2023
Annual Report
Fellow Shareholders,
As a leading global commerce company powering the
circular economy, Liquidity Services continued to create
value for sellers, buyers and the planet against a
backdrop of economic uncertainty and disruption this
past year. Our unique role as a diversified, billion dollar
plus, two-sided marketplace platform with growing
network effects proved very resilient even as the
Federal Reserve executed its tightening campaign to
control persistent high inflation.
We achieved a record $1.2 billion in Gross Merchandise
Volume (GMV) in FY23, eclipsing the $1 billion GMV
milestone for the second consecutive year and did so
with an increasingly diversified business. We continue
to be an engine of opportunity for buyers to save money
by providing convenient access to our global supply of
used and returned goods which has allowed us to grow
our registered buyer base to approximately 5.1 million at
fiscal year end, up 5% YoY. Our outstanding buyer
participation and flexible service offerings continue to
attract more government, industrial and retail industry
sellers and drive better seller recovery, which, in turn,
powers our growth. Our market leading liquidity helped
clients sell every asset in their supply chain in our “one
stop solution” for everything surplus in 2023, including:
automobiles, trucks, construction equipment, airplanes,
helicopters, energy equipment, medical devices,
biopharma lab equipment, retail merchandise, IT assets,
manufacturing equipment, machine tools, and even a
crystal chandelier originally installed in the ballroom of
the Louisiana Superdome in New Orleans, LA.
FY23 Business Highlights
The resilience and strength of Liquidity Services was on
full display during FY23 as we delivered outstanding
results. Our team, characterized by a culture of integrity,
customer focus and relentless improvement, has been
pivotal in achieving successful outcomes for our
customers and shareholders, including:
• We grew our GovDeals segment GMV to $726
million. While up only 1% for the full year due to a
vehicle supply shortage in the first part of the year,
GMV in our GovDeals segment increased 14% YoY in
Q4, reflecting the normalization of the vehicle
industry’s supply chain. In August 2023, GovDeals
eclipsed $4 billion in cumulative GMV, an
accomplishment which underscores our unwavering
commitment to sustainable value creation for our
customers. Additionally, we successfully rolled out
the next generation GovDeals marketplace that
enhances the buyer experience with improved
search, navigation, bidding and a mobile responsive
design, which, in turn, will improve recovery rates
realized by our sellers. We executed this initiative
with minimal disruption to our sellers and buyers on
the platform.
• We grew our Retail Supply Chain Group (RSCG)
segment GMV to $286 million, up 21% YoY providing
retail clients with highly reliable marketplace
services to manage and monetize the industry’s
growing volume of returned consumer goods. We
expanded our AllSurplusDeals consumer auction
marketplace with curbside pick up to Pittstown, PA,
Cincinnati, Ohio and Indianapolis, IN to support
growth with existing and new RSCG clients and
further strengthen our multi-channel buyer base to
boost recovery. Our RSCG segment was honored
with the 2023 Innovation Solutions Partner Award by
the Reverse Logistics Association, which recognized
our Automated Sell-in-Place program, a software
solution that has increased recovery on average by
20% while eliminating touches and reducing our
retailer client’s carbon footprint. This industry award
is granted to the company that demonstrates
measurable improvements in efficiency and return
on investment for customers, seamlessly integrates
reverse logistics solutions with customers’
technology infrastructure, and exemplifies innovative
use of technology.
• We grew our Capital Assets Group (CAG) segment
GMV to $191 million, up 1% YoY as increases in our
global biopharma, energy and heavy equipment
categories did not fully offset the prior year’s large
international spot purchase transactions. Our CAG
segment’s role as a trusted global market maker for
high-value equipment amidst a constant cyclical
economic environment drove new business pipeline
growth worldwide in 2023. Our CAG Heavy
Equipment fleet category grew GMV more than 25%
organically during the year and continues to make
progress growing signed contracts, new sellers,
transacted opportunities, and net new revenue.
Recent wins include several national accounts with
strong upside potential positioning our heavy
equipment category to become a major driver for our
CAG segment for years to come.
• Our Machinio classifieds marketplace segment grew
revenue by 14% over the prior year, increasing to
$13.8 million, with continued increases in customer
and recurring revenue growth. Machinio’s digital
advertising and storefront solutions deliver
equipment dealers substantial return on investment,
cost savings, and convenience, aligning well with the
current economic landscape. Machinio has invested
in additional capacity to expand its offerings in Asia
which we expect will be a key growth opportunity in
the near future.
• We also generated strong free cash flow of $41.6
million in FY23, ending the year with approximately
$118 million in cash and zero financial debt. We
continue to allocate capital in a prudent manner and
expended approximately $21.2 million in share
repurchases (1.6 million shares repurchased at an
average price of $13.19). We continue to have an
undrawn $25 million line of credit with Wells Fargo.
• Reflecting our core value of “Doing Well and Doing
Good”, we made a positive impact in the communities
we serve by supporting a number of impactful
charitable organizations, including Big Brothers Big
Sisters mentoring programs for at risk children and
the Arizona Children’s Association and Chicanos Por
La Causa which provide housing and financial
support for low-income families and seniors in the
Phoenix area.
Our Strategy
Our mission to build the world’s leading marketplace for
surplus assets to benefit buyers, sellers and the planet
continues to deliver “win-win” outcomes for all
constituents. As the most trusted, reliable platform in
our industry, we enable our corporate and government
clients to achieve their financial, operational and
sustainability goals by helping them to monetize and
extend the life of assets; prevent unnecessary waste
and carbon emissions; and reduce the number of
products headed to landfills. Notably, we align our
success with customers who sell on our marketplace as
87% of our GMV is transacted on a consignment basis
whereby clients reap the benefit of our continuous
efforts to increase the recovery realized for assets sold
on our platform.1
Our use of a technology based, asset light marketplace
model generates a high return on invested capital for
shareholders2 and we have nominal working capital
requirements enabling us to continuously invest in
enhancing our services and growing our customer base.
We generate strong free cash flow and allocate capital
prudently using a combination of organic investment
projects, acquisitions and share repurchases to create
long term shareholder value.
Our strategic priority remains investing in profitable
market share expansion in our current segments and
scalable technologies that drive both customer value
and operating efficiencies as we grow. Our expertise in
diverse sectors, strong buyer base and global reach are
continuing to provide advantages for our clients as they
navigate the current volatile macro environment. With
our strong business pipeline, trusted marketplace
solutions and financial strength, we are well positioned
to gain additional market share across our segments
and create long term value for our shareholders.
In closing, we are proud of the achievements and
progress made in fiscal year 2023. Our commitment to
innovation, sustainability, and excellence has positioned
Liquidity Services as a leader in the circular economy,
and we are immensely grateful for the support of our
dedicated team members, customers, and shareholders
who have played a pivotal role in our success. As we look
forward to the opportunities and challenges of the
coming year, we remain hungry for growth, ready for
challenges, and committed to building a better future for
all our stakeholders.
Thank you for your continued trust and support.
Sincerely,
William P. Angrick, III
Chairman, CEO & Co-Founder
1 Consignment data for three months ended September 30, 2023. Similarly, for non-consignment clients we drive maximum recovery through regular business
reviews with customers to reduce supply chain costs and unlock improved operational and buyer performance.
2 We generated a pre-tax return on invested capital of 26% during FY23 which is calculated as (Non-GAAP Adjusted Net Income + Provision for Income Taxes +
Income Tax Impact of the Non-GAAP Adjustments)/Equity Book value.
GovDeals Case Study: Switching from Live Auctions Resulted in
Increased Profits for the State of Colorado
Facing the challenge of efficiently selling large volumes of surplus items, including more
than 300 vehicles annually, the State of Colorado sought out GovDeals to modernize and
simplify its surplus management process while enhancing profits. Having previously
struggled with time-consuming listing processes and meager profits with a general
e-commerce website, the State sought out a solution specifically tailored to its needs.
GovDeals provided the State with a customized sales and marketing plan, access to a
niche market, and a templatized auction listing system. The flexibility offered by GovDeals
allowed the State to streamline its sales processes, resulting in a 33% increase in vehicle
sales profits in the first year, successfully selling over 900 vehicles and generating more
than $6 million in sales since the partnership began.
Retail Supply Chain Group Case Study: Oliver Space Frees Up Space,
Liquidates $12 Million in Two Months
When furniture provider Oliver Space began experiencing warehouse capacity issues
due to its “circular furnishing experience” model, the company turned to Liquidity
Services for a solution. We implemented a multi-channel liquidation strategy which
included conducting a 30-day market analysis on Liquidation.com to determine optimal
prices, utilizing Automated Sell-in-Place technology to streamline the auction process,
and leveraging a private direct sales network and our AllSurplus Deals marketplace to
liquidate higher-value items and boost total recovery. In total, 120 truckloads of product
were efficiently disposed of in 60-90 days, with a total retail value exceeding $12 million.
The approach not only freed up warehouse space and reduced opportunity costs for the
client, but also achieved an attractive recovery rate.
Capital Assets Group Case Study: Accelerated Expansion Schedule
Requires Immediate Removal of Construction Surplus
Venture Global LNG, a leader in the liquefied natural gas (LNG) industry, faced
challenges with its Louisiana plant’s expansion, necessitating rapid clearance of
its lay-down yard and efficient surplus management. The company partnered with
Liquidity Services to expedite asset disposition and maximize capital recovery.
Liquidity Services’ comprehensive strategy included pre-sale field services, dedicated
resource allocation, a specialized management team, regular communication, and
detailed asset valuation for internal transfers. The project’s success was marked by
over $5.7 million in gross merchandise value, 3,954 bids from 202 bidders, and a 99%
lot sale rate, significantly boosting Venture Global’s growth in the LNG sector.
Machinio Case Study: How Can-Am Machinery Overhauled Their
Outdated Operations to Maximize Revenue with Machinio System
Can-Am Machinery Inc., one of the largest paper/pulp machinery dealers in the world,
sought to modernize its operations to enhance efficiency and revenue. Challenges
included time-consuming manual SEO management, data inaccuracies, and
disconnected workflows. Machinio System consolidated Can-Am’s internal business
processes by implementing a comprehensive and automated SEO strategy, integrating
its website and CRM, centralizing workflows, and converting the organization to modern,
cloud-based software. As a result, Can-Am Machinery Inc. experienced a significant
increase in organic website traffic and leads, streamlined operations, and eliminated
the need for unnecessary manual data entry. The adoption of Machinio System led to
increased inbound leads and decreased time-to-sell, empowering business growth.
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
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2023
OR
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 460, Bethesda, MD.
(Address of principal executive offices)
52-2209244
(I.R.S. Employer
Identification No.)
20814
(Zip Code)
(202) 467-6868
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value
Trading Symbol(s)
LQDT
Name of each exchange on which registered
Nasdaq
Securities registered pursuant to Section 12(g) of the Act: None
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 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
☐
Accelerated filer
☒
Non-accelerated filer
☐
Smaller reporting company
Emerging growth company
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive
officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Aggregate market value of the Common Stock held by non-affiliates computed by reference to the Nasdaq closing price on March 31, 2023, the last business day of the most recently completed
second fiscal quarter, was $297.2 million.
The number of shares of Common Stock outstanding as of December 4, 2023 was 30,756,129.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to its 2024 Annual Meeting of Stockholders, to be filed subsequently, are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14)
of this Form 10-K.
INDEX
TABLE OF CONTENTS
Description
PART I
Business
Risk Factors
Unresolved Staff Comments
Cybersecurity
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
[Reserved]
Management's Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
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 III
PART IV
Item
1
1A.
1B.
1C.
2
3
4
5
6
7
7A.
8
9
9A.
9B.
9C.
10
11
12
13
14
15
16
Signatures
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
3
33
33
33
33
33
34
35
36
37
51
52
52
52
55
55
56
56
56
56
56
57
98
99
Unless the context requires otherwise, references in this report to "we," "us," "our", the "Company" and "Liquidity Services" refer to Liquidity Services,
Inc. and its subsidiaries.
2
Item 1. Business.
Overview
PART I
Liquidity Services, Inc. (Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace platforms that
power the circular economy. We create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic
value of surplus. We connect millions of buyers and thousands of sellers through our leading e-commerce auction marketplaces, search engines, asset
management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items
owned by business and government sellers.
Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite
and enable a self-reinforcing cycle of value creation where buyers and sellers attract one another in greater numbers. The result of this cycle is a continuous
flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers,
buyers, and shareholders. During the past three fiscal years, we have conducted over 2.6 million online transactions generating $3.2 billion in gross
merchandise volume or GMV. GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other
channels during a given period of time.
During the year ended September 30, 2023, the number of registered buyers grew from 4.9 million to 5.1 million, or 5%. We generated GMV of $1.2
billion and revenue of $314.5 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we
purchased from sellers, and value-added service charges during the year ended September 30, 2023. Our GMV has grown at a compound annual growth
rate of 13.9% since 2018.
Liquidity Services was incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets is a
leading online marketplace focused on conducting real property auctions for government entities, including tax foreclosure sales and sheriff's sales. See
Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Operating Segments
The Company has four reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group
(RSCG), and Machinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
•
•
•
GovDeals. The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies
located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals
and Bid4Assets marketplaces (see Note 3 - Bid4Assets Acquisition).
RSCG. The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess,
returned, and overstocked consumer goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-
commerce solutions. This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination
of velocity, volume, and value.
CAG. The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus
assets. The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics.
CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. CAG benefits from a global
base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use
across the world. This segment primarily uses the AllSurplus and GovDeals marketplaces.
3
•
Machinio. The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction,
machine tool, transportation, printing and agriculture sectors. Machinio also offers the Machinio System service that provides equipment sellers
with a suite of online marketing tools that includes website hosting, email marketing, and inventory management, to support and enable
equipment sellers’ online business.
Industry Overview
While a well-established forward supply chain exists for the procurement of assets, many manufacturers, retailers, corporations and government agencies
have recognized the growing need for strategic reverse supply chain solutions. For example, according to Allied Market Research (Reverse Logistics
Market by Return Type: Global Opportunity and Industry Forecast 2021-2028 (July 2021)), the global reverse logistics market is expected to reach $958
billion by 2028, growing at a compound annual growth rate of 5.6% from 2021 to 2028.
The retail industry, as per an Appriss Retail and National Retail Federation Q4 2022 returns survey (2022 Consumer Returns in the Retail Industry),
estimates that approximately $816 billion of merchandise is returned on an annual basis, representing almost 18% of total sales. Liquidity Services
estimates that at least $100 billion of these returns are moved through secondary markets, with the remaining volume returning to retailer shelves or being
sold through discount retailers.
