associated
with its IronDirect and TruckCenter businesses. These impairment charges are recorded in the Acquisition costs and
impairment of goodwill and long-lived assets line item in the Consolidated Statements of Operations.
8. Commitments and Contingencies
Leases
The Company leases certain office space and equipment under non-cancelable operating lease agreements, which expire at
various dates through 2024. Certain of the leases contain escalation clauses and provide for the pass-through of increases in
operating expenses and real estate taxes. Rent related to leases that have escalation clauses is recognized on a straight-line basis.
Resulting deferred rent charges are included in other long-term liabilities and were $0.4 million and $0.6 million, at September
30, 2019 and September 30, 2018, respectively.
68
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Future minimum payments under the leases as of September 30, 2019, are as follows:
Year Ending September 30,
2020
2021
2022
2023
2024
Operating
Lease
Payments
Capital
Lease
Payments
(in thousands)
Total
$
5,572 $
52 $
3,551
2,279
1,500
545
53
53
54
160
5,624
3,604
2,332
1,554
705
Total future minimum lease payments
$
13,447 $
372 $
13,819
Rent expense for the years ended September 30, 2019, 2018 and 2017, was $5.9 million, $10.7 million, and $10.8 million,
respectively.
Contingencies
During the year ended September 30, 2019, the Company determined that it was probable that a liability would result from a
sales tax audit performed by the State of California. The liability was $0.6 million, including interest and penalties, and is
recorded as a component of Accrued expenses and other current liabilities in the consolidated balance sheets as of September
30, 2019. The liability was paid in the first quarter of fiscal 2020.
9. 401(k) Benefit Plan
The Company has a retirement plan (the Plan), which is intended to be a qualified plan under Section 401(k) of the Internal
Revenue Code. The Plan is a defined contribution plan available to all eligible employees and allows participants to contribute
up to the legal maximum of their eligible compensation, not to exceed the maximum tax-deferred amount allowed by the
Internal Revenue Service. The Plan also allows the Company to make discretionary matching contributions. For the years ended
September 30, 2019, September 30, 2018 and September 30, 2017, the Company recorded expenses of $1.6 million, $1.4
million and $2.1 million, respectively, related to its contributions to the Plan.
10. Income Taxes
The components of the provision for income taxes of continuing operations are as follows:
Current tax provision (benefit):
U.S. Federal
State
Foreign
Deferred tax provision (benefit):
U.S. Federal
State
Foreign
Year Ended September 30,
2019
2018
2017
(in thousands)
$
— $
453
611
1,064
$
108
714
795
1,617
103
(31)
64
136
(6,796)
(4,182)
33
(10,945)
Total (benefit) provision
$
1,200
$
(9,328) $
(234)
613
(210)
169
(592)
(86)
58
(620)
(451)
69
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred
tax assets and liabilities are as follows:
Deferred tax assets:
Net operating losses—Foreign
Net operating losses—U.S.
Accrued vacation and bonus
Inventory capitalization
Allowance for doubtful accounts
Stock compensation expense
Restructuring costs
Depreciation
Other
Total deferred tax assets before valuation allowance
Less: valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Amortization of intangibles
Amortization of goodwill
Depreciation
Capitalized costs
Pension liability
Total deferred tax liabilities
Net deferred taxes
September 30,
2019
2018
(in thousands)
$
13,009
$
34,856
674
226
87
1,989
42
485
953
52,321
(41,909)
10,412
408
6,374
—
3,730
482
$
$
10,994
$
(582) $
10,163
32,328
437
238
47
3,455
353
—
1,158
48,179
(39,337)
8,842
204
5,949
37
2,542
556
9,288
(446)
The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations is as follows:
U.S. statutory rate
Permanent items
State taxes
Net foreign rate differential
Unrecognized tax benefits
Change in valuation allowance
Benefit from new Tax Act
Other
Provision for income taxes
Year Ended September 30,
2019
2018
2017
21.0 %
(6.8)%
(0.4)%
(0.6)%
(1.5)%
(22.5)%
— %
4.2 %
(6.6)%
24.5 %
(1.2)%
0.1 %
(1.3)%
(0.5)%
(31.6)%
51.3 %
3.3 %
44.6 %
35.0 %
(0.9)%
1.2 %
(2.8)%
3.51 %
(34.8)%
— %
(0.1)%
1.1 %
At September 30, 2019 and September 30, 2018, the Company had federal and state deferred tax assets of $27.9 million and
$28.4 million, respectively, related to available federal and state net operating loss (NOL) carryforwards and other U.S.
deductible temporary differences. The NOL carryforwards expire beginning in 2035. At September 30, 2019 and September 30,
2018, the Company had deferred tax assets related to available foreign NOL carryforwards of $13.0 million and $10.2 million
70
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
respectively. All but $0.4 million of our foreign NOLs maintain an indefinite carry forward life. The NOLs with limited
carryforward periods will expire beginning in 2020.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“The Tax Act”) was signed into law. The Tax Act reduced the
corporate tax rate from 35% to 21%. The rate change was administratively effective at the beginning of the Company’s 2018
fiscal year, using a blended rate of 24.5%. At September 30, 2018, the Company had not yet completed its accounting for the
tax effects of the Tax Act; however, the Company recorded a provisional benefit of $10.7 million in 2018 for the
remeasurement of its deferred tax balance and recognition of the realizability of its deferred tax assets. During the three months
ended December 31, 2018, the Company completed its accounting for the tax effects of the Tax Act and determined no change
to the amount recorded in fiscal year 2018 was required.
The international provisions of the Tax Act establish a territorial tax system and subject certain foreign earnings on which U.S.
tax is currently deferred to a one-time transition tax. During the three months ended December 31, 2018, the Company
completed its analysis of foreign earnings and determined that no one-time transition tax was due. As a result, the Company has
not recorded any impact in its financial statements for the years ended September 30, 2019 or 2018.