Estimates based on Bureau of Economic Analysis, U.S. Census, and World Bank reports, indicate that the global used equipment market is valued at
approximately $350 billion.
Assets handled by reverse supply chain solutions generally consist of retail consumer returns, overstock products and idle goods or capital assets from both
corporate and government sectors. The supply of surplus and idle assets in the reverse supply chain results from a number of factors, including:
•
•
•
•
•
•
•
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.
Supply chain inefficiencies. Forecasting inaccuracies, manufacturer overruns, canceled orders, evolving market preferences, realignments in
response to macroeconomic events, 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.
Growth of e-commerce. According to Digital Commerce 360 (US Ecommerce Grows 10.8% in Q3 2022), over 20% of all retail purchases come
from online orders. Furthermore, online purchases have a higher return rate at almost 21%, greater than that of 17% for total retail sales overall
(CNBC: A more than $761 billion dilemma: Retailers’ returns jump as online sales grow (January 2022)). As e-commerce growth accelerates,
the flow of assets in the retail reverse supply chain is likely to grow.
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 verifiable recycling and remarketing of
surplus assets that would otherwise be disposed of as waste.
Changing budgetary trends in corporate and governmental entities. As corporate and governmental entities are increasingly pressured to enhance
efficiencies while also using fewer resources, they are looking to the liquidation of surplus capital assets as a source of funds.
4
The management and remarketing of surplus assets traditionally has been an inefficient process. While many organizations spend considerable resources
developing systems and channels supporting the flow of finished goods to their core customers as well as developing procurement processes for acquiring
equipment and assets to support their operations, we believe that many have not historically invested resources in the reverse supply chain in the same way
as the forward supply chain. Factors contributing to these inefficiencies in the reverse supply chain include the lack of:
•
•
•
•
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 the 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 asset disposition include ad-hoc sales, negotiated direct sales, utilization of individual brokers or sales agents and live on-
site auctions. We believe these solutions are generally highly fragmented, geographically dispersed and poorly integrated with supply chain operations. The
manual, negotiated and geographically dispersed nature of traditional surplus resale methods results in a lack of pricing transparency for offered goods,
multiple brokers/parties ultimately involved in the final disposition and a lower number of potential buyers and bids, which we believe typically leads to
lower recovery for sellers.
Professional buyers seek surplus 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.
We believe buyers of surplus assets will increasingly use online marketplace platforms to identify and source goods available for immediate purchase.
Our Solutions
Our solutions include 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 5
million 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 with convenient access to a substantial and continuous flow of surplus assets. Buyers can
find products in over 600 categories in lot sizes ranging from full truckloads 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 with a convenient method for sourcing surplus consumer goods and electronics, commercial capital assets, industrial
equipment, energy equipment, biopharma assets, and real estate. We continually look for new categories in which we can expand our presence. For any
given asset, our buyers have access to a detailed product description, product manifest, digital images, relevant transaction history regarding the seller, and,
where appropriate, the shipping weights, product dimensions and estimated shipping costs to the buyer's location. This enables our solutions to become an
important source for surplus assets for many of our professional buyers and end-users.
5
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, 2023, we had 5.1 million registered buyers in our marketplaces. We had access to millions of additional end-users
through a range of external 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 buyers. During the year ended September 30, 2023, we had
approximately 3.3 million auction participants in our online auctions. During fiscal 2023, we grew our registered buyer base by 4.8% or 234,000. 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.
Competitive Factors
We have created liquid marketplaces for virtually any type, quantity, or condition of surplus assets. The strengths of our business model include:
Aggregation of supply and demand for surplus 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 assets. Our solution eliminates the need for sellers and buyers to rely on the highly fragmented and geographically dispersed group of
traditional liquidators and auctioneers. Instead, sellers and buyers access our global e-commerce marketplaces for their entire surplus asset needs.
Integrated and comprehensive solution
Our marketplaces provide sellers and buyers with a comprehensive solution for the online sale and purchase of surplus assets. We offer marketplaces with
full-service and self-directed solutions. Our self-directed solutions provide transaction settlement and marketing support while allowing sellers to undertake
the work of photographing, cataloging, and building their auctions.
Our value-added services 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 warehouses and we deliver the sale proceeds, less our portion of such proceeds and/or our commissions or fees, after the sale is
completed.
We have also expanded our capabilities to process individual items, pallets, less-than-truckload (LTL) and full-truckload (FTL) auctions. This provides our
retail sellers with flexible solutions that can scale to solve their unique liquidity challenges while leveraging our various retail channels to maximize their
recovery value.
Our buyer services include intelligent alerts, search tools, dynamic pricing, shipping and delivery where available, secure payment, 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.
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Faster transaction cycle times for our sellers and buyers
We believe our marketplace solutions allow our sellers to complete the entire sales process more rapidly than through other liquidation methods by
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
complete 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.
Solutions that promote sustainability for improved corporate/government stewardship
Our e-commerce marketplace solutions power the circular economy and provide benefits to businesses, communities, and the environment. We achieve this
through our safe and effective resale and redeployment of surplus assets; our reduction of waste; and by creating markets for items that might otherwise
have been landfilled. Some of the world's largest forward-thinking corporations and government agencies have enhanced their stewardship of communities
and the environment by utilizing our services and selling their surplus assets through our marketplaces.
Technology, data & analytics enhance our services and solutions for buyers and sellers
We continue to make strategic investments in our technology capabilities. Aligning the capabilities of our auction platforms with the Company’s unique,
vertical-specific knowledge has enabled us to develop the AllSurplus marketplace. This platform provides an aggregated view of all assets available
globally in our government and commercial sectors, and retail assets for select local markets. By coupling an intuitive, mobile-optimized design with site
search and recommendations driven by machine learning, the platform is optimized to assist buyers in quickly finding the assets that meet their needs. Our
sellers benefit from the unique nature of our unified platform by having their assets available, simultaneously, on multiple marketplaces while guaranteeing
the integrity of the cross-site auction bidding. Placing the assets on multiple sites enables the marketing organization to directly target unique buyer
segments that resonate with an asset’s unique audience niche.
Our data infrastructure and analytics continue to provide near real-time operational insights. By coupling our click-stream data and bid activity with our
campaign activity, the marketing organization leverages a feedback loop that increases campaign effectiveness and optimizes spend.
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Our Strategy
The focus of our growth strategy is to 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:
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 do through
technology and innovation that improves the buyer experience across our network of marketplaces. An improved buyer experience drives growth in our
buyer base which will, in turn, improve recovery rates for our sellers.
Increased 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 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 real estate, construction, and heavy equipment. We intend to
grow our volume within the retail supply chain by leveraging the self-directed service model, continuing to grow our network of warehouses, and
expanding our AllSurplus Deals marketplace, offering consumers deals for curbside pick-up. We will continue to provide flexible pricing models that allow
our sellers to use either a consignment or a purchase-based model.
Service Expansion
We intend to grow our services with recurring revenue characteristics that leverage our technology platform, 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 and expanding and improving our asset management and redeployment tools for commercial
and municipal government sellers on our new aggregated marketplace. Lastly, we are leveraging our Machinio segment to expand our capabilities with
respect to technology-enabled advertising. This is a natural adjunct to the self-service and full-service solutions available in our marketplaces.
Expense Leverage
We intend to improve operating expense leverage by controlling costs coupled with technology innovation that increases productivity. We have simplified
and streamlined our operations and consolidated business processes and systems, which has improved scalability.
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We have a unified marketing organization to improve our seller and buyer marketing productivity by increasing the number of sellers using our platform
and by driving increased volumes of highly targeted buyers to our marketplaces.
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Our Marketplaces
Our network of marketplace brands serves buyers and sellers in numerous industries across hundreds of product categories.
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Our e-commerce marketplaces are efficient and convenient methods for the sale of surplus consumer goods and capital assets in over 600 product
categories including consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, real
estate, energy equipment, industrial capital assets, heavy equipment, fleet, and transportation equipment and specialty equipment. 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 GovDeals 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 assets. GovDeals also offers a suite of
self-directed solutions that include transaction settlement and buyer marketing.
Our AllSurplus marketplace, launched in fiscal year 2020, 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 marketplaces in a single destination.
The AllSurplus platform will continually evolve as we enhance our marketplace technology and add new seller and buyer services.
Our Liquidation.com marketplace enables corporations located in the United States and Canada to sell surplus 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 Machinio marketplace provides a global search, advertising, and inventory management platform that connects dealers and sellers of used
machinery and equipment in the construction, machine tool, transportation, printing, and agriculture sectors with interested buyers.
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. During fiscal
year 2022, AllSurplus Deals was launched as an expansion and adaptation of the core AllSurplus platform enabling a hyper-localized direct to consumer
experience. AllSurplus Deals provides a convenient, local pick-up solution connecting our retail supply directly to consumers in our target markets.
In addition to our e-commerce marketplaces, we have dedicated sales teams supporting the needs of our established global buyer base that seek items in
larger quantities than are offered through our standard auction platforms. These range from a single truckload to ongoing flows of goods for export
anywhere in the world, where we market, handle, and support the full transaction on behalf of our buyers. We expect to continue to meet the needs of our
sellers and to access a growing range of products for all buyers by enhancing our multi-channel strategy to ensure we create value for assets at the end of
their initial product life cycle.
Our Value-Added Services for Buyers and Sellers
In addition to our self-directed tools for our sellers, we have integrated value-added services to simplify the reverse supply chain processes for both our
sellers and buyers. We believe these services generate 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: (a) merchandising and channel optimization; (b) logistics; and (c) settlement and
seller support, including compliance services.
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Merchandising and Channel Optimization. Our efforts encompass the services necessary to prepare retail 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.
o Marketing and promotion we use a variety of both online and traditional marketing methods to promote our sellers' merchandise and
generate interest in each asset.
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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 and categorization.
Recommendations - we utilize AI and big data algorithms to match buyers to the right products, enhancing our seller's overall
recovery.
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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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Network of warehouses - we provide sellers with the flexibility of either having us manage the sales process at their location or
delivering merchandise to one of our warehouses.
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.
Inspection and grading - 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 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 warehouses or at a seller's facility.
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Settlement and seller support. Settlement and seller support services are designed for successful and reliable completion of transactions and
include:
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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.
Transaction tracking - 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.
Reporting - we provide a range of comprehensive reporting services to sellers throughout the sales process. 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.
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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 with 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 many transactions, whether it is a
small item or container loads for export, including buyer pick-up at our premises, supporting buyer-arranged transportation through our preferred
shippers network, or providing customer pick-up appointments at our AllSurplus Deals warehouse locations.
Secure settlement and buyer support - besides qualifying sellers, providing several electronic payment options and serving as a trusted market
intermediary, we verify transaction completion, and ensure the buyers funds are secure throughout the transaction process, all of which enhances
buyer confidence.
Buyer Support - we provide full reliable buyer support and dispute resolution through phone, email, and chat throughout the transaction process.
Sales and Marketing
We use sales and marketing activities 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 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 ongoing 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 brings our
global scale and specialist knowledge to an ecosystem of auction partners, leveraging our expertise to create additional opportunities for us to participate in
purchase and consignment transaction model projects across the globe. In addition, we have a lead generation team which tracks relevant media around the
world. The lead generation team uses several sources to research information relevant to our marketplaces, which sources include news aggregators, trade
journals, industry-specific websites and business reports on a global basis.
We organize our sellers into two distinct groups: 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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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 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 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 demand generation program, creates documentation and research to support our sales
team in presenting our Company to potential sellers, including sales brochures and white papers, and participates in selected trade shows.
All marketing activities are evaluated based on the level of auction participation in our marketplaces, the cost to acquire new participants, and the cost
effectiveness of each action.
Technology and IT Infrastructure
As digital transformation accelerates globally, sellers are searching for partner solutions that enable them to move faster and generate maximum recovery
with minimal investment. Buyers search for marketplaces that enable them to locate the assets they need and transact in an efficient and secure manner,
regardless of device. Our online marketplaces serve as the trusted platform for facilitating the seamless exchange of goods and payment between buyers
and sellers of surplus assets. Our technology systems and committed teams enable us to automate and streamline many of the manual processes associated
with finding, evaluating, bidding on, paying for, and shipping surplus assets, retail returns and overstocks, and government owned real-estate. The
technology and content behind our marketplaces and integrated value-added services consists of a combination of proprietary technologies augmented with
capabilities provided by specialized service providers. This combination enables our ability to rapidly enhance the core marketplace experience, in response
to the specific needs of our buyers and sellers. Our infrastructure provides:
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Efficient channels to sell online through a variety of pricing mechanisms (standard auction, sealed bid, make an offer, fixed price, and a
combination of fixed price and auction);
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 scale and integrate
seamlessly with partners of all sizes, from single asset sellers to Fortune 500 enterprises.
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We have designed our websites and supporting infrastructure to leverage the full power of the leading cloud providers. Our services leverage the scale and
power of Amazon Web Services and Microsoft’s Azure Public Cloud platforms enabling us to efficiently respond to increased traffic. Our applications are
designed with resiliency and fault tolerance in mind. Since January 1, 2003, we have experienced no financially material service interruptions on our e-
commerce marketplaces.
In October 2023, we successfully migrated the GovDeals.com marketplace to our latest state-of-the-art modernized platform, giving our buyers the best
buying experience. This new user experience leverages the knowledge we gained developing AllSurplus.com with the 20+ years of operating
GovDeals.com. The net result is a consolidated, scalable platform that couples an enhanced and accessible user experience with state-of-the-art site search,
navigation, and product recommendations. This engine is powered by a combination of artificial intelligence (AI) and machine learning (ML) algorithms
which enable our buyers to locate the assets they desire in a more efficient manner.
We devote substantial resources to the continuous improvement of our technology and IT infrastructure which allows us to continually deliver value to our
buyers, sellers, and employees. In fiscal year 2023, we continued to expand the capabilities of our flagship e-commerce platform, AllSurplus, enabling
multiple user experience and back-office improvements including:
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The expansion of AllSurplus Deals, a curb-side pick-up model optimized for selling surplus retail assets directly to consumers.
Rapid Bid - a new capability that enables customers to bid on a collection of assets directly from a single page.
Unified Global Header and Footer - this experience introduces our buyer base to the full family of brands while enabling efficient navigation
between marketplaces.
Our core back-office infrastructure is flexible by design. We are a remote-first work organization. The cloud-based, flexible infrastructure has enabled our
operations to continue, uninterrupted, in a variety of working models, including fully remote, on-site, and hybrid. This flexibility affords us the ability to
recruit and retain outstanding talent and to service our customers’ needs regardless of location.
Our customers are increasingly looking to our solutions to facilitate robust recovery for their assets, regardless of industry or location. We continue to
develop intelligent solutions for our customers that facilitate rapid and secure transactions between buyer and seller, whether they are in the same town or
across the globe. Our goal is to lead the industry in several distinct areas over the long term, which we expect will translate to sustained growth. We are
investing significant resources in:
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Our marketplace user experiences.
Our seller tools - optimizing the interface for key industry verticals.
Leveraging generative AI and other automation technologies to create efficiencies across the enterprise.
Our future growth depends on our continued ability to execute these priorities.
Cybersecurity and Data Privacy
The protection of our clients’ data, our brand, and our systems is of utmost importance. We are subject to governmental regulation and other legal
obligations, particularly related to privacy, data protection and information security. We employ robust cybersecurity and data privacy programs that span
all employee groups and systems to ensure that a culture of cybersecurity and data privacy awareness permeates the organization. By coupling proactive
training, vulnerability management, and system design with active threat defense mechanisms, we have developed a robust cybersecurity program. Our
marketplace services are protected by multiple layers of security, employing a "defense in depth" approach to asset protection that is backed by AI powered
threat detection and response systems and actively monitored by a dedicated team of security professionals.
We approach cybersecurity protection and data privacy as a team sport in which all employees are active members. This is reflected in both our tactical and
governance activities. Each employee undergoes annual cybersecurity training with supplemental education disseminated throughout the year. This
continual education helps promote a culture that understands the critical role cybersecurity and data privacy play in protecting our clients’ assets.
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Our internal security team in conjunction with the Chief Technology Officer (CTO) reviews current risks with a cross-functional leadership committee
quarterly. Our Board of Directors is responsible for oversight of the Company's cyber risk management program, including risk identification, mitigation
strategy and efforts, and resources. The Audit Committee of the Board of Directors is responsible for reviewing the Company's financial reporting of
cybersecurity risks and incidents in accordance with SEC rules. We will continue to invest in our security infrastructure to ensure it meets or exceeds
industry standards for cybersecurity and employ dedicated resources to protect our systems.
Operations
Supporting large organizations that have a recurring need to sell surplus 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 as follows:
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 of our Retail services. We
offer, as part of our value-added services, integrated shipping services using our own fleet or multiple vetted and pre-qualified carrier partners. In addition,
our shipping coordinators monitor the performance and service level of our network of carriers to help ensure speed and quality of service.
Warehouse network and field service operations
Our warehouse network and field service operations group perform selected pre-sale and post-sale value-added services across our network of warehouses
and at seller locations globally. These activities include unloading, manifesting and reporting discrepancies for all received assets and sales preparation of
offered assets, including merchandising and organizing offered assets, writing product descriptions, capturing digital images and/or video and providing
additional optional value-added services such as returns management (RM) services, return to vendor (RTV) services and product delabelling, data
cleaning/wiping, testing, refurbishment and repackaging. Our warehouse network and field service operations group personnel also arrange the outbound
shipping or pick-up of purchased assets for our buyers.
Competition
The online services market for auctioning or liquidating surplus 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 assets; and
traditional liquidators and fixed-site auctioneers.
In our marketplaces for surplus assets, we compete with a variety of online, mobile, and offline channels. These include, but are not limited to, e-commerce
providers, B2B online marketplace platforms, auction websites, retailers, distributors, liquidators, import and export companies, auctioneers, and
government agencies that have created websites to sell surplus. As our product offerings continue to broaden into new categories of surplus items, we
expect to face additional competition from other online, mobile, and offline channels.
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Our markets may become even more competitive as traditional and online liquidators and auctioneers continue to develop online and offline services for
disposition, redeployment, and remarketing of surplus assets. In addition, manufacturers, retailers and government agencies may create their own websites
to sell their own surplus 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, artificial
intelligence, 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.
We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While purchase-model transactions
account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated
Costs of goods sold. $5.8 million and $8.1 million of inventory purchased under such contracts with Amazon.com, Inc. is included in our Inventory
balances on our Consolidated Balance Sheets as of September 30, 2023, and 2022, respectively. Our vendor contracts with respect to sourcing or
consigning merchandise for our RSCG segment generally reflect the concentration dynamics inherent to the retail industry.
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 and data privacy laws that impose additional compliance burdens on e-commerce companies. In particular, we continue to
address changes in state, federal and international privacy laws and regulations, including the General Data Protection Regulations (GDPR) in the European
Union. Many jurisdictions also regulate "auctions" and "auctioneers" and may regulate online auction services. These consumer protection laws and
regulations could cause substantial compliance costs and could interfere with the conduct of our business.
Intellectual Property
We regard our intellectual property, particularly domain names, copyrights and buyer database trade secrets, as critical to our success. We rely on
contractual restrictions and copyright and trade secret laws to protect our proprietary rights, know-how, information, and technology. We currently are the
registered owners of several Internet domain names, including www.liquidation.com, www.govdeals.com, www.allsurplus.com, www.secondipity.com,
www.go-dove.com (GoIndustry DoveBid is moving to the AllSurplus.com marketplace beginning in fiscal year 2024), www.machinio.com,
www.machineryhost.com, and www.bid4assets.com. We pursue the registration of our domain names in the U.S. and internationally. We have no patents or
registered copyrights. Effective patent, copyright, trademark, service mark, trade secret, and domain name protection are expensive to maintain and may
require litigation to enforce.
Human Capital Management
In order to achieve our goal to build the world’s leading marketplace for surplus assets to benefit buyers, sellers, and the planet, it is crucial that we attract,
develop, and retain employees who deliver outstanding performance. To do so, we strive to make Liquidity Services a rewarding place to work and an
environment where we promote diversity, equity, and inclusion. As of September 30, 2023, we had 716 employees worldwide, of which 91% were located
in North America, 6% in the EMEA region, and 3% in the Asia-Pacific region. We also utilize temporary workers to augment staffing during peak business
cycles and to fill certain open positions on a temporary basis.
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Diversity, Equity, and Inclusion
We believe our employees are key to achieving our business goals and growth strategy. Our human capital objective is to attract, retain, develop, and
motivate talented employees. We use online search tools, specialized recruiting firms, employee referral programs, job postings in various media platforms,
and university recruiting to identify and attract talented candidates. By doing so, we aim to leverage the variety of skills and perspectives inherent in a
diverse workforce, improve our problem-solving abilities, and bring innovative solutions to a wider range of clients and customers.
Health and Well-Being
We value the health and well-being of our employees and provide generous benefit options to our employees and their families. Our plans are designed to
enhance employee wellness by focusing on health, financial security, life, and learning. Our health benefits include multiple medical plans, dental and
vision coverage, and paid parental leave. In the U.S., we pay a significant portion of the benefit premiums related to our health benefits. Employees are
offered certain benefits at no charge to them or their families, e.g., Life and AD&D insurance, short- and long-term disability insurance, and Health Savings
Account contributions. The financial security benefits program includes a 401(k) plan with discretionary employer match and access to health savings
accounts and health and dependent care flexible spending accounts. We provide a range of insurance products and employee assistance programs.
Internationally, we also offer a variety of benefit plans customized to reflect local conditions. Our learning and development programs include tuition
support for employees and a global training and development program that focuses on leadership development, as well as training in various topics
including diversity, anti-harassment, ethics, and regulatory compliance.
Culture and Community
The Company's culture is rooted in our core values and aligned to the Company’s strategic framework. Our culture expresses our expansive vision and
fervor for community and collaboration and is honed by the following core values:
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Integrity . Our partners and colleagues know they can trust us to always keep our promises, be transparent, and adhere to the highest ethical
standards.
Customer Focus. Buyer and seller satisfaction are key to our continued success. We seek to exceed our customers’ expectations every day.
Continuous Improvement. We embrace change and are motivated to constantly improve our individual and collective performance.
Innovation. We continually seek out, develop, and implement new ideas to enhance our position as industry leader.
Mutual Trust and Accountability. Our collaborative environment values open communication, mutual respect, teamwork, and acknowledging our
successes and failures.
Shared Success. Everyone in our organization acts as leaders with a shared sense of pride in our accomplishments.
Doing Well and Doing Good. By continuing to positively impact our clients and the environment, we make Liquidity Services a rewarding place
to work. We make a difference by our words and actions in our Company, our community, and our world.
We reinforce, monitor, and assess our culture through a variety of programs which include performance management, succession planning, and employee
engagement surveys, all of which serve to further our human capital objectives. Each of our team members is part of our global initiative to make a
difference in the communities where we live and work. We engage with our local communities across the globe. Supporting community outreach, disaster
relief, zero-waste initiatives, youth mentoring, military families and veterans, and access to higher education.
Flexible Workspace
We are a remote-first work environment. We are committed to allowing flexibility in our workplace to promote high performance, retention, diversity,
equity, and inclusion while also continuing to meet customer and business needs.
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Sustainability Efforts
At our core, Liquidity Services strives to benefit businesses, communities, and the environment through our marketplaces which enable the continued use
of surplus assets that may otherwise wind up in landfills. These efforts extend to our employees as well, where our remote work structure for applicable
employees has enabled lower expended energy and emissions from both transportation-related activities and operations across our real estate portfolio.
Available Information
Our proxy statement, annual, quarterly, and current reports, as well as amendments to those reports and other information, are provided free of charge on
our website at www.investors.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,
the Company at
www.liquidityservices.com and www.investors.liquidityservices.com.
including news releases, analyst presentations,
investor presentations, and financial
information regarding
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; anticipated economic and operational impacts as a result of global macro-trends and events; the
migration of our retail marketplace to our core e-commerce technology platform; expected future effective tax rates; trends and assumptions about future
periods, the numerous factors that influence the supply of and demand for used equipment; economic and other conditions in local, regional and global
sectors; and those listed in Part I, Item 1A (Risk Factors) 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 on Form 10-K and are expressly qualified in their entirety by the cautionary
statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking
statement to reflect events or circumstances occurring after the date of this Annual Report or to reflect the occurrence of unanticipated events.
Use of Market and Industry Data
Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning our industry and the markets in which we operate,
including our general expectations about our industry, market position, market opportunity, and market size, is based on data from various sources including
internal data and estimates as well as third-party sources widely available to the public such as independent industry publications, government publications,
reports by market research firms, or other published independent sources and on our assumptions based on that data and other similar sources. Industry
publications and other published sources generally state that the information contained therein has been obtained from third-party sources believed to be
reliable. Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which
we operate and management’s understanding of industry conditions, and such information has not been verified by any independent sources. This data
involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates. While we believe the market, industry, and
other information included in this Annual Report on Form 10-K to be the most recently available and to be generally reliable, such information is inherently
imprecise and we have not independently verified any third-party information or verified that more recent information is not available. The information in
any such publication, report, survey, or article is not incorporated by reference in this Annual Report on Form 10-K.
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Item 1A. Risk Factors.
You should carefully consider the risks described below, together with all of the other information in this Annual Report on Form 10-K, including the
consolidated financial statements and related notes, before making an investment decision regarding 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 the only significant risks we may face. Other events that
we do not currently anticipate or that we currently deem immaterial also may affect our results of operations and financial condition.
Business and Operating Risks
The success of our business depends on our ability to source a sufficient supply of assets from sellers to attract and retain active professional
buyers, who in turn attract more 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
assets available for sale on our e-commerce marketplaces and, at the same time, attract and retain active qualified buyers to purchase the assets in the
categories we sell. Our ability to attract enough quantities of suitable assets and buyers with suitable interests in those assets will depend on various factors,
some of which are out of our control. These factors include our ability to: offer sellers liquid marketplaces for their assets; offer buyers desirable assets;
develop and implement effective seller and buyer marketing strategies; comply with regulatory and corporate seller requirements affecting marketing and
disposition of certain assets; efficiently catalog, handle, store, ship, and track delivery of assets; and achieve high levels of seller and buyer satisfaction.
Failure to continue to offer competitive assets to the marketplace, to supply assets that meet applicable regulatory requirements, or to predict market
demands for, or gain market acceptance of, such assets, would have a negative impact on our business, results of operations and financial condition.
If we do not respond to rapid technological changes or continuously upgrade our systems, we could fail to grow our business and our revenue
could decrease.
To remain competitive, we must continue to enhance and improve the functionality and features of our e-commerce business, particularly those that attract
and retain buyers and sellers. 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 continuous improvements, our operations might suffer from
unanticipated system disruptions, slow transaction processing, unreliable service levels, or impaired quality or delays in reporting accurate financial
information, any of which could negatively affect our reputation and ability to attract and retain sellers and buyers. We may also face material delays in
introducing new services, assets, and enhancements. The e-commerce industry is rapidly changing. If competitors introduce new assets and services using
new technologies or if new industry standards and practices emerge, our existing online marketplaces and our proprietary technology and systems may
become obsolete. In addition, the expansion and improvement of our systems and infrastructure may require us to commit substantial financial, operational,
and technical resources, with no assurance our business will 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 our systems 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,
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if our buyers and sellers fail to accept our platform or our unified process for handling transactions across our marketplaces, it could materially adversely
affect our business and results of operations.
The information technology and digital marketing improvements that are core to our strategy place a significant strain on our management,
operational, financial and other resources.
We continue to decommission non-scalable legacy IT platform technology with modular technology including key modules for unified management of
sellers and buyers, property handling, transaction processing and finance functions across our entire Company. Our AllSurplus marketplace is designed to
provide our buyers with access to all the property available in our CAG and GovDeals marketplaces, provides a common account experience for sellers,
and simplifies our operations. We expanded our AllSurplus marketplace to include an online, direct-to-consumer channel for returned and overstock
inventory from retailers and manufacturers, which is referred to as AllSurplus Deals. Iterative information technology and digital marketing improvements
require management time and resources to educate employees, redesign internal processes, and implement new ways of conducting business with our
sellers and buyers. If we do not effectively manage improvements to our marketplaces, including 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 sustain and enhance our existing sites constrains the ability to undertake transformation initiatives
focused on growth opportunities. The continuous improvement of our new aggregated marketplace initiative limits the resources we have available to
devote to other initiatives or growth opportunities, or to invest in the maintenance of our internal systems.
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, there could be a material adverse effect on our revenues and operating results.