The Tax Act subjects a U.S. shareholder to a minimum tax on "global intangible low-taxed income" ("GILTI") earned by
certain foreign subsidiaries. The FASB Staff Q&A Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income
states that an entity can make an accounting policy election to either recognize deferred taxes for temporary differences
expected to reverse as GILTI in future years or provide for the tax expense related to GILTI resulting from those items in the
year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as an expense in the period the tax is
incurred.
The Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be
generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the
cumulative loss incurred over the three-year period ended September 30, 2019. Such objective evidence limits the ability to
consider other evidence such as our projections for future growth. On the basis of this evaluation, the Company recorded a net
change to its valuation allowance of $2.6 million to bring the total valuation allowance to $41.9 million at September 30, 2019.
On July 10, 2018, the Company acquired 100% of the stock of Machinio for $19.9 million. Under the acquisition method of
accounting, the Company recorded a net deferred tax liability of $0.7 million comprised primarily of acquired intangibles netted
against NOLs and other deferred assets and recognized a $0.7 million tax benefit from a reduction to its valuation allowance.
The total amount of acquired NOLs, which are subject to limitations under Section 382, were $1.4 million.
The Company has not recorded a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries
since the Company intends to indefinitely reinvest the earnings of these foreign subsidiaries outside the U.S. The amount of
such undistributed foreign earnings was $2.8 million as of September 30, 2019. As of September 30, 2019, and 2018,
$21.0 million and $14.4 million, respectively, of cash and cash equivalents was held overseas and not available to fund
domestic operations without incurring taxes upon repatriation.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits:
Beginning balance at October 1
Additions based on positions related to the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance at September 30
Year Ended September 30, (In thousands)
2019
2018
2017
$
$
— $
— $
—
273
—
—
—
107
(107)
—
273
$
— $
725
—
1,426
(229)
(1,922)
—
The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740 states that a benefit from an
uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination,
including resolutions of any related appeals or litigation processes, on the basis of the technical merits. During 2019, the
Company recorded a charge of $0.3 million for unrecognized tax benefits related to foreign operations.
The Company recognizes interest and penalties in the period in which they occur in the income tax provision. The Company
and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign
71
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
jurisdictions, primarily Canada and the U.K. The Company has no open income tax examinations and the statute of limitations
for years prior to 2016 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 2016
may be adjusted upon examination by tax authorities if they are utilized.
11. Equity Transactions
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 Second Amended and Restated 2006
Omnibus Long-Term Incentive Plan, as amended, and a plan and private placement issuances related to the Company’s
acquisition of Machinio. As of September 30, 2019, the Company has reserved a total of 16,300,000 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 September 30, 2019, 1,321,256 shares of common stock remained
available for use.
Stock Compensation Expense
The table below presents the components of share-based compensation expense (in thousands):
Equity-classified awards:
Stock options
RSUs & RSAs
Liability-classified awards:
SARs
Total stock compensation expense:
Year Ended September 30,
2019
2018
2017
$
$
$
1,530
$
4,496
858
$
5,454
482
6,508
$
$
285
6,597
$
$
869
7,308
(800)
7,377
The Company’s total liabilities for liability-classified stock compensation awards was $758 thousand and $749 thousand as of
September 30, 2019 and 2018, the current portion of which was $707 thousand and $557 thousand, respectively.
Share-Based Award Activity
Stock Options
The table below presents stock option activity (aggregate intrinsic value in thousands):
Stock Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
Outstanding as of September 30, 2018
Granted
Exercised
Forfeited
Outstanding as of September 30, 2019
Vested and expected to vest as of
September 30, 2019
Exercisable as of September 30, 2019
2,018,323
1,134,316
$
$
(132,633) $
(347,728) $
2,672,278
2,609,071
1,270,164
$
$
$
10.49
6.32
4.44
6.78
9.50
9.58
12.94
5.13 $
$
$
$
6.19 $
6.15 $
4.37 $
1,143
—
307
279
2,502
2,409
876
Of the 1,402,114 stock options not yet exercisable as of September 30, 2019, 618,488 can become exercisable by satisfying
service conditions only, and 783,626 can become exercisable by satisfying service and performance or market conditions.
Stock options containing only service conditions generally vest over periods of one to four years and expire five to ten years
from the date of grant. Stock compensation cost is expensed ratably over the entire service period. As of September 30, 2019,
72
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
there was $1.4 million of unrecognized compensation cost related to stock options containing only service conditions, which is
expected to be recognized over a weighted-average period of 2.9 years
The range of assumptions used to determine the fair value of stock options using the Black-Scholes option-pricing model during
the years ended September 30, 2019, 2018 and 2017 were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
Year ended September 30
2019
2018
2017
—
—
—
47.8% - 53.7%
50.8% - 58.6%
54.2% - 54.9%
1.9% - 2.8%
0.5% - 2.7%
1.7% - 2.2%
4.2- 7.1 years
3.8 years
3.8 years
The weighted-average grant date fair value of options granted during the year-ended September 30, 2019, 2018 and 2017 was
$2.70, $2.04 and $3.58, respectively. The total intrinsic value of options exercised during 2019, 2018 and 2017 was
$307 thousand, $30 thousand and $24 thousand, respectively.
Stock options containing performance conditions are discussed separately in the section below.
RSUs & RSAs
The table below presents RSU & RSA activity (aggregate fair value in thousands):
Outstanding as of September 30, 2018
Granted
Exercised
Forfeited
Outstanding as of September 30, 2019
Expected to vest as of September 30, 2019
RSU & RSA
2,316,865
612,728
$
$
(731,433) $
(274,171) $
1,923,989
1,193,034
$
$
Weighted-
Average
Grant Date Fair
Value
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Fair Value
7.19
6.70
6.85
7.02
7.19
6.96
2.17 $
$
$
$
2.09 $
2.18 $
14,712
4,103
4,757
1,939
14,237
8,828
Of the outstanding RSUs & RSAs as of September 30, 2019, 748,670 can vest by satisfying service conditions only, and
1,175,310 can vest by satisfying service and performance or market conditions.
RSUs containing only service conditions vest ratably each year over periods of one to four years. Stock compensation cost is
expensed ratably over the entire service period. As of September 30, 2019, there was $2.9 million of unrecognized
compensation cost related to RSUs containing only service conditions, which is expected to be recognized over a weighted-
average period of 2.5 years.
RSUs and RSAs containing performance conditions and market conditions are discussed separately in the section below.
73
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
SARs
The table below presents SAR award activity (aggregate intrinsic value in thousands):
SARs
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual Term
(years)
Aggregate Intrinsic
Value
Outstanding as of September 30, 2018
Granted
Exercised
Forfeited
Outstanding as of September 30, 2019
Vested and expected to vest as of
September 30, 2019
Exercisable as of September 30, 2019
934,205
95,000
$
$
(181,009) $
(414,614) $
433,582
379,179
143,375
$
$
$
7.23
6.11
4.57
8.90
6.49
5.95
5.83
0.78 $
$
$
$
0.93 $
0.92 $
0.23 $
789
—
491
74
748
748
316
Of the 290,207 SARs not yet exercisable as of September 30, 2019, 164,088 can become exercisable by satisfying service
conditions only, and 126,119 can become exercisable by satisfying service and performance or market conditions.
As of September 30, 2019, there was $0.1 million of unrecognized compensation cost related to SARs containing only service
conditions, which is expected to be recognized over a weighted-average period of 3.2 years. The Company made cash
payments of $0.5 million, $0.2 million and $0.3 million to settle SARs exercised during the years ended September 30, 2019,
2018 and 2017, respectively.
The fair value of outstanding SARs containing only service conditions is estimated using the Black-Scholes option-pricing
model. The range of assumptions used to determine the fair value of outstanding SARs as of September 30, 2019, 2018, and
2017 were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
Year ended September 30
2019
2018
2017
—
—
—
38.2% - 48.8%
34.9% - 53.6%
38.2% - 48.8%
1.3% - 1.7%
0.1-3.3 years
2.6% - 2.8%
0.1-2.0 years
1.3% - 1.6%
1.0-3.0 years
As of September 30, 2019 and 2018, the weighted-average fair value of SARs outstanding was $1.7 and $0.8 per award.
SARs containing performance conditions and market conditions are discussed separately in the section below.
Stock Awards Containing Performance and Market Conditions
Stock awards containing performance conditions vest upon the achievement of specified financial targets of the Company or its
business units. Vesting is generally measured on the first day of each fiscal quarter over the four-year terms of the awards,
starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing twelve months
performance of the Company or its business units. When it is probable that the performance targets will be achieved, stock
compensation expense is recognized ratably over the derived service period. If the Company determines that achievement of
the performance targets is no longer probable, the Company no longer records expense and reverses all previously recognized
expense. As of September 30, 2019, there was $0.6 million of unrecognized compensation costs related to stock options and
RSUs & RSAs, containing performance conditions that are considered probable of being met, which is expected to be
recognized over a weighted-average period of 2.2 years.
74
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Stock awards containing market conditions vest upon the achievement of specified increases in the Company’s share price.
Vesting is measured the first day of each fiscal quarter over the four-year terms of the award, starting with the first fiscal quarter
after the first anniversary of the grant date, based upon the trailing 20-days average of the Company’s share price. Stock
compensation cost is expensed on a straight-line basis over the derived service period for each stock price target within the
award. The Company accelerates expense when a stock price target is achieved prior to the derived service period. For equity-
classified awards, the Company does not reverse expense recognized if the stock price target(s) are not ultimately achieved, but
expense is reversed when such situations occur for liability classified awards. As of September 30, 2019, there was
$1.2 million of unrecognized compensation costs related to stock options, RSUs and SARs, containing market conditions,
which is expected to be recognized over a weighted-average period of 1.7 years.
The fair value of stock options, RSUs and SARs containing market conditions is estimated using Monte Carlo simulations. The
range of assumptions used to determine the fair value of these awards during the years ended September 30, 2019 and 2018
were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Year ended September 30
2019
2018
2017
—
—
45.5% - 55.0%
50.0% - 54.5%
1.5% - 2.9%
2.0% - 2.5%
Expected holding period (% of remaining term)
25.9% - 100.0%
20.3%
There were no stock awards containing market conditions granted during 2017.
Share Repurchase Program
—
—%
—%
—%
The Board of Directors authorized the Company to repurchase issued and outstanding shares of its common stock under a share
repurchase program approved by the Board of Directors. Share repurchases may be made through open market purchases,
privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and
actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements
and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using
the Company's available cash. The Company's Board of Directors reviews the share repurchase program periodically, the last
such review having occurred in May 2016. The Company did not repurchase shares under this program during the twelve
months ended September 30, 2019. As of September 30, 2019, the Company may repurchase an additional $10.1 million of
shares under this program.
12. Fair Value Measurement
The Company measures and records in the accompanying consolidated financial statements certain 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
Level 2
Level 3
Quoted market prices in active markets for identical assets or liabilities;
Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect
those that a market participant would use.