We have multiple vendor contracts with Amazon.com, Inc., under which we acquire and then resell assets. $5.8 million and $8.1 million of inventory
purchased under such contracts with Amazon.com, Inc. is included in our Inventory balances on our Consolidated Balance Sheets as of September 30,
2023, and 2022, respectively. If Amazon stopped selling inventory to us on acceptable terms or adversely changed the mix and quantity of the inventory
that they make available to us for purchase, we likely could not procure alternative inventory from other vendors in a timely and efficient manner and on
acceptable terms, or at all, which could have a material adverse effect on our revenues and operating results.
If we do not retain our senior management and other highly skilled employees, we may not achieve our business objectives.
Our future success, including our ability to successfully implement recent initiatives, depends substantially on the continued service of our senior
management and other key personnel, particularly William P. Angrick, III, our Chairman and Chief Executive Officer. We do not have key-person
insurance on any of our officers or employees. Losing any member of our existing senior management team could damage key seller relationships, result in
the loss of key information, expertise, or know-how, lead to unanticipated recruitment and training costs, and make it more difficult to operate our business
and achieve our business goals. Our future success also depends on our ability to continue to attract, retain, and motivate highly skilled employees,
particularly employees with technology, sales, marketing, operations, and administrative technical expertise. Competition for employees in our industry is
intense. We have experienced occasional difficulty in attracting personnel to support the 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.
We must also attract, train, and retain a large and growing number of qualified employees in our RSCG warehouses while controlling related labor costs
and maintaining our core values. Our ability to control labor and benefit costs is subject to numerous internal and external factors, regulatory changes,
prevailing wage rates, and healthcare and other insurance costs. We compete with other retail and non-retail businesses for these employees and invest
significant resources in training and motivating them. There is no assurance that we will be able to attract or retain highly qualified employees in the future,
which could have a material adverse effect on our business, financial condition, and results of operations.
We face intense competition.
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Our businesses operate in intensely competitive markets. We have many competitors in different industries, including the online services market for
auctioning or liquidating surplus assets and retail markets. Competitive pressures could affect our ability to attract and retain buyers and sellers, which
could decrease our revenue and negatively affect our operating results.
Some of our other current and potential competitors have longer operating histories, larger seller and buyer bases, greater brand recognition and greater
financial, marketing, and other resources than we do. They may devote greater financial resources to marketing and promotional campaigns, secure better
terms from sellers and vendors, adopt more aggressive pricing or inventory availability policies, and devote substantially more resources to technology and
infrastructure than we do.
During the course of the COVID-19 pandemic, several of our competitors were driven to upgrade aspects of their core information and marketing
technology stacks. This heightened focus on e-commerce has increased the competition we face. If this competition continues to intensify, it may become
progressively more difficult to attract enough buyers and sellers to our marketplaces to sustain growth without significant increases in resources.
In some countries, we have competitors that may have a better understanding of local culture and commerce. We increasingly may compete in other
countries with local competitors that have advantages we do not, such as a greater ability to operate within the local regulatory environment.
In addition, we may face competition from certain of our retail clients and smaller actors. For example, a retail client may invest in its warehouse
operational capacity to handle higher volumes of online returns which may cause such retailer to send us a reduced volume of returned merchandise or a
product mix that is lower in value due to the removal of high value returns. Furthermore, a smaller competitor may achieve scale by means of competitive
advantage over our company, resulting in their ability to directly compete with us for the same source of inventory that we currently acquire.
If our strategy to compete against our many competitors is not effective, we may lose market share and our results of operations may be negatively affected.
We may not be 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.
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: damage to, or failure of, our computer software or
hardware, or our connections to, and outsourced service arrangements with, third parties; failure of, or defects in, the third-party systems, software, or
equipment on which we rely to access our data centers and other systems; errors in the processing of data; computer viruses, malware, or software defects;
physical or electronic break-ins, sabotage, distributed denial of service, or DDoS, penetration attacks, intentional acts of vandalism, and similar events; and
telecommunications failures, power outages, pandemics, political unrest, malicious human acts, and natural disasters.
Improving the reliability and redundancy of our systems may be expensive or reduce our margins and may not be successful in preventing system failures.
Our ability to provide services depends substantially on systems provided by third parties, over whom we have little control. We have occasionally
experienced interruptions to our services due to system failures. Any disruption to the third-party data centers we utilize, interruptions or failures of our
systems or our ability to communicate with third-party systems could negatively affect the demand for our services and our ability to grow our revenue.
Many of our information technology systems consist of outsourced, cloud-based infrastructure, platform, and software-as-a-service solutions not under our
direct management or control. Any disruption to either the 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.
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Our inability to use software licensed from third parties, open-source software, SAAS, and PAAS offerings under current license or contractual
terms could interfere with our proprietary rights disrupt our business.
We use a combination of licensed and opensource software, software as a service (SAAS), and platform as a service (PAAS) offerings from multiple third
parties. We use, among others, the following: Akamai, Algonomy, Amazon Web Services, Google, Postmark, HubSpot, Jenkins, LeaseQuery, Liferay,
Microsoft Azure and M365, MuleSoft, MySQL, Oracle Fusion, and various Linux distributions, and we may use additional open-source software. Licenses
to third-party software may not continue to be available on terms that are acceptable to us, or at all.
Our inability to use third-party software or to enter into agreements on acceptable terms with providers of cloud-based solutions could cause disruptions to
our business, or delays in developing future services or enhancements of existing services, which could impair our business. In addition, the terms of
certain open-source software licenses may require 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.
Certain aspects of our marketing technology depend on third parties over whom we have no control.
Obtaining organic search engine traffic from Google is a significant traffic driver for our marketplaces. If Google modified the search engine algorithms
that control our page rankings, we may experience a significant negative impact on the traffic coming to our marketplaces. A decrease in traffic would
reduce the number of new buyers and sellers on our marketplaces and could harm our business.
Additionally, our marketing technology relies heavily on our ability to track our promotional campaign performance across marketing channels (i.e., email,
search engines, social media, and third-party banner ads). If industry leading software browsers, such as Google Chrome, Microsoft Edge, or Apple Safari,
disable user analytics tracking or other similar capabilities, our ability to track our promotional campaign performance could be affected, which could in
turn prevent us from fully optimizing the marketing spend associated with our promotional campaigns. Like many other e-commerce marketplaces, Apple’s
recent upgrades to provide greater transparency as to Identifier for Advertisers (IDFA) has, with respect to some categories of assets, made it harder and
more expensive for us to target customers with the interest in purchasing those categories of assets.
We are required to maintain the privacy and security of personal and business information amidst multiplying threat landscapes and in
compliance with privacy and data protection regulations globally. Failure to do so could damage our business, including our reputation with
sellers, buyers, and employees, cause us to incur substantial additional costs, and make us subject to litigation and regulatory action.
Increased security threats and more sophisticated cyber misconduct pose a risk to our e-commerce marketplaces, information technology systems,
networks, and services. We rely upon IT systems and networks, some of which are managed by third parties, in connection with virtually all of our business
activities. Additionally, we collect, store and process information relating to our business, sellers, buyers, and employees. Operating these IT systems and
networks, and processing and maintaining this data, in a secure manner, is critical to our business operations and strategy. 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. Increased
remote work has also increased the possible attack surfaces. Threats designed to gain unauthorized access to systems, networks and data, both ours and
third parties with whom we work, are increasing in frequency and sophistication. Cybersecurity attacks may range from random attempts to coordinated
and targeted attacks, including sophisticated computer crimes and advanced persistent threats. Phishing attacks have emerged as particularly prominent,
including as vectors for ransomware attacks, which have increased in breadth and frequency for the Company. While we train our employees as part of our
security efforts, that training cannot be completely effective. These threats pose a risk to the security of our systems and networks and the confidentiality,
integrity, and availability of our data. It is possible that our IT systems and networks, or those managed by third parties such as cloud providers or suppliers
that otherwise host confidential information, could have vulnerabilities, which could go unnoticed for a period of time. While our cybersecurity,
governance, and compliance efforts seek to mitigate such risks, there can be no guarantee that the actions and controls we and our third-party service
providers have implemented and are implementing, will be sufficient to protect our systems, information, or other property. We currently
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expend, and we 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.
An interruption in the operations of our buyer and seller support service system or our warehouses 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 warehouse operations
(including leased commercial warehouse space). These operations could be harmed by several factors, including any material disruption or slowdown at our
network of warehouses 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, government mandated business closures, and shelter-in-place guidelines designed to
contain the spread of epidemic or pandemic disease or other events.
If we fail to accurately predict our ability to sell assets in which we take inventory risk and credit risk our margins may decline.
Under our purchase transaction model, we purchase assets and assume the risk that the assets may sell for less than we paid for them. We assume general
and physical inventory and credit risk with respect to these assets. 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 assets
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
assets. To manage our inventory successfully, we must maintain enough buyer demand to sell assets for a reasonable financial return. We may overpay for
the acquired assets if we miscalculate buyer demand or if the acquired assets are not as desirable as we predicted. If assets are 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.
Occasionally, in our CAG segment, 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. Where due to local laws and regulations, maximizing returns, or effectively managing our operational cash flows, among other business
influences, we may acquire inventory with one or more external partners. In these partnership arrangements, the Company works with one or more third
parties to maximize the return on the assets being sold, while utilizing the competitive advantages of all partners involved. The risks described above are
heightened in these inventory acquisition transactions due to their size and, at times, the limited market for the assets we acquire. Obtaining financing to
fund such acquisitions 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 assets 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, contracts;
the volume, size, timing, and completion rate of transactions in our marketplaces, including variability due to the timing of large, project-based
activities;
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changes in the supply and demand for and the volume, price, mix, and quality of our supply of surplus assets, including vehicles and real estate;
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;
fiscal policies or inaction at the U.S. federal government level that may lead to federal government shutdowns or negative impacts on the U.S.
economy;
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.
Our stock price has been volatile, and your investment in our common stock could decline in value.
Worldwide financial crises have led to an increase in the overall volatility of the stock market. Increased volatility and other broad market and industry
factors may adversely affect the market price of our common stock, regardless of our actual operating performance. Other factors that could cause
fluctuation in our stock price may include:
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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 global economic and/or political conditions and slow or negative growth of related markets.
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Volatility in the market price of shares may prevent investors from being able to sell their shares of common stock at prices they view as attractive. In the
past, securities class action litigation has often been instituted against companies following periods of volatility in their stock price. This type of litigation
could result in substantial costs and divert our management's attention and resources.
The seasonality of our business places increased strain on our operations.
We experience seasonality in each portion of our business at various times during the year. As a result, we expect a disproportionate number of transactions
on our marketplaces to occur at certain times during the year. If we cannot effectively manage increased demand, or the increased flow of goods we
typically experience during these times, it could adversely affect our revenue and our future growth. If too many buyers and sellers access our websites
within a short period of time due to increased demand, we may experience system interruptions that make our websites unavailable or prevent us from
providing efficient service, which may reduce our financial and operational results and the attractiveness of our value-added services. In addition, we may
not adequately staff our network of warehouses during these peak periods. If we cannot staff warehouses adequately, we may not be able to process assets
quickly enough which, in turn, could mean dissatisfaction of sellers 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 such as the acquisition of Bid4Assets, Inc. in November 2021. We may continue to do so. The
success of any future growth strategy involving acquisitions will depend on our ability to identify, and the availability of, suitable acquisition targets. 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.
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 assets or service being sold or provided.
It is costly to establish, develop, and maintain international operations and websites, and promote our brand internationally. Our international operations
may not be profitable on a sustained basis 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;
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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 assets or services and uncertainty regarding liability for assets 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.
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 U.S. dollars for financial reporting purposes. For example, if the U.S.
dollar weakens against foreign currencies, the translation of these foreign currency denominated revenues and 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.
We may need additional financing in the future, which may not be available on favorable terms, if at all.
We may need additional funds to finance our operations, as well as to enhance our services, acquire inventory for our businesses, fund initiatives, respond
to competitive pressures, acquire complementary businesses or technologies, or otherwise support our growth. We may also require additional funds if
vendors and other third parties from whom we purchase inventory, other goods or services extend less favorable credit terms to us. Our business may not
generate the cash needed to finance such requirements. We currently maintain a line of credit facility with Wells Fargo Bank, National Association (Wells
Fargo NA) that allows for a maximum revolver to be drawn-upon of $25.0 million, access to which expires on March 31, 2025. As of September 30, 2023,
the Company had not outstanding borrowings on this line of credit facility.
Although we have this existing line of credit facility with Wells Fargo NA from which we may draw funds, there may be situations in which we seek
funding through other sources. Further, upon expiration of this line of credit facility, the borrowing amount, interest rates, or related terms may no longer be
favorable to the Company. If we raise additional funds by issuing equity or convertible debt securities, the percentage ownership of our existing
stockholders would be reduced, and these securities may have rights, preferences,
27
or privileges senior to those of our common stock. The general economic and capital market conditions in the United States and other parts of the world can
deteriorate significantly, limiting access to capital and increasing the cost of capital. A large degree of economic uncertainty remains both domestically and
abroad, which can adversely affect access to capital, and the cost of capital. If adequate funds are not available or are not available on acceptable terms, our
ability to enhance our services, fund strategic initiatives, respond to competitive pressures, take advantage of business opportunities, or grow our business
would be limited, and we might need to restrict our operations and initiatives.
Global economic conditions, including those from macro-trends and global events, may harm our business and results of operations.
Our overall performance depends in part on worldwide economic conditions. Global financial developments, downturns, and global health crises or
pandemics may harm us, including due to disruptions or restrictions on our employees’ ability to work and travel. The United States and other key
international economies have been affected from time to time by falling demand for a variety of goods and services, restricted credit, poor liquidity, reduced
corporate profitability, volatility in credit, equity, and foreign exchange markets, bankruptcies, labor shortages, labor unrest, pandemics, natural disasters,
supply chain disruptions, inflation, and overall uncertainty with respect to the economy, including with respect to tariff and trade issues.
For example, inflation rates, particularly in the United States, continue to increase to levels not seen in years, and increased inflation may result in increases
in our operating costs (including our labor costs). In addition, the Federal Reserve and other central banks have raised, and may again raise, interest rates in
response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further
increasing economic uncertainty and heightening these risks.
Ongoing armed conflicts around the world, such as the invasion of Ukraine by Russia and recently, the conflict in and adjacent to Israel, could create or
exacerbate risks facing our business. The Russia-Ukraine conflict specifically results in numerous countries, including the United States, imposing
significant new sanctions and export controls against Russia, Russian banks, and certain Russian individuals. These armed conflicts have resulted and could
continue to result in, disruptions to trade, commerce, pricing stability, and/or supply chain continuity, in both Europe and globally, and has introduced
significant uncertainty into the global markets. If global economic conditions remain uncertain or deteriorate further, particularly to the extent such conflicts
escalate to involve additional countries, we could see potential scenarios having a material adverse effect on our business such as a reduction in the ability
of international buyers and sellers to conduct business due to travel restrictions impacting the ability of: sellers and their agents to travel to prepare assets
for sale; buyers travelling to inspect assets; sellers and buyers completing international transactions requiring assets to cross export and import border
control points; and the overall willingness of sellers and buyers to decommission capital assets and engage in cross-border transactions. Separately, any
factors that reduce cross border trade or make such trade more difficult could harm our business. Increasing costs, such as increasing tariffs and trade wars
between nations, may make international trade less profitable and adversely affect our global business.
We believe that other potential conflicts that could result in similar disruption could include a military conflict between mainland China and Taiwan,
possible international intervention and sanctions, and the resulting potential disruption to the operations of our CAG and Machinio teams in China.
Moreover, in addition to our operations, in the case of a military conflict between China and Taiwan, global manufacturers would likely lose access to
advanced semiconductor chips and other products that are sourced from Taiwan. Such a conflict would also likely limit access to key Chinese ports and
exporters due to both military actions and potential international sanctions, which would create significant disruption for a variety of industries that we
serve that rely on supply chain in China.
Decreases in the supply of, demand for, or market values of surplus assets and real estate, could harm our business.
Our revenues could decrease if there was significant erosion in the supply of, demand for, or market values of surplus assets, which could adversely affect
our financial condition and results of operations. We have no control over any of the factors that affect the supply of, and demand for, surplus assets, and
the circumstances that cause market values to fluctuate including, among other things, economic uncertainty, global geopolitical climate, disruptions to
credit and financial markets, lower commodity prices, and our buyers’ restricted access to capital. Recent economic conditions have caused fluctuations in
the supply, mix, and market values of surplus assets available for sale, which has a direct impact on our revenues. In addition, price competition and the
availability of surplus assets directly affect the supply of, demand for, and market value of such assets. For example, when the demand for used vehicles
increases, the prices are
28
also likely to increase, making it more costly for potential buyers to find suitable replacements for their existing vehicles. As a result, potential buyers may
retain their existing vehicles for longer periods of time, further decreasing supply. These factors could impact the overall profitability of used vehicle sales
on our marketplaces because although used vehicles are selling for higher prices, fewer vehicles are being sold. Climate change initiatives, including
significant changes to engine emission standards applicable to certain types of assets, may also adversely affect the supply of, demand for, and market
values of such assets.
Legal and Regulatory Risks
We face legal uncertainties relating to the Internet in general and to the 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 assets and services, taxation, advertising, intellectual property rights, and information security. Laws governing issues
such as property ownership, title registration, security interests in assets, copyrights and other intellectual property issues, taxation, libel and defamation,
obscenity, and personal privacy could also affect our business. Laws adopted prior to the advent of the 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, any of which may
adversely affect our financial condition or operating results.
In addition, the body of law regarding the potential liability of an online auction service for the activities of its users is not clear. Users of our websites may
not always comply with our terms and conditions or with laws and regulations applicable to them and their transactions. It is possible that we may be
subject to allegations of civil or criminal liability for any unlawful activities conducted by sellers or buyers. Any costs we incur 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 privacy regulations, our business could suffer harm.
We are subject to regulation at the federal, state, and international levels relating to privacy and the use of third-party data, including personal user
information and employee data. These statutory and regulatory requirements are evolving, increasing in complexity and number, sometimes conflicting, and
may change significantly. How companies collect, process, use, store, share, or transmit personal and employee data is subject to increasing scrutiny by
governments 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
29
resources. Our failure to comply with these federal, state, and international laws and regulations could subject us to lawsuits, fines, criminal penalties,
statutory damages, adverse publicity, and other costs which could decrease our profitability.
Certain categories of assets sold on our marketplaces are subject to government restrictions.
We sell assets, such as scientific instruments, information technology equipment and aircraft parts, that are subject to export control and economic sanctions
laws, among other laws, imposed by the United States and other governments. Such restrictions include the U.S. Export Administration Regulations, the
International Traffic in Arms Regulations, and economic sanctions and embargo laws administered by the Office of the Foreign Assets Control Regulations.
These restrictions prohibit us from selling property to (a) persons or entities that appear on lists of restricted or prohibited parties maintained by the United
States or other governments or (b) countries, regimes, or nationals that are the target of applicable economic sanctions or other embargoes. Such laws could
become even more restrictive and cover a wider array of assets in the event of escalations of a conflict between China and Taiwan.
We may incur significant costs or be required to modify our business to comply with these requirements. If we are alleged to have violated these laws or
regulations, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeiture of profits,
suspension of payments, fines, and suspension or debarment from doing business with U.S. federal government agencies. In addition, we could suffer
serious harm to our reputation if allegations of impropriety are made against us, whether or not true.
We may be subject to product liability claims if people or property are harmed by the assets we sell.
Some assets 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 assets 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 commercially 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 governmental entities, have the right to audit our performance under our contracts. Any
adverse findings from audits or reviews of our performance could result in a significant adjustment to our previously reported operating results. The results
of an audit could significantly limit the volume and type of assets made available to us, resulting in lower revenue and profitability. If such an audit
uncovers improper or illegal activities, we could be subject to civil and criminal penalties and administrative sanctions and we could suffer serious harm to
our reputation. Government and law enforcement agencies may also investigate our activities under contracts with commercial businesses and
governmental entities. If such an investigation alleges that we 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 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 2010 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
30
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.
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, credit chargebacks that are fraudulent in nature, potential breaches
of system security, and infringement of third-party copyrights, trademarks and trade names or other intellectual property rights. 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.
Some provisions of our charter, bylaws, and Delaware law inhibit potential acquisition bids.
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 of Director vacancies be filled by a majority of our directors then in office.
These provisions could discourage, delay or prevent a transaction involving a change in control of our Company. These provisions could also discourage
proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing and cause us to take other corporate actions you
desire. In addition, our bylaws provide that the Delaware Court of Chancery will be the exclusive forum for certain types of legal action (or, if the Court of
Chancery does not have jurisdiction, another state court or a federal court within Delaware). This provision may make it more difficult for you and other
stockholders to challenge certain corporate actions we take.
We may not adequately protect or enforce our intellectual property rights, which could harm our reputation and negatively affect the growth of
our business.
We regard our intellectual property, particularly domain names, copyrights and buyer database trade secrets, as critical to our success. We rely on
contractual restrictions and copyright and trade secret laws to protect our proprietary rights, know-how, information and technology. Despite these
protections, a third party could copy or otherwise obtain and use our intellectual property without authorization or independently develop similar
intellectual property.
We currently are the registered owners of several Internet domain names, including www.liquidation.com, www.govdeals.com, www.allsurplus.com,
www.secondipity.com, www.go-dove.com, www.machinio.com, www.machineryhost.com, and www.bid4assets.com. We pursue the registration of our
domain names in the U.S. and internationally. We have no patents or registered copyrights. Effective patent, copyright, trademark, service mark, trade
secret, and domain name protection are expensive to maintain and may require litigation to enforce. We have licensed in the past, and expect to license in
the future, certain of our proprietary rights, such as trademarks or copyrighted material, to others. These licensees may take actions that diminish the value
of our proprietary rights or harm our reputation. Our competitors may adopt trade names or domain names similar to ours, impeding our ability to promote
our marketplaces and possibly leading to buyer or seller confusion. In addition, we could face trade name, trademark, or service mark infringement claims
brought by owners of other registered or unregistered trademarks or service marks, including trademarks or service marks that may incorporate variations
of our marketplace names. Any claims related to our intellectual property or confusion related to our marketplaces could damage our reputation and
negatively affect the growth of our business.
31
Assertions that we infringe on intellectual property rights of others could result in significant costs and substantially harm our business and
operating results.
Third parties may assert that we have infringed their intellectual property rights in technology or otherwise based on our internally developed systems or
use of licensed third-party technology to operate our online auction platform and related websites. Third parties also could assert intellectual property
infringement claims against the parties from whom we license technology. If we are forced to defend against any infringement claims, whether they are
with or without merit or are determined in our favor, we may face costly litigation, diversion of technical and management personnel, and/or delays in
completion of sales. Furthermore, the outcome of a dispute may require us to change technology, develop non-infringing technology, or enter into royalty or
licensing agreements. A switch to different technology could interrupt our business. Internal development of a non-infringing technology may be expensive
and time-consuming, if we are able to successfully develop such technology at all. Royalty or licensing agreements, if required, may be unavailable on
terms acceptable to us, or at all. Incurrence of any of these costs could negatively impact our operating results.
General Risk Factors
Failure to maintain effective internal controls over financial reporting could have a material adverse effect on our business, operating results, and
stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that we include in our annual report a report containing management's assessment of the
effectiveness of our internal controls over financial reporting as of the end of our fiscal year and a statement as to whether or not such internal controls are
effective. Compliance with these requirements has resulted in, and is likely to continue to result in, significant costs and the commitment of time and
operational resources. Recently completed initiatives, as well as other changes in our business (including initiatives to invest in information systems,
transition particular functions to third-party providers, and acquire new businesses such as Bid4Assets) have necessitated, and will continue to necessitate,
modifications to our internal controls. We cannot be certain that our design for internal control over financial reporting, or any changes to be made, will
enable management to determine that our internal controls are effective for any period. If we cannot conclude that our internal controls over financial
reporting are effective, market perception of our financial condition and the trading price of our stock may be adversely affected, and seller and buyer
perception of our business may suffer.
Our internal control policies and procedures may not always protect us from reckless or criminal acts committed by our employees or agents, or by third
parties with whom we work. Internal controls may become less effective over time because of, among other things, changes in conditions, failures to
comply with our policies and procedures, or new business that strains our system of internal controls.
Changes in accounting and reporting policies or practices may affect our financial results, which may affect our stock price.
Our accounting policies are fundamental to determining and understanding our financial results and condition. Some require our management to use
estimates and make subjective and complex judgments about matters that are uncertain. Factors may arise over time that lead us to change our estimates
and judgments. Sometimes, our management must use judgment to select the accounting policy or method to apply from two or more alternatives, any of
which may be reasonable under the circumstances, yet may cause us to report materially different results than would have been reported under a different
alternative. Any changes in accounting policies or methods could reduce our net income, which reductions may be independent of changes in our
operations. These reductions in reported net income could cause our stock price to decline.
Damage to our reputation could harm our business.
Our positive reputation is based on our core values of integrity, customer focus, continuous improvement, innovation, mutual trust and accountability,
shared success, and doing well and doing good. Our ability to attract and retain highly skilled employees, clients and buyers, and to successfully do
business would be harmed if our reputation was damaged. Harm to our reputation can arise from numerous sources, including, among others, employee
misconduct, security breaches, compliance failures, litigation or regulatory outcomes, or governmental investigations. Our reputation could also be harmed
by the failure or perceived failure of an affiliate, joint-venture, or a vendor or other third party with which we do business, to comply with laws or
regulations. In addition, our reputation or prospects may be significantly damaged by adverse publicity or negative information regarding us, whether or not
true, that may be posted on social media, non-mainstream news services or other parts of the Internet, and this risk can be magnified by the speed and
pervasiveness with
32
which information is disseminated through those channels. Should any of these or other events or factors that can undermine our reputation occur, the
additional costs and expenses that we may need to incur to address the issues giving rise to the damage to our reputation may adversely affect our earnings
and results of operations. Any damage to our reputation could impair our ability to retain existing or attract new customers, investors and employees.
We carry a significant amount of goodwill on our balance sheet.
As of September 30, 2023, we had goodwill of $89.4 million. The future occurrence of a potential indicator of impairment, such as a significant adverse
change in business climate, an adverse action or assessment by a regulator, unanticipated competition, a material negative change in relationships with
significant customers, strategic decisions made in response to economic or competitive conditions, loss of key personnel, or a more-likely-than-not
expectation that a reporting unit or a significant portion of a reporting unit will be sold or disposed of, could result in goodwill impairment charges. We
have recorded goodwill impairment charges in the past, and such charges materially affected our historical results of operations. For additional information,
see Note 7 - Goodwill to the accompanying consolidated financial statements.
Item 1B. Unresolved Staff Comments.
None.
Item 1C. Cybersecurity.
Not applicable.
Item 2. Properties.
As a remote-first organization, the Company continues to reduce or eliminate its leases of administrative spaces where practicable, including a 48%
reduction to the size of the Company's Corporate Headquarters during the year ended September 30, 2023.
The Company leases the following properties as of September 30, 2023:
Purpose
Corporate Headquarters
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Warehouse
Administrative
Administrative
Location
Bethesda, Maryland, USA
Atlanta, Georgia, USA
Brampton, Canada
E. Brunswick, NJ, USA
Garland, Texas, USA
Hebron, Kentucky, USA
Kenilworth, NJ, USA
North Las Vegas, Nevada, USA
Phoenix, Arizona, USA
Pittston, Pennsylvania, USA
Plainfield, Indiana, USA
Montgomery, Alabama, USA
Plano, Texas USA
Segment
Square Feet
Lease Expiration Date
Corporate & Other
GovDeals
RSCG
CAG
RSCG
RSCG
CAG
RSCG
RSCG
RSCG
RSCG
GovDeals
Corporate & Other
January 31, 2029
4,027
47,636 May 31, 2024
53,621 August 31, 2025
4,800 December 31, 2025
June 30, 2026
January 31, 2026
127,144
101,614 July 31, 2025
10,507 December 31, 2026
102,400
84,690
108,536
January 7, 2027
187,704 April 30, 2024
19,762 December 31, 2023
2,280 November 30, 2025
January 31, 2027
In addition, we lease various administrative spaces in North America totaling 5,074 square feet, in Europe totaling 500 square feet, and in Asia totaling
3,747 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. Information regarding the
Company's legal proceedings can be found in Note 15 - Legal Proceedings, of the accompanying Notes to the Consolidated Financial Statements.
33
Item 4. Mine Safety Disclosures.
Not applicable.
34
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock has been traded on Nasdaq Stock Market under the symbol LQDT since February 23, 2006.
PART II
Holders
As of November 13, 2023, there were approximately 10,345 beneficial holders of our common stock and 26 holders of record of our common stock.
Dividends
We have not paid any cash dividends on our common stock, and we have no present intention to do so. Payment of cash dividends, if any, will be
determined by our Board of Directors after consideration of our financial condition, operating results, current and anticipated cash needs and other relevant
factors.