During the year ended September 30, 2018, and as a result of the acquisition of Machinio, the Company recorded contingent
consideration which is measured at fair value (Level 3) at September 30, 2019 and 2018. The Company estimated the fair value
of the contingent consideration using a Monte Carlo simulation. The simulation estimated Machinio's adjusted EBITDA over
the calendar year 2019 earn-out period using a market-based volatility factor and market interest rates resulting in an average
adjusted EBITDA. A present value factor was applied based on the expected settlement date of the contingent consideration.
The liability for this consideration is included in Accrued expenses and other current liabilities in the consolidated balance
sheets as of September 30, 2019, and in Deferred taxes and other long-term liabilities as of September 30, 2018, as the earn-out
is expected to settle prior to the end of the third quarter of fiscal 2020.
75
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The changes in the earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair
value for the year ended September 30, 2019, are as follows (dollars in thousands):
Balance at September 30, 2018
Change in fair value of earn-out liability
Balance at September 30, 2019
Contingent Consideration
$
$
1,300
3,500
4,800
The increase in the fair value of the earn-out liability is primarily due to an increase in Machinio's estimated adjusted EBITDA
over the earn-out period, which was the result of Machinio's realized adjusted EBITDA for the nine months ended September
30, 2019 exceeding the previous estimate. Secondary factors for the increase in fair value relate to the present value factor,
which was impacted by the shorter period remaining until the earn out payment date, as well as a change in market conditions
that reduced interest rates and the weighted average cost of capital.
Management’s estimation of the fair value of these assets and liabilities is based on the best information available in the
circumstances and may incorporate management's own assumptions regarding market demand for these assets. Such
assumptions involve management's judgment, taking into consideration a combination of internal and external factors. Changes
in fair value of the Company's Level 3 assets and liabilities are recorded in Other operating expenses in the Consolidated
Statements of Operations.
During the years ended September 30, 2019 and 2018, the Company invested $30.0 million and $20.0 million in certificates of
deposit, respectively, with maturities of six months or less, and interest rates between 1.97% and 2.8%. These assets were
measured at fair value and were classified as Level 1 assets within the fair value hierarchy.
The Company’s financial assets not measured at fair value are cash and cash equivalents (which includes cash and commercial
paper with original maturities of less than 90 days), accounts receivable, and a promissory note. The Company believes the
carrying value of these instruments approximates fair value.
As of September 30, 2019 and 2018, the Company did not have any assets or liabilities measured at fair value on a non-
recurring basis.
13. Defined Benefit Pension Plan
Certain employees of Liquidity Services UK Limited ("GoIndustry"), which the Company acquired in July 2012, are covered
by the Henry Butcher Pension Fund and Life Assurance Scheme (the "Scheme"), a qualified defined benefit pension plan. The
Company guarantees GoIndustry's performance on all present and future obligations to make payments to the Scheme for up to
a maximum of 10 million British pounds. The Scheme was closed to new members on January 1, 2002.
The Company recognizes the funded status of its postretirement benefit plans, with a corresponding noncash adjustment to
accumulated other comprehensive loss, net of tax, in stockholders' equity. The funded status is measured as the difference
between the fair value of the Scheme's assets and the benefit obligation of the Scheme.
The net periodic benefit cost recognized for the years ended September 30, 2019, 2018 and 2017, included the following
components:
Interest cost
Expected return on plan assets
Total net periodic benefit
Year Ended September 30,
2019
2018
2017
(in thousands)
$
$
618
$
(965)
(347) $
651
$
(986)
(335) $
582
(826)
(244)
76
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table provides a reconciliation of benefit obligations, plan assets, and funded status related to the Company's
qualified defined benefit pension plan for the years ended September 30, 2019 and 2018:
Change in benefit obligation
Beginning balance
Interest cost
Benefits paid
Actuarial loss/(gain)
Foreign currency exchange rate changes
Ending balance
Change in plan assets
Beginning balance at fair value
Actual return on plan assets
Benefits paid
Employer's contributions
Foreign currency exchange rate changes
Ending balance at fair value
Overfunded status of the Scheme
Year Ended September 30,
2019
2018
(in thousands)
$
22,226
$
618
(879)
2,508
(1,233)
25,085
651
(2,297)
(590)
(623)
$
23,240
$
22,226
Year Ended September 30,
2019
2018
(in thousands)
$
25,132
$
3,003
(879)
—
(1,477)
25,779
2,539
$
$
$
$
26,943
1,175
(2,297)
—
(689)
25,132
2,906
The accrued pension asset of $2.5 million is recorded in Other long-term assets in the Consolidated Balance Sheet. Because the
Scheme is closed to new participants, the accumulated benefit obligation is equal to the projected benefit obligation, which was
$23.2 million and $22.2 million at September 30, 2019 and 2018, respectively.
The amounts recognized in other comprehensive (income) loss related to the Company's qualified defined benefit pension plan,
net of taxes, and the related foreign currency translation adjustments, for the years ended September 30, 2019 and 2018, is
shown in the following table:
Accumulated other comprehensive (income) loss at beginning of year
Net actuarial gain (loss)
Foreign currency translation adjustments
Accumulated other comprehensive (income) loss at end of year
Year Ended September 30,
2019
2018
$
$
(in thousands)
(892) $
540
49
(303) $
(123)
(773)
4
(892)
The plan complies with the funding provisions of the UK Pensions Act 2004 and the Occupational Pension Schemes
Regulations Act 2005. The Company does not plan to make contributions to the plan in the near future.
77
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at September 30, 2019 and 2018, and to determine the net
periodic (benefit) cost for the year were as follows:
Discount rate to determine net periodic (benefit) cost
Expected return on plan assets
Discount rate to determine benefit obligations
Rate of increases to deferred CPI linked benefits
Rate of increases to deferred RPI linked benefits
September 30,
2019
September 30,
2018
2.90 %
4.00 %
1.80 %
2.10 %
3.20 %
2.70 %
3.80 %
2.90 %
2.20 %
3.30 %
Mortality—105% for males and females of S2PxA mortality tables, projected in line with the 2018 Continuous Mortality
Investigation projection model and a 1.3% per annum long-term rate of improvement.
Estimated Future Benefit Payments
The Company's pension plan expects to make the following benefit payments to participants over the next 10 years:
Year ending September 30,
2020
2021
2022
2023
2024
2025 through 2029
Total
Fair Value Measurements
Pension Benefits
(in thousands)
$
$
750
705
828
1,112
964
4,779
9,138
The investment policy and strategy of the plan assets, as established by the Trustees (the "Trustees") of the plan, strive to
maximize the likelihood of achieving primary objectives of the investment policy established for the plan, which are:
•
•
•
Funding—to ensure that the Plan is fully funded using assumptions that contain a modest margin for prudence. Where
an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial
covenant of the employer;
Stability—to have due regard to the likely level and volatility of required contributions when setting the Plan's
investment strategy; and
Security—to ensure that the solvency position of the Scheme is expected to improve. The Trustees will take into
account the strength of employer's covenant when determining the expected improvement in the solvency position of
the Plan.
The assets are allocated among equity securities, corporate bonds, and diversified funds. The assets are not rebalanced, but the
allocation is reviewed on a periodic basis to ensure that the investments are appropriate to the Scheme's circumstances. The
Trustees review the investment policy on an ongoing basis, to determine whether a change in the policy or asset allocation
targets is necessary. The Company has elected to use a bid value of Scheme assets to calculate the expected return on assets in
the net periodic benefit cost. The assets consisted of the following as of September 30, 2019 and 2018:
Equity securities
Corporate bonds
Diversified fund
Cash
Total
September 30,
2019
September 30,
2018
19.7 %
56.4 %
23.5 %
0.4 %
100.0 %
45.7 %
53.1 %
— %
1.2 %
100.0 %
78
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The expected long-term rate of return for the plan's total assets is based on the expected returns of each of the above categories,
weighted based on the current target allocation for each class. The Trustees evaluate whether adjustments are needed based on
historical returns to more accurately reflect expectations of future returns.
The Company is required to present certain fair value disclosures related to its postretirement benefit plan assets, even though
those assets are not included on the Company's Consolidated Balance Sheets. The following table presents the fair value of the
assets of the Company's qualified defined benefit pension plan by asset category and their level within the fair value hierarchy,
which has three levels based on reliability of the inputs used to determine fair value. Level 1 refers to fair values determined
based on quoted prices in active markets for identical assets, Level 2 refers to fair values estimated using significant other
observable inputs, and Level 3 includes fair values estimated using significant unobservable inputs.
Balance as of September 30, 2018
Level 1
Level 2
Level 3
Total
Equity securities
Fixed-income securities
Cash equivalents
Total
Balance as of September 30, 2019
Equity securities
Corporate bonds
Diversified fund
Cash
Total
Valuation Techniques
$
$
$
$
(in thousands)
— $
11,489
$
— $
13,347
—
—
—
$
24,836
$
— $
25,132
Level 1
Level 2
Level 3
Total
(in thousands)
— $
5,077
$
— $
14,546
6,062
—
—
—
—
$
25,685
$
— $
25,779
11,489
13,347
296
5,077
14,546
6,062
94
—
296
296
—
—
94
94
The Company relies on pricing inputs from investment fund managers to value investments. The fund manager prices the
underlying securities using independent external pricing sources.
14. Business Realignment Expenses
Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving
actions, and include employee severance and benefit costs associated with terminations, occupancy costs associated the ceased
use of facilities, and other related costs, such as impairments. Business realignment expenses are recorded as a component of
Other operating expenses on the Consolidated Statements of Operations.
For the year ended September 30, 2019, business realignment expenses were incurred related to: management changes
associated with a strategic reorganization of the Company's go-to-market strategy for self-directed and fully-managed market
place services, the conclusion of the Scrap contract, and other cost saving actions.
For the year ended September 30, 2018, business realignment expenses were incurred related to: cost saving actions in the CAG
segment and Corporate IT department. These actions were partially offset by an adjustment to reduce the liability associated
with the ceased use of the Company's previous headquarters location in Washington D.C. that was initially recognized during
the year ended September 30, 2017.
For the year ended September 30, 2017, business realignment expenses were incurred related to: the ceased use of the
Company's previous headquarters location in Washington D.C., the exit of the TruckCenter land-base, live action and retail
business, cost saving actions in the CAG segment and IronDirect business, including a related onerous contract and impairment
charges.
79
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The table below sets forth the significant components and activity in the liability for business realignment initiatives during the
year ended September 30, 2019, on a segment and consolidated basis:
(in thousands)
Employee severance and
benefit costs:
CAG
Corporate & Other
Total employee severance
and benefit costs
Occupancy and other costs:
CAG
Corporate & Other
Total occupancy and other
costs
Total business realignment
Liability
Balance at
September 30,
2017
Business
Realignment
Expenses
Cash
Payments
Liability
Balance at
September 30,
2018
Business
Realignment
Expenses
Cash
Payments
Liability
Balance at
September 30,
2019
$
$
$
$
$
793
399
979
472
$
(1,683) $
(850)
89
21
$
443
$
(118) $
1,537
(1,320)
1,192
$
1,451
$
(2,533) $
110
$
1,980
$
(1,438) $
—
1,988
739
(248)
(280)
(933)
459
807
51
134
(341)
(941)
1,988
3,180
$
$
491
1,942
$
$
(1,213) $
(3,746) $
1,266
1,376
$
$
185
2,165
$
$
(1,282) $
(2,720) $
414
238
652
169
—
169
821
The Company expects that the majority of the remaining liability balance at September 30, 2019 will be paid during fiscal 2020.