Recent Sales of Unregistered Securities
None.
Stock Performance Graph
*$100 invested on 9/30/18 in stock or index, including reinvestment of dividends. Fiscal year ending September 30.
Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved. Copyright© 2023 Russell Investment Group. All rights reserved.
35
Issuer Repurchases of Equity Securities
The following table presents information about our repurchases of common stock that were made during the three months ended September 30, 2023 (in
millions, except share and per share amounts):
Period
July 1 to July 31, 2023
August 1 to August 31, 2023
September 1 to September 30, 2023
Total
Total Number of
Shares Purchased
Average Price
Paid Per Share
Total Number of
Shares Purchased
as a Part of a
Publicly
Announced
Program
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the
(1)
Program
9 $
490
—
499
15.53
18.64
—
9 $
—
—
9
1.8
1.8
17.0
Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the
(1)
exercise price due. During the three months ended September 30, 2023, participants surrendered 490 shares of common stock in the exercise of stock options. Any shares surrendered to the
Company in this manner are not available for future grant.
From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved
by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions, or otherwise, at times and in
such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements, and other market conditions. The repurchase program may be discontinued or suspended at any time and will be
funded using our available cash.
On September 8, 2023, the Company's Board of Directors authorized a new stock repurchase plan of up to $15.2 million. As of September 30, 2023, the
Company had $17.0 million of remaining authorization to repurchase shares through December 31, 2025.
Item 6. [Reserved]
36
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could vary materially
from those indicated, implied, or suggested by these forward-looking statements as a result of many factors, including those discussed under "Risk Factors"
and elsewhere in this Annual Report on Form 10-K.
Overview
About us. Liquidity Services, Inc. (Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace
platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by using technology to capture and
unleash the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading e-commerce auction marketplaces, search
engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from
excess items owned by business and government sellers.
Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite
and enable a self-reinforcing cycle of value creation where buyers and sellers attract one another in greater numbers. The result of this cycle is a continuous
flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers,
buyers, and shareholders. During the past three fiscal years, we have conducted over 2.6 million online transactions generating $3.2 billion in gross
merchandise volume or GMV. GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other
channels during a given period of time.
During the year ended September 30, 2023, the number of registered buyers grew from 4.9 million to 5.1 million. We believe the continuous flow of goods
in our marketplaces attracts a growing buyer base which creates a self-sustaining cycle for our buyers and sellers. We generated GMV of $1.203 billion and
revenue of $314.5 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased
from sellers, and value-added service charges during the year ended September 30, 2023. Our GMV has grown at a compound annual growth rate of 13.9%
since 2018.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets is a
leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. The results
of Bid4Assets' operations are included within our GovDeals reportable segment. See Note 3 - Bid4Assets Acquisition for more information regarding this
transaction.
Operating Segments
The Company has four reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group
(RSCG), and Machinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
•
•
•
GovDeals. The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies
located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals
and Bid4Assets marketplaces (see Note 3 - Bid4Assets Acquisition).
RSCG. The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess,
returned, and overstocked consumer goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-
commerce solutions. This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination
of velocity, volume, and value.
CAG. The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus
assets. The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics.
CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. CAG benefits from a global
base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use
across the world. This segment primarily uses the AllSurplus and GovDeals marketplaces.
37
•
Machinio. The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction,
machine tool, transportation, printing and agriculture sectors. Machinio also offers the Machinio System service that provides equipment sellers
with a suite of online marketing tools that includes website hosting, email marketing, and inventory management, to support and enable
equipment sellers’ online business.
Macroeconomic Conditions
Supply chain challenges and shifting consumer sentiment. Constraints in the production of new vehicles and heavy equipment, particularly as it relates to
new fleet sales, are continuing to impact the supply of used vehicles available for sale on our marketplaces, while used car market price indices are
simultaneously experiencing heightened volatility. In addition, general consumer behavior appears to be more cautious, focused more on essential goods
and travel with limited discretionary high-value purchases. These conditions are impacting our financial performance and may continue to do so while these
conditions persist, or if similar challenges emerge in other key asset categories.
Effects of Inflation. Rising inflation in both the U.S. and internationally has weighed on the global economy, increasing prices for energy, shipping, and
labor, among other areas of the macroeconomic environment. These events have caused a rise in borrowing costs as well, partly driven by actions taken by
central banks to curb rising inflation. Currently, the Company is unable to predict the likelihood, magnitude, and timing of inflationary risk to our business,
if any. As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by
macroeconomic factors, including but not limited to inflation, whose impacts may vary across each of our individual asset classes.
International armed conflicts. The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022,
a conflict which remains ongoing, as well as the recent conflict in and adjacent to Israel. The Russia-Ukraine conflict specifically resulted in numerous
countries, including the United States, imposing significant new sanctions and export controls against Russia, Russian banks, and certain Russian
individuals. These armed conflicts have further heightened global supply chain disruptions and impacted the international trade markets. For the year ended
September 30, 2023, the Company's total revenues directly associated with Russia, Ukraine, and Israel were not material to our consolidated financial
results. We will continue monitoring these armed conflicts around the world and any potential future impacts on our business.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to global economic conditions including those discussed above.
Industry Trends
We believe there are several industry trends positively impacting the long-term growth of our business including:
•
•
•
•
•
•
the increase in volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of
overall retail sales;
the increase in government regulations and the need for corporations to have sustainability solutions with verifiable recycling and remarketing of
surplus assets;
the increase in outsourcing surplus disposition and end-of-life assets by corporations and government entities as they focus on reducing costs,
improving transparency, compliance and working capital, and increasingly prefer service providers with proven track records, innovative scalable
solutions, and the ability to make a strategic impact in the reverse supply chain;
an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from
their purchases, which could impact our long term growth;
the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale
events; and
in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply
of surplus assets.
Revenues
Substantially all of our revenue is earned through the following transaction models:
38
Purchase model. Under our purchase transaction model, we recognize revenue within the Purchase revenues line item on the Consolidated Statements of
Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay 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.
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 upon auction close or upon collection of auction proceeds, depending upon the settlement service level selected by the seller. Revenue under the
consignment model is recorded within the Consignment and other fee revenues line item on the 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.
Other — fee revenue. We also earn non-consignment fee revenue from Machinio's subscription services, as well as other services including asset valuation,
product handling, and storage fees. Non-consignment fee revenue is recorded within the Consignment and other fee revenues line item on the Consolidated
Statements of Operations.
Transaction Model Mix. Most of our transactions are conducted under the consignment model, which represented 85.8%, 86.3%, and 83.6% of our
consolidated GMV for the years ended September 30, 2023, 2022, and 2021, respectively; however, only the consignment fee, representing a small portion
of the consignment GMV, is recognized as revenue, causing consignment revenues to account for 37.7%, 38.4%, and 36.0% of our total revenues for the
years ended September 30, 2023, 2022, and 2021, respectively.
Purchase model transactions are a smaller proportion of our consolidated GMV, representing 14.2%, 13.7%, and 16.4% of our consolidated GMV for the
years ended September 30, 2023, 2022, and 2021, respectively. However, all of the GMV associated with the purchase model transaction is generally able
to be recognized as revenue, causing purchase revenues to account for 54.7%, 54.0%, and 56.8% of our total revenues for the years ended September 30,
2023, 2022, and 2021, respectively.
Other fee revenues accounted for 7.5%, 7.6%, and 7.2% of our total revenues for the years ended September 30, 2023, 2022, and 2021, respectively
Our Vendor Agreements
Commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While
purchase model transactions account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant
component of our consolidated Costs of goods sold. $5.8 million and $8.1 million of inventory purchased under such contracts with Amazon.com, Inc. is
included in our Inventory balances on our Consolidated Balance Sheets as of September 30, 2023 and 2022, respectively. Our vendor contracts with respect
to sourcing or consigning merchandise for our RSCG segment generally reflect the concentration dynamics inherent to the retail industry.
39
Key Business Metrics
Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational
strategies, allocation of resources, and our capacity to fund capital expenditures and expand our business. These key business metrics include:
Gross merchandise volume (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. Our GMV for the year
ended September 30, 2023, was $1.203 billion.
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 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, 2023, 2022, and 2021, we had
5.1 million, 4.9 million, and 4.0 million, registered buyers, respectively. None of our buyers represented more than 10% of our revenue during the year
ended September 30, 2023.
Total auction participants. For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid
one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in
each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction
conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction
sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of
registered buyers and to measure the performance of our marketing and promotional efforts. During the years ended September 30, 2023, 2022, and 2021,
3.3 million, 3.1 million, and 2.3 million participants participated in auctions on our marketplaces, respectively.
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, 2023, 2022, and 2021, we completed 925,000, 933,000 and 703,000 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 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 from these estimates.
We consider the following accounting policies to be critical: revenue recognition, business combinations, valuation of goodwill and 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.
40
We consider the following accounting estimates to be critical: valuation of goodwill (Note 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 has determined our reporting units to consist of GovDeals, CAG, RSCG,
and Machinio. Only the GovDeals, CAG, and Machinio reporting units maintain a goodwill balance.
As of July 1, 2023, the Company performed its annual goodwill impairment test using a quantitative fair-value based test for all reporting units maintaining
a goodwill balance. The fair value test was performed utilizing the discounted cash flow method under the Income approach and the guideline company
method under the Market approach, the results of which were weighted 75:25, respectively, in the ending determined fair value. We determined the fair
value of each of our reporting units with goodwill balances substantially exceeded their carrying value.
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.
Technology and operations. Technology expenses primarily consist of the cost of technical staff (including stock compensation), third-party services,
licenses, and infrastructure, all as required to develop, configure, deploy, maintain, and secure our marketplace platforms, business operational systems, and
facilities. Technology expenses are net of the required capitalization of costs associated with enhancing our marketplace platforms and other software
development activities. Depreciation and amortization of capitalized software development costs, purchased software, acquired developed software
intangible assets, and computer hardware are included within Depreciation and amortization in the accompanying Condensed Consolidated Statements of
Operations. Technology expenses are presented separately from Costs of goods sold (excluding depreciation and amortization) in the Condensed
Consolidated Statements of Operations, as these expenses provide for the general availability of our marketplace platforms and other business operational
systems and are not attributable to specific revenue generating transaction activity occurring on our marketplaces.
Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life
for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful
life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, Internal-use
software. As such, we are capitalizing certain development costs associated with our marketplaces and support systems, as well as other software
development activities.
Operations expenses consist primarily of costs to operate our network of warehouses, including shipping logistics, inventory management, refurbishment,
and administrative functions; costs to enhance our online auctions listings and provide customer support; and costs associated with field support and
preparation and transfer of goods from sellers to buyers. Operations expenses include both internal and external labor costs, as well as other third-party
charges. These costs are expensed as incurred.
Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of lead generation, marketing
and promotional activities, including buyer and seller acquisition, as well as general brand marketing. These activities include online marketing campaigns,
such as paid search advertising and geofencing campaigns, as well as offline marketing efforts, trade shows, and marketing analytics.
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
vary as significantly in response to the volume of merchandise sold through our marketplaces.
41
Depreciation and amortization. Depreciation and amortization consist of depreciation of property and equipment, amortization of internally developed
software, and amortization of intangible assets.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs consists of the change in fair value of earn-out consideration
following a business combination.
Other operating expenses, net. Other operating expenses, net includes impairment of long-lived and other assets, impacts of lease terminations, as well as
business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.
Interest and other income, net. Interest and other income, net consists of interest income on interest-bearing checking accounts, money market funds, the
prior promissory note issued to JTC, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net
periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.
Income taxes. Income taxes include current and deferred income tax expense for the U.S. federal, state, and foreign jurisdictions. During the years ended
September 30, 2023, 2022 and 2021, the Company had an effective income tax rate of 27.7%, 15.4% and (84.7)%, respectively, which included federal,
state, and foreign income taxes.
Results of Operations
The following table presents reportable segment GMV, revenue, segment direct profit (which is calculated as total revenue less cost of goods sold
(exclusive of depreciation and amortization)), and segment direct profit as a percentage of total revenue for the periods indicated ($ in thousands):
(dollars in thousands
GovDeals:
GMV
Total revenue
Segment direct profit
Segment direct profit as a percentage of total revenue
RSCG:
GMV
Total revenue
Segment direct profit
Segment direct profit as a percentage of total revenue
CAG:
GMV
Total revenue
Segment direct profit
Segment direct profit as a percentage of total revenue
Machinio:
GMV
Total revenue
Segment direct profit
Segment direct profit as a percentage of total revenue
Consolidated:
GMV
Total revenue
NM = not meaningful
Year Ended September 30,
2023
2022
2021
726,124
62,010
58,810
$
$
$
94.8 %
285,574
200,218
68,068
$
$
$
34.0 %
191,333
38,476
32,215
$
$
$
83.7 %
13,821
13,110
—
$
$
94.9 %
720,323
59,352
56,408
$
$
$
95.0 %
236,236
166,100
63,704
$
$
$
38.4 %
188,813
42,575
29,120
$
$
$
68.4 %
—
12,083
11,471
$
$
94.9 %
498,742
49,579
47,030
94.9 %
229,290
158,806
64,564
40.7 %
158,736
39,645
29,324
74.0 %
—
9,559
8,992
94.1 %
1,203,031
314,462
$
$
1,145,372
280,050
$
$
886,768
257,531
$
$
$
$
$
$
$
$
$
$
$
$
$
42
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment increased $2.7 million, or 4.5%, due to a $5.8 million, or 0.8%, increase in GMV driven
by increased marketplace activity for its surplus property categories, including the number of sellers and assets sold; however, supply chain challenges
reduced the volume of used vehicles available to be sold during the first quarter of the current fiscal year and market prices for used vehicles remain
volatile. Revenue grew at a greater rate than GMV due to marketplace pricing increases and a decline in the mix of lower take-rate foreclosed real estate
properties available for auction. In periods where GovDeals real estate sales increase, GovDeals revenue as a percent of GMV would be expected to
decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories. Segment direct
profit increased by $2.4 million, or 4.3%, consistent with the increase in revenues. Segment direct profit as a percentage of total revenue remained
consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased $34.1 million, or 20.5%, due to a $49.3 million, or 20.9%, rise in GMV due to access to
recurring product flows from new and expanded client programs and network of warehouses, including expansion of our AllSurplus Deals direct-to-
consumer storefront locations, a stronger holiday return and liquidations season, and favorable recovery rates at the points in the year where less inventory
was available to buyers in the broader spot market. Segment direct profit increased by $4.4 million, or 6.8%, due to increased volumes. Segment direct
profit as a percentage of total revenue decreased from 38.4% to 34.0%, due to changes in the product mix available as certain client programs made a
higher volume of lower value products available for sale in the current year, in addition to $1.0 million in inventory provisions.