15. Legal Proceedings
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the
business. There are no claims or actions pending or threatened against the Company that, if adversely determined, would in the
Company's management's judgment have a material adverse effect on the Company.
16. Segment Information
The Company provides operating results in four reportable segments: GovDeals, Capital Assets Group (CAG), Retail Supply
Chain Group (RSCG), Machinio. The Company's reportable segments constituted over 99% of the Company's revenue for the
year ended September 30, 2019. Descriptions of our reportable segments are as follows:
•
•
•
•
The GovDeals reportable segment provides self-directed service solutions in which Sellers list their own assets,
and it consists of marketplaces that enable local and state government entities including city, county and state
agencies, as well as commercial businesses located in the United States and Canada to sell surplus and salvage
assets. GovDeals also offers a suite of services to Sellers that includes asset sales and marketing. This segment
includes the Company's GovDeals.com and AuctionDeals.com marketplaces.
The CAG reportable segment provides full-service solutions to Sellers and it consists of marketplaces that enable
commercial businesses to sell surplus, salvage, and scrap assets. CAG also offers a suite of services that includes
surplus management, asset valuation, asset sales and marketing. Commercial Sellers are located in the United
States, Europe, Australia and Asia. This segment includes the Company's Network International and GoIndustry
DoveBid marketplaces. Prior to the conclusion of the Scrap and Surplus Contracts (see Note 3), CAG sold surplus
and scrap assets from the DoD on its Government Liquidation marketplace.
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. RSCG also offers a suite of services
that includes returns management, asset recovery, and e-commerce services. This segment includes the Company's
Liquidation.com, Liquidation.com DIRECT, and Secondipity marketplaces.
The Machinio reportable segment operates a global online platform for listing used equipment for sale in the
construction, machine tool, transportation, printing and agriculture sectors. Machinio was acquired by the
Company on July 10, 2018.
We also report results of Corporate & Other, which combines two previously existing operating segments that did not meet the
quantitative thresholds to be reportable segments, IronDirect and TruckCenter, with corporate activity and elimination
adjustments. The Company exited the TruckCenter business in January 2017 and exited the IronDirect business in January
2019.
80
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker
("CODM"), which is the Company's Chief Executive Officer, with oversight by the Board of Directors. The Company reports
segment information based on the internal performance measures used by the CODM to assess the performance of each
operating segment in a given period. In connection with that assessment, the CODM uses segment gross profit to evaluate the
performance of each segment. Gross profit is calculated as total revenue less cost of goods sold and seller distributions.
The following table sets forth certain financial information for the Company's reportable segments:
(in thousands)
GovDeals:
Revenue
Fee revenue
Total revenue
Gross profit
CAG:
Revenue
Fee revenue
Total revenue
Gross profit
RSCG:
Revenue
Fee revenue
Total revenue
Gross profit
Machinio:
Revenue
Fee revenue
Total revenue
Gross profit
Corporate & Other:
Revenue
Fee revenue
Total revenue
Gross profit
Consolidated:
Revenue
Fee revenue
Total revenue
Gross profit
Year Ended September 30,
2019
2018
2017
$
— $
— $
32,936
32,936
30,386
36,684
23,558
60,242
32,679
30,214
30,214
27,990
57,717
30,308
88,025
48,873
110,736
16,585
127,321
44,967
88,295
13,659
101,954
33,009
—
5,598
5,598
5,196
469
(41)
428
52
—
653
653
501
3,665
3
3,668
(661)
—
26,853
26,853
25,172
100,160
44,971
145,131
71,934
85,766
9,265
95,032
30,050
—
—
—
—
2,644
356
2,999
(2,666)
147,889
78,636
226,525
113,280
149,677
74,837
224,514
109,712
188,570
81,445
270,015
124,490
81
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The following table presents a reconciliation between gross profit used in the reportable segments and the Company's
consolidated results:
(in thousands)
Reconciliation:
Gross profit
Operating expenses
Other operating expenses
Interest (income) expense and other expense, net
Loss before provision for income taxes
Year Ended September 30,
2019
2018
2017
113,280
127,739
5,049
(1,448)
109,712
130,048
1,392
(785)
124,490
161,083
3,651
(606)
(18,060)
(20,943)
(39,638)
Total segment assets reconciled to consolidated amounts are as follows. The amounts as of September 30, 2018 have been be
reclassified to match the current year presentation of segment assets.
(in thousands)
Segment Assets:
GovDeals
CAG
RSCG
Machinio
Corporate & Other, including elimination adjustments
Total Segment Assets:
September 30,
2019
2018
$
$
75,218
$
128,918
27,075
26,613
(70,541)
187,283
$
47,632
146,544
19,418
25,916
(37,678)
201,832
Revenue attributed to countries that represent a significant portion of consolidated revenues are as follows:
(in thousands)
United States
Rest of the world
Consolidated
Total long-lived assets by geographic areas are presented as follows:
(in thousands)
United States
Rest of the world
Consolidated
Year Ended September 30,
2019
191,816
34,709
226,525
$
$
2018
193,240
31,274
224,514
$
$
2017
240,102
29,913
270,015
$
$
September 30,
2019
2018
$
$
18,455
391
18,846
$
$
16,367
243
16,610
82
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
17. Quarterly Results (Unaudited)
The following table sets forth for the eight most recent quarters the selected unaudited quarterly consolidated statement of
operations data. The unaudited quarterly consolidated statement of operations data has been prepared on the same basis as the
Company's audited consolidated financial statements and, in the opinion of management, includes all adjustments, consisting
only of normal recurring adjustments, necessary for the fair presentation of this data.
Dec. 31,
2017
Mar. 31,
2018
June 30,
2018
Sept. 30,
2018
Dec. 31,
2018
Mar. 31,
2019
June 30,
2019
Sept. 30,
2019
(in thousands, except share and per share data)
Three months ended
61,143
$
60,097
$
50,569
$
52,705
$
54,053
$
56,800
$
56,882
$
58,790
30,200
$
27,511
$
27,144
$
24,857
$
26,473
$
29,218
$
28,551
$
29,038
(6,027) $
(1,212) $
(5,276) $
(5,655) $
(3,093) $
(3,705) $
(6,547) $
(1,043) $
(4,756) $
(5,022) $
(4,034) $
(4,362) $
(4,107) $
(4,649) $
(5,163)
(5,227)
(0.04) $
(0.18) $
(0.12) $
(0.03) $
(0.15) $
(0.13) $
(0.14) $
(0.16)
31,876,603
31,972,752
32,104,368
32,425,669
32,808,144
32,987,608
33,164,750
33,291,275
$
$
$
$
$
Revenue
Gross profit
(excludes
depreciation and
amortization)
Loss before
provision for
income taxes
Net loss
Basic and diluted
loss per common
share
Basic and diluted
weighted average
shares outstanding
LIQUIDITY SERVICES, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Balance at
beginning
of period
Charged
(credited) to
expense
Reductions
Balance at
end of
period
44,257
54,379
39,337
718
668
337
3,446
4,572
503
10,122
(15,042)
2,572
357
199
178
10,381
2,494
331
— $
—
— $
54,379
39,337
41,909
(407) $
(530)
(224) $
668
337
291
(9,255) $
4,572
(6,563)
(503) $
503
331
Deferred tax valuation allowance (deducted from net
deferred tax assets)
Year ended September 30, 2017
Year ended September 30, 2018
Year ended September 30, 2019
Allowance for doubtful accounts (deducted from accounts
receivable)
Year ended September 30, 2017
Year ended September 30, 2018
Year ended September 30, 2019
Provision for Inventory allowance (deducted from
inventory)
Year ended September 30, 2017
Year ended September 30, 2018
Year ended September 30, 2019
$
$
$
$
$
$
83
EXHIBIT INDEX
Exhibit No.
Description
2.1 Stock Purchase Agreement, dated July 10, 2018, by and between the Company, Machinio, Corp., the
stockholders of Machinio, Corp., and Shareholder Representative Services, LLC, incorporated herein by
reference to Exhibit 2.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on August 2,
2018.
2.2 Purchase and Sale Agreement, dated September 22, 2015, by and between Jacobs Trading, LLC and Tanager
Acquisitions, LLC, incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form
8-K, filed with the SEC on October 6, 2015.
2.3 First Amendment to Purchase and Sale Agreement dated September 30, 2015 by and between Jacobs Trading,
LLC and Tanager Acquisitions, LLC.
3.1 Fourth Amended and Restated Certificate of Incorporation, incorporated herein by reference to Exhibit 3.1 to
Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-129656),
filed with the SEC on January 17, 2006.
3.2 Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q, filed with the SEC on August 4, 2016.
4.1 Form of Certificate of Common Stock of the Company, incorporated herein by reference to Exhibit 4.1 to
Amendment No. 5 to the Company's Registration Statement on Form S-1 (Registration No. 333-129656),
filed with the SEC on February 21, 2006.
4.2 Description of Securities
10.1# Executive Employment Agreement, dated January 27, 2005, by and between the Company and James M.
Rallo, incorporated herein by reference to Exhibit 10.6.1 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-129656), filed with the SEC on February 1, 2006.
10.1.2# Amendment to Executive Employment Agreement between the Company and James M. Rallo, dated
January 25, 2006, incorporated herein by reference to Exhibit 10.6.2 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-129656), filed with the SEC on February 1, 2006.
10.1.3# Severance Agreement and General Release, dated May 6, 2019, by and between James M. Rallo and the
Company, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed with the SEC on May 8, 2019.
10.2# Form of Indemnification Agreement for directors and officers, incorporated herein by reference to Exhibit
10.11 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (Registration No.
333-129656), filed with the SEC on February 1, 2006.
10.3# Executive Employment Agreement dated July 20, 2015 by and between the Company and Jorge Celaya,
incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the
SEC on July 23, 2015.
10.4# Executive Employment Agreement, dated June 13, 2016, by and between the Company and William P.
Angrick, III, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the SEC on June 17, 2016.
10.5# Executive Employment Agreement by and between the Company and Mark A. Shaffer, incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on July 13,
2016.
10.6# Executive Employment Agreement, dated November 5, 2019, by and between the Company and John Daunt.
10.7# Executive Employment Agreement, dated June 13, 2019, by and between the Company and Steven
Weiskircher, incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form
10-Q filed with the SEC on August 1, 2019.
10.8# Executive Employment Agreement, dated March 15, 2012, by and between the Company and Michael Lutz.
10.8.1# Second Amendment to Executive Employment Agreement, dated January 18, 2016, by and between the
Company and Michael Lutz.
10.9# Executive Employment Agreement, dated November 5, 2019, by and between the Company and Nicholas
Rozdilsky.
84
Exhibit No.
Description
10.10# Executive Employment Agreement, dated January 10, 2018, by and between the Company and Roger
Gravley, incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q
filed with the SEC on February 1, 2018.
10.10.1# Letter Agreement, dated March 2, 2018, by and between the Company and Roger Gravley, incorporated
herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the SEC on
May 3, 2018.
10.10.2# Retirement Agreement and General Release dated May 13, 2019 by and between the Company and Roger
Gravley, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,
field with the SEC on May 17, 2019.
10.11 Notice of Award, Statement and Release Document (Sales Contract Number 14-0091-0002), dated July 25,
2014, between the Company and DLA Disposition Services, incorporated herein by reference to Exhibit 10.1
to the Company's Current Report on Form 8-K, filed with the SEC on July 30, 2014.
10.12 Supplemental Agreement No. 1 to Surplus Usable Property Sales Contract (Sales Contract Number
14-0091-0002), dated December 6, 2016, incorporated by reference to Exhibit 10.1 to the Company’s Current
Report on Form 8-K, filed with the SEC on December 8, 2016.
10.13# Second Amended and Restated 2006 Omnibus Long-Term Incentive Plan, incorporated by reference to
Appendix A to the Company's Definitive Proxy Statement on Schedule 14A, filed with the SEC on January
23, 2017.
10.14# Machinio Corp. 2014 Stock Incentive Plan, incorporated herein by reference to Exhibit 10.1 to the
Company’s Registration Statement on Form S-8, filed with the SEC on July 10, 2018.
10.15# Form of Notice of Time-Based Stock Option Grant
10.16# Form of Notice of Time-Based Restricted Stock Units Grant
10.17# Form of Notice of Performance Based Stock Option Grant
10.18# Form of Notice of Performance-Based Restricted Stock Units Grant
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page).
31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101 The following materials from the Registrant's Annual Report on Form 10-K for the year ended September 30,
2019, formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of
September 30, 2019 and 2018, (ii) Consolidated Statements of Operations for each of the three years in the
period ended September 30, 2019, (iii) Consolidated Statements of Comprehensive Loss for each of the three
years in the period ended September 30, 2019, (iv) Consolidated Statements of Stockholders' Equity for each
of the three years in the period ended September 30, 2019, (v) Consolidated Statements of Cash Flows for
each of the three years in the period ended September 30, 2019, and (vi) Notes to Consolidated Financial
Statements.
_______________________________________________________________________________
#
Indicates management contract or compensatory plan.
85
Item 16. Form 10-K Summary.
None.
86
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized on December 10, 2019.
LIQUIDITY SERVICES, INC.
By:
/s/ WILLIAM P. ANGRICK, III
William P. Angrick, III
Chairman of the Board of Directors
and Chief Executive Officer
________________________________________________________________________________________________________________________
We, the undersigned directors and officers of Liquidity Services, Inc., hereby severally constitute William P. Angrick, III, Jorge
A. Celaya, Samuel M. Guzman, Jr and Mark A. Shaffer, and each of them singly, our true and lawful attorneys with full power
to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities indicated on December 10, 2019.
Signature
Title
/s/ WILLIAM P. ANGRICK, III
William P. Angrick, III
/s/ JORGE A. CELAYA
Jorge A. Celaya
/s/ SAMUEL M. GUZMAN, JR.
Samuel M. Guzman, Jr.
/s/ PHILLIP A. CLOUGH
Phillip A. Clough
/s/ GEORGE H. ELLIS
George H. Ellis
/s/ PATRICK W. GROSS
Patrick W. Gross
/s/ BEATRIZ V. INFANTE
Beatriz V. Infante
/s/ EDWARD J. KOLODZIESKI
Edward J. Kolodzieski
/s/ JAIME MATEUS-TIQUE
Jaime Mateus-Tique
Chairman of the Board of Directors and Chief Executive
Officer (Principal Executive Officer)
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
Vice President and Chief Accounting Officer (Principal
Accounting Officer)
Director
Director
Director
Director
Director
Director
87
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CORPORATE INFORMATION
Meet the executive team driving the world’s leading marketplace
William P. Angrick, III
Chief Executive Officer and
Chairman of the Board of Directors
Jorge A. Celaya
Executive Vice President
and Chief Financial Officer
John Daunt
Executive Vice President and
Chief Commerical Officer
Steven J. Weiskircher
Chief Technology Officer
Nicholas Rozdilsky
Chief Martketing Officer
Mark Shaffer
Vice President, General Counsel
and Corporate Secretary
Mike Lutz
Vice President,
Human Resources
Board of
Directors
William P. Angrick, III
Chairman of the Board
Phillip A. Clough
Director
Katharin S. Dyer
Director
George H. Ellis
Director
Patrick W. Gross
Lead Director
Beatriz V. Infante
Director
Edward J. Kolodzieski
Director
Jaime Mateus-Tique
Director
Additional
Information
INVESTOR RELATIONS
Julie Davis
Senior Director of
Investor Relations
Phone: 202.558.6234
julie.davis@liquidityservices.com
STOCK TRANSFER AGENT
Computershare Trust
Company, N.A.
PO Box 505008
Louisville, KY 40233-9814
Phone: 781.575.4238
www.computershare.com
CORPORATE SECRETARY
Mark Shaffer
VP, General Counsel and
Corporate Secretary
INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
Ernst & Young LLP
1775 Tysons Boulevard
McLean, VA, 22102
Phone: 703.747.1000
About Liquidity Services
Liquidity Services (NASDAQ:LQDT) operates a network of leading e-commerce
marketplaces that enable buyers and sellers to transact in an efficient,
automated environment offering over 500 product categories. The company
employs innovative e-commerce marketplace solutions to manage, value and
sell inventory and equipment for business and government sellers. Our superior
service, unmatched scale and ability to deliver results enable us to forge
trusted, long-term relationships with over 13,000 sellers worldwide. With over
$8 billion in completed transactions, and more than 3.6 million buyers in almost
200 countries and territories, we are the proven leader in delivering smart
commerce solutions.
Visit us at LiquidityServices.com
From the U.S.: 1-800-310-4604
Internationally: +1-202-467-6868
Info@LiquidityServices.com