CAG. Revenue from the CAG reportable segment decreased by $4.1 million, or 9.6%. GMV increased by $2.5 million, or 1.3%, driven by increased
consignment sales in our industrial and heavy equipment categories. Revenue declined despite the increase in GMV due to a lower mix of large spot
purchase transactions with international clients. The increase in transactions conducted under the consignment model contributed to Segment direct profit
increasing by $3.1 million, or 10.6%. Segment direct profit as a percentage of total revenue increased 15.3%, which may fluctuate due to inherent
variations in the mix of assets sourced and sold by the CAG segment in any given period, due to a higher mix of consignment transactions conducted
during the current year. Challenged global supply chains are experiencing heightened disruptions due to international tensions and other factors, which
could limit the volume of assets made available for sale in any period.
Machinio. Revenue from our Machinio reportable segment increased 14.4%, or $1.7 million, due to price increases and continued growth in subscribers. As
a result of the increase in revenues, Segment direct profit increased 14.3%, or $1.6 million. Segment direct profit as a percentage of total revenue remained
relatively consistent between the periods.
43
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
(in thousands)
Purchase revenues
Consignment and other fee revenues
Total revenue
Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Fair value adjustment of acquisition earn-outs
Other operating expenses, net
Total costs and expenses
Income from operations
Interest and other income, net
Income before provision for income taxes
Provision for income taxes
Net income
NM = not meaningful
Year Ended September 30,
Change
2023
2022
$
%
$
172,089
$
142,373
314,462
142,322
57,078
49,443
28,074
11,255
—
186
288,358
26,105
(2,912 )
29,016
8,039
$
20,978
$
151,271 $
128,779
280,050
119,407
55,522
43,224
28,282
10,322
(24,500 )
388
232,645
47,405
(248 )
47,653
7,329
40,324 $
20,818
13,594
34,412
22,916
1,556
6,219
(208 )
933
24,500
(202 )
55,713
(21,300 )
(2,664 )
13.8 %
10.6 %
12.3 %
19.2 %
2.8 %
14.4 %
(0.7 )%
9.0 %
NM
(52.1 )%
23.9 %
(44.9 )%
NM
(18,636 )
(39.1 )%
710
9.7 %
(19,346 )
(48.0 )%
Total revenues. Total consolidated revenue increased $34.4 million, or 12.3%. Refer to the discussion of Segment Results above for discussion of the
increase in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $22.9 million, or 19.2%, which changed at a higher rate than
Revenue primarily due to our RSCG segment where changes in the product mix available as certain client programs made a higher volume of lower value
products available for sale in the current year.
Technology and operations expenses. Technology and operations expenses increased $1.6 million, or 2.8%, primarily due to higher technology labor costs
supporting our continued marketplace modernization efforts, greater operations labor associated with the timing of transactions at our CAG segment, and a
$1.0 million increase in other variable compensation.
Sales and marketing expenses. Sales and marketing expenses increased $6.2 million, or 14.4%, due to the impact of our market share expansion and client
diversification efforts, as well as a $1.3 million increase in stock compensation expense and other variable compensation, a $1.2 million increase in bad
debt expense, and the impact of other inflationary cost increases.
General and administrative expenses. General and administrative expenses were consistent between the years ended September 30, 2023, and 2022.
Depreciation and amortization. Depreciation and amortization expense increased $0.9 million, or 9.0%, primarily due to a full year impact of the increase
in amortization of intangible assets following our acquisition of Bid4Assets on November 1, 2021.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs decreased by $24.5 million due to the cumulative non-cash
gain arising from the reduction in the fair value of the Bid4Assets earn-out liability during the prior year ended September 30, 2022. Through and as of the
final measurement period ended December 31, 2022, $3.5 million in earn-out payments were made, with no additional earn-out fair value remaining. See
Note 13 - Fair Value Measurement for further information.
Interest and other income, net. Interest and other income, net increased $2.7 million, due to the effect of rising interest rates on our cash equivalent and
short-term investment holdings.
44
Provision (benefit) for income taxes. Provision (benefit) for income taxes increased $0.7 million to an expense of $8.0 million from an expense of $7.3
million due to the increase in state and deferred income taxes resulting from higher income in the current year compared to prior year, exclusive of the
$24.5 million non-cash gain from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability. The Company's effective tax was 27.7%
for the twelve months ended September 30, 2023. The 2023 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the
impact of foreign, state, and local income taxes and permanent adjustments.
Year Ended September 30, 2022 Compared to Year Ended September 30, 2021
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment increased 19.7%, or $9.8 million, due to a 44.4%, or $221.6 million, increase in GMV
from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate. In addition,
increased recovery rates on assets sold were driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in
certain asset categories, such as transportation assets. However, this has been partially offset by lower volumes of used vehicles made available for sale, as
new vehicle production disruptions impact government agency vehicle fleet retirement timelines. As GovDeals real estate sales increase through the
integration with Bid4Assets, GovDeals revenue as a percent of GMV is expected to decline, as these higher value real estate sales are generally conducted
at a lower take-rate than our traditional GovDeals asset categories. For that reason, revenue as a percentage of GMV decreased to 8.2% from 9.9% last year.
As a result of the increase in revenues, segment direct profit increased 19.9%, or $9.4 million. Segment direct profit as a percentage of total revenue
remained relatively consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased 4.6%, or $7.3 million due to a 3.0%, or $6.9 million, increase in GMV as it continues to
diversify its client programs, sales channels, and its network of warehouses. Segment direct profit decreased by 1.3%, or $0.9 million, impacted by certain
client returns management programs which provided fewer higher value products than in prior years, including for some of our low touch services. As a
result, segment direct profit as a percentage of total revenue decreased by 2.3%.
CAG. Revenue from the CAG reportable segment increased by 7.4%, or $2.9 million due to a 18.9%, or $30.1 million, increase in GMV driven by
increasing opportunities to obtain and sell inventory under our purchase model, and strong consignment sales in the energy and heavy equipment
categories, partially offset by strong prior year consignment sales in the industrial category. Revenues did not increase at the same rate as GMV due to
increases in the mix of transactions conducted with partner organizations. Segment direct profit decreased 0.7%, or $0.2 million. Segment direct profit as a
percentage of total revenue decreased 5.6% due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period,
including increased international purchase transaction activity, some of which had lower than average margins due to incremental costs from COVID-19
related delays in conducting cross-border transactions. Further, challenged global supply chains experienced heightened disruptions from the Russian
invasion of Ukraine and its impacts on international trade and energy markets, COVID-19 and other disruptions, which limited the volume of assets made
available for sale.
Machinio. Revenue from our Machinio reportable segment increased 26.4%, or $2.5 million, due to an increase in subscription activity through a greater
number of subscribers and increased pricing. As a result of the increase in revenues, segment direct profit increased 27.6%, or $2.5 million.
45
Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
Year Ended September 30,
2022
2021
$ Change
% Change
Purchase revenues
Consignment and other fee revenues
Total revenues
Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Fair value adjustment of acquisition earn-outs
Other operating expenses, net
Total costs and expenses
Income from operations
Interest and other income, net
Income before income taxes
Provision (benefit) for income taxes
Net income
NM = not meaningful
$
$
151,271
128,779
280,050
$
146,151
111,380
257,531
119,407
55,522
43,224
28,282
10,322
(24,500 )
388
232,645
47,405
(248 )
47,653
7,329
40,324
$
107,678
47,673
37,635
28,938
6,969
—
1,470
230,363
27,168
(411 )
27,579
(23,370 )
50,949
$
$
5,120
17,399
22,519
11,729
7,849
5,589
(656 )
3,353
(24,500 )
(1,082 )
2,282
20,237
163
20,074
30,699
(10,625 )
3.5 %
15.6 %
8.7 %
10.9 %
16.5 %
14.9 %
(2.3 )%
48.1 %
NM
(73.6 )%
1.0 %
74.5 %
(39.7 )%
72.8 %
NM
(20.9 )%
Total revenues. Total consolidated revenue increased $22.5 million, or 8.7%. Refer to the discussion of Segment Results above for discussion of the
decrease in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $11.7 million, or 10.9%, which changed at a higher rate than
Revenue primarily due to an increase in purchase transactions at CAG and RSCG, which also contained a more favorable mix of higher value returned
products in the prior year.
Technology and operations expenses. Technology and operations expenses increased $7.8 million, or 16.5%, as we increased our technology and operations
functions to continue our growth, including RSCG's expansion of its network of warehouses, and launching AllSurplus Deals as a new marketplace offering
consumers deals for curbside pick-up.
Sales and marketing expenses. Sales and marketing expenses increased $5.6 million, or 14.9%, as we increased our sales and marketing functions to
continue our growth, including promotional efforts to expand our market share in key verticals, and to promote new business initiatives including our
AllSurplus Deals consumer marketplace.
General and administrative expenses. General and administrative expenses decreased $0.7 million, or 2.3%, primarily due to changes in expected
attainment of certain variable compensation targets, and partially offset by increased corporate support costs to support the anticipated growth resulting
from the increases in our technology, operations, sales and marketing functions.
Depreciation and amortization. Depreciation and amortization expense increased $3.4 million, or 48.1%, primarily due to the increase in intangible assets
following our acquisition of Bid4Assets on November 1, 2021.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs reflects a $24.5 million non-cash gain due to a reduction in
the fair value of the Bid4Assets earn-out liability during the year ended September 30, 2022. See Note 13 - Fair Value Measurement for further
information.
Interest and other income, net. Interest and other income, net increased $0.2 million, due to the effect of rising interest rates on our cash, cash equivalent
and short-term investment holdings.
46
Provision (benefit) for income taxes. Provision (benefit) for income taxes increased $30.7 million to an expense of $7.3 million from a benefit of $23.4
million due to the release of $27.9 million of our valuation allowance on U.S. deferred tax assets during the fiscal year ended September 30, 2021, and $2.8
million state and foreign income taxes. The Company's effective tax was 15.4% for the twelve months ended September 30, 2022. The 2022 effective tax
rate differed from the statutory federal rate of 21.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent adjustments,
the most significant of which was the exclusion of the $24.5 million non-cash from the fair-market value adjustment of the Bid4Assets acquisition earn-out
liability.
Non-GAAP Financial Measures
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income
(loss) plus Interest and other expense (income), net excluding the non-service components of net periodic pension (benefit); Provision (benefit) for income
taxes; and Depreciation and amortization. Interest and other expense (income), net, can include non-operating gains and losses, such as from foreign
currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA
for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense,
deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.
We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
•
•
•
•
Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are
non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in
evaluating the operating performance of our business on a consistent basis from year-to-year.
As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income
taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock
options, restricted stock, and stock appreciation rights to be recognized in the income statement based on their estimated fair values over the
requisite vesting period. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating
performance of our business on a consistent basis from year-to-year.
The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with
subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction
costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our
business on a consistent basis from year-to-year.
• We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a
consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
• We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our
ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
• We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are important indicators of our operational strength and the performance of
our business because they provide a link between profitability and operating cash flow.
• We also believe that analysts and investors use Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental measures to evaluate
the overall operating performance of companies in our industry.
Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:
•
•
as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove
the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budget;
47
•
•
•
to allocate resources to enhance the financial performance of our business;
to evaluate the effectiveness of our operational strategies; and
to evaluate our capacity to fund capital expenditures and expand our business.
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other
companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating
activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as
alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities, or our other financial information as
determined under GAAP.
We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core
operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an
analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP
Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
The table below reconciles Net income to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.
(1)
Net income
Interest and other (income) expense, net
Provision (benefit) for income taxes
Depreciation and amortization
Non-GAAP EBITDA
Stock compensation expense
Acquisition costs and impairment of goodwill and long-lived and other non-current
assets
Business realignment expenses
Fair value adjustments to acquisition earn-outs
Non-GAAP Adjusted EBITDA
(2,3)
(2)
2023
Year ended September 30,
2022
2021
$
20,978
(2,859 )
8,039
11,255
37,412
8,191
$
252
—
—
45,855
$
40,324
$
126
7,329
10,322
$
58,101
8,482
473
191
(24,500 )
$
42,747
50,949
(76 )
(23,370 )
6,969
34,472
6,947
1,464
5
—
42,888
$
$
$
(1)
(2)
Interest and other (income) expense, net excludes non-services pension and other postretirement benefit expense.
Acquisition costs and impairment of long-lived and other non-current assets, as well as Business realignment expenses, are components of Other
operating expenses, net on the Consolidated Statements of Operations.
(3)
Business realignment expense includes the amounts accounted for as exit costs under ASC 420, Exit or Disposal Cost Obligations, and the related
impacts of business realignment actions subject to other accounting guidance.
Liquidity and Capital Resources
Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate, and equipment used in
our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. The
Company has not paid a dividend historically, nor do we have any intention to do so in the foreseeable future. From time to time, we may use our capital
resources for other activities, such as contract start-up costs, joint ventures, share repurchases, and acquisitions. As of September 30, 2023, we had $110.3
million in cash and cash equivalents, which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial
statements.
Capital Expenditures
Our capital expenditures consist primarily of capitalized software, warehouse equipment, computers and purchased software, office equipment, furniture
and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers
or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and
operating cash flows. Our capital expenditures for the year ended September 30, 2023, were $5.4 million. As of September 30, 2023, we had no significant
outstanding commitments for capital expenditures.
48
Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support
development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-
added services and the costs to expand our network of warehouses. We may seek to enter agreements with respect to potential investments in, or
acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing. The sale of
additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased
interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in
amounts or on terms acceptable to us, if at all.
Credit Agreement
The Company maintains a $25.0 million Credit Agreement with Wells Fargo Bank, National Associated (the Credit Agreement). During the year ended
September 30, 2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First Amendment). No other
changes, including with respect to the borrowing terms or capacities, were made to the Credit Agreement as a result of the First Amendment).
The Company may draw upon the Credit Agreement for general corporate purposes. Repayments of any borrowings under the Credit Agreement shall
become available for redraw at any time by the Company. The interest rate on borrowings under the Credit Agreement is a variable rate per annum equal to
the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. During the
year ended September 30, 2023, the Company did not make any draws under the Credit Agreement. As of September 30, 2023, the Company had no
outstanding indebtedness under the Credit Agreement and our borrowing availability was $25.0 million.
The obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized
domestic subsidiaries and secured on a first priority basis by a security interest (subject to permitted liens) in substantially all assets owned by us, and each
of our other domestic subsidiaries, subject to limited exceptions. The Credit Agreement contains certain financial and non-financial restrictive covenants
including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA).
The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions,
investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of September 30, 2023, the Company was in full
compliance with the terms and conditions of the Credit Agreement.
Working Capital Management
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.
We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities, and tools for data-driven product
recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.
We intend to indefinitely reinvest the earnings of our foreign subsidiaries outside the United States. As a result, we did not record a provision for deferred
U.S. tax expense on the $10.6 million of undistributed foreign earnings as of September 30, 2023. As of September 30, 2023, and September 30, 2022,
$19.1 million and $20.3 million, respectively, of cash and cash equivalents was held outside of the U.S.
49
Other Uses of Capital Resources
Bid4Assets, Inc. Acquisition. On November 1, 2021, our GovDeals segment purchased all of the issued and outstanding shares of stock of Bid4Assets.
Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's
sales. Our investment through the acquisition of Bid4Assets will support continued growth in the GovDeals reportable segment, particularly in our real
estate vertical.
The acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $42.7 million consisting of
$14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a fair value of $28.0 million. As part of the
acquisition of Bid4Assets, former shareholders of Bid4Assets were eligible to receive earn-out consideration of up to $37.5 million in cash.
Through December 31, 2022, $3.5 million in earn-out payments were made. The remaining earn-out fair value was $0 based upon actual performance
through the final earn-out measurement period ended December 31, 2022. Through and as of the final measurement period ended December 31, 2022, $3.5
million in earn-out payments were made. See Note 3 - Bid4Assets Acquisition for further information.
Share Repurchases. From time to time, we may be authorized to repurchase issued and outstanding shares of our common stock under a share repurchase
program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or
otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of
factors including price, corporate and regulatory requirements, and other market conditions. The repurchase program may be discontinued or suspended at
any time and will be funded using our available cash.
On December 6, 2021, and May 13, 2022, the Company's Board of Directors authorized new stock repurchase plans of up to $20 million and $12 million,
respectively. The Company repurchased 408,211 shares for $5.4 million during the year ended September 30, 2022.
On December 6, 2022, March 13, 2023 and September 8, 2023, the Company's Board of Directors authorized new stock repurchase plans of up to $8.4
million, $8.0 million and $15.2 million, respectively. The Company repurchased 1,607,141 shares for $21.2 million during the year ended September 30,
2023.
As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.
Off-Balance Sheet Arrangements. We do not have any transactions, agreements or other contractual arrangements that could be considered material off-
balance sheet arrangements.
Changes in Cash Flows: 2023 Compared to 2022
Net cash provided by operating activities was $47.0 million and $44.8 million for the years ended September 30, 2023, and 2022, respectively. The $2.2
million increase in cash provided by operating activities between periods was attributable to $8.4 million of higher Net income as adjusted for non-cash
items; a $9.0 million increase in cash inflows from Accounts receivable driven by the collection of proceeds from large spot purchase transactions with
international clients conducted in the prior year; and a $2.9 million decrease in cash outflows from Accrued expenses and other current liabilities driven by
changes in other variable compensation targets. These increases were offset by a combined $18.0 million decrease in cash inflows associated with our
Accounts payable and Payables to sellers primarily due to lower volumes of foreclosed real estate property sales and timing differences in the payment of
GovDeals seller settlements relative to the period end date.
Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and
payments, and variations in our transaction volumes related to settlements between our buyers and sellers. As GovDeals real estate sales with settlement
services increase through the integration with Bid4Assets, operating cash flow fluctuations from accounts payable and payables to sellers are expected to
become more variable. The amount of cash received and settled will be substantially higher than our take-rate on such transactions, and the timing of
auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the
extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.
50
Net cash used in investing activities was $11.4 million and $21.1 million for the years ended September 30, 2023, and 2022, respectively. The $9.7 million
decrease in cash used in investing activities was driven by the prior year $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021,
net of cash acquired (see Note 3 - Bid4Assets Acquisition for further information), $2.7 million in lower capital expenditures, and $1.9 million from the
maturity of short-term investments. These decreases were offset by a $6.2 million increase in the purchase of short-term investments.
Net cash used in financing activities was $22.1 million and $31.9 million for the years ended September 30, 2023, and 2022, respectively. The $9.8 million
decrease in cash used by financing activities was primarily driven by $4.2 million of lower common stock repurchases in the current year, a $1.5 million
decrease in taxes paid associated with net settlement of stock compensation awards, and the non-recurring earn-out payment of $3.5 million made during
the year ended September 30, 2022, in connection with the Bid4Assets acquisition.
Changes in Cash Flows: 2022 Compared to 2021
Net cash provided by operating activities was $44.8 million and $65.4 million for the years ended September 30, 2022, and 2021, respectively. The $20.6
million decrease in cash provided by operating activities between periods was attributable to cash flows associated with a higher Accounts receivables
balance of $5.4 million driven by the completion of a significant international industrial partner purchase transaction during the year ended September 30,
2022, as well as Accounts payable and Payables to sellers which together had a net decrease of $11.5 million due to reduced rates of change in the
underlying transaction volumes during the current period. Our working capital accounts are subject to natural variations depending on the rate of change of
our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and
sellers. As GovDeals real estate sales with settlement services increase through the integration with Bid4Assets, operating cash flow fluctuations from
accounts payable and payables to sellers are expected to become more variable. The amount of cash received and settled will be substantially higher than
our take rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can
potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to
the working capital requirements for the Company.
Net cash used in investing activities was $21.1 million for the year ended September 30, 2022, and $1.0 million for the year ended September 30, 2021. The
$20.1 million increase in cash used in investing activities was driven by $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021,
net of cash acquired (see Note 3 - Bid4Assets Acquisition for further information), a non-recurring collection of note receivable principal payments during
the year ended September 30, 2021, totaling $4.3 million in connection with the JTC promissory note (see Note 2 - Summary of Significant Accounting
Policies for further information), a $2.7 million increase in new property and equipment purchases from expansion of our network of warehouses, and $1.8
million in purchases of short-term investments.
Net cash used in financing activities was $31.9 million for the year ended September 30, 2022, and $34.7 million for the year ended September 30, 2021.
The $2.7 million decrease in cash used by financing activities was primarily driven by $5.7 million of lower common stock repurchases in the current year
and a $1.1 million decrease in taxes paid associated with net settlement of stock compensation awards. These were offset by an earn-out payment of $3.5
million in connect with the Bid4Assets acquisition.
New Accounting Pronouncements
Information regarding our adoption of new accounting and reporting standards is discussed in Note 2 - Summary of Significant Accounting Policies, to the
consolidated financial statements included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Interest rate sensitivity. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our
investment activities are to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. As of September
30, 2023, we hold cash and cash equivalents and short-term investments that are subject to varying interest rates based upon their maturities. A hypothetical
100 basis point decline in interest rates would impact our pre-tax earnings by less than $1.0 million on an annualized basis.
51
As of September 30, 2023, we do not have any debt; however, should the Company draw on our Letter of Credit in the future, such draw would incur
interest as determined by the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%.
Exchange rate sensitivity. 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 generate revenues and incur expenses in both U.S. dollars and local currencies. Our primary foreign exchange exposures
include British Pounds, Canadian Dollars, Chinese Yuan, Euros, and Hong Kong Dollars. When we translate the results and net assets of our international
operations into U.S. dollars for financial reporting purposes, movements in exchange rates will affect our reported results. Volatile market conditions
arising from ongoing macroeconomic conditions such as rising interest rates at federal banks and armed conflicts around the world, may result in
significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars. A hypothetical 10% decrease in foreign
exchange rates reduce our total expected revenues by approximately 1%. The potential impact on pre-tax earnings would be less as total expected expenses
would also decrease.
Item 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 (the Exchange Act). This "Controls and Procedures" section includes information
concerning the controls and controls evaluation referred to in the certifications. The report of Deloitte & Touche 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 Deloitte & Touche 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 and Chief Financial Officer. Disclosure controls and procedures are controls and procedures designed to ensure
that information required to be disclosed in our reports filed under the Exchange Act, 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 and Chief Financial 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. Internal control over financial reporting is also separately evaluated on an annual basis for purposes of providing
the management report which is set forth below.
52
The evaluation of our disclosure controls included a review of the controls' objectives and design, our implementation of the controls and their effect on the
information generated for use in this Form 10-K. In the course of the controls evaluation, we reviewed identified data errors, control deficiencies and,
where appropriate, sought to confirm that appropriate corrective actions, including process improvements, were being undertaken. This type of evaluation
is performed on a quarterly basis so that the conclusions of management, including the Chief Executive Officer and Chief Financial 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 and Chief Financial 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 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 and Chief Financial 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 (a) pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP; and (c) 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, 2023, 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, Deloitte & Touche LLP, independently assessed the effectiveness of the Company's internal control over
financial reporting. Deloitte & Touche LLP has issued an attestation report, which is included at the end of this section.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will
be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to
their costs. Other inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of
simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management
override of the controls. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become
inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
53
Changes in Internal Control over Financial Reporting
During the three months ended September 30, 2023, no change occurred in our internal controls over financial reporting that materially affected, or is
reasonably likely to materially affect, our internal controls over financial reporting.
54
To the Stockholders and the Board of Directors of Liquidity Services, Inc.
Opinion on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm
We have audited the internal control over financial reporting of Liquidity Services, Inc. and subsidiaries (the “Company”) as of September 30, 2023, based
on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September
30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of and for the fiscal year ended September 30, 2023, of the Company and our report dated December 7, 2023, expressed an
unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management Report on Internal Control 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/ Deloitte and Touche LLP
McLean, Virginia
December 7, 2023
Item 9B. Other Information.
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
55
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
Incorporated by reference from the Company's Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed with the SEC within 120
days after September 30, 2023.
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
is available on our website at
http://investors.liquidityservices.com. We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of
Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
functions. The Code of Conduct
similar
Item 11. Executive Compensation.
Incorporated by reference from the Company's Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed with the SEC within 120
days after September 30, 2023.
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 2024 Annual Meeting of Stockholders to be filed with the SEC within 120
days after September 30, 2023.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Incorporated by reference from the Company's Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed with the SEC within 120
days after September 30, 2023.
Item 14. Principal Accountant Fees and Services.
Incorporated by reference from the Company's Proxy Statement relating to its 2024 Annual Meeting of Stockholders to be filed with the SEC within 120
days after September 30, 2023.
56
Item 15. Exhibits and Financial Statement Schedules.
(a)
PART IV
(1)
The following documents related to the financial statements are filed as part of this report:
Reports of Independent Registered Public Accounting Firms (PCAOB ID No.'s 34 and 42, respectively)
Consolidated Balance Sheets as of September 30, 2023, and 2022
Consolidated Statements of Operations for the years ended September 30, 2023, 2022, and 2021
Consolidated Statements of Comprehensive Income for the years ended September 30, 2023, 2022, and 2021
Consolidated Statements of Stockholders' Equity for the years ended September 30, 2023, 2022, and 2021
Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022, and 2021
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, 2023, 2022, and 2021:
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.
57
Page
58
61
62
63
64
65
66
96
To the Stockholders and the Board of Directors of Liquidity Services, Inc.
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc. and subsidiaries (the "Company") as of September 30, 2023 and
2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the two years in the period
ended September 30, 2023, and the related notes and schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements"). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the
results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 7, 2023, expressed an unqualified opinion on
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or
required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical
audit matter or on the accounts or disclosures to which it relates.
Revenue - Refer to Note 2 to the consolidated financial statements
Critical Audit Matter Description
The Company earns revenue on transactions where (1) they resell inventory that they purchase from sellers, (2) from the sale of inventory that is sold on a
consignment basis, and (3) from other non-consignment fee transactions. When acting as a principal, the Company purchases an asset or assets from a seller
and then seeks to sell the asset or assets to a buyer. The Company then recognizes as purchase revenue the gross proceeds from the sale, including buyer's
premiums. When the Company is acting as an agent, its performance obligation is to arrange for the seller to sell an asset or assets to the buyer directly. The
Company recognizes consignment and other fee revenues based on the sales commissions that are paid to the Company by the sellers for utilizing the
Company's services. Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is
complete, or the service has been provided.
58
We identified a critical audit matter related to revenue transactions recorded, which required an increased extent of effort, including the need for us to
involve professionals with expertise in information technology ("IT"), to identify, test, and evaluate the Company’s systems, applications and automated
controls.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s revenue transactions included the following, among others:
• With the assistance of our IT specialists, we:
o
o
Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems,
including testing of user access controls, change management controls, and IT operations controls.
Performed testing of system interface controls and automated controls relevant to revenue processes.
• We tested internal controls within the relevant revenue processes, including those in place to reconcile the various systems to the Company’s
general ledger.
• We either developed an independent expectation of revenue and compared such expectation to the amounts recorded by the Company, or
performed detailed transaction testing for a sample of revenue transactions, which included the following:
o
o
Agreed the selected revenue transaction amounts recognized to underlying source documents.
Tested the classification of each transaction as either purchase revenue, where the Company acts as a principal and records revenue
based on the gross value of the asset sale, or commission and other fee revenue, where the Company acts as an agent and records only
the fee earned net of the sale transaction value.
/s/ Deloitte and Touche LLP
McLean, Virginia
December 7, 2023
We have served as the Company’s auditor since 2021.
59
To the Stockholders and the Board of Directors of Liquidity Services, Inc. and Subsidiaries
Opinion on the Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the consolidated statement of operations, comprehensive income, stockholders' equity and cash flows for the year ended September 30,
2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for
the year ended September 30, 2021, in conformity with U.S. generally accepted accounting principles.
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 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 the financial statements are free of material misstatement, whether due to error or fraud. Our audit 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 audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We served as the Company's auditor from 2001 to 2021.
Tysons, Virginia
December 9, 2021
60
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)
September 30,
2023
2022
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for doubtful accounts of $1,424 and $449
Inventory, net
Prepaid taxes and tax refund receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease assets
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
Current portion of operating lease liabilities
Deferred revenue
Payables to sellers
Total current liabilities
Operating lease liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 36,142,346 shares issued and
outstanding at September 30, 2023; 35,724,057 shares issued and outstanding at September 30, 2022
Additional paid-in capital
Treasury stock, at cost; 5,433,045 shares at September 30, 2023, and 3,813,199 shares at September
30, 2022
Accumulated other comprehensive loss
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
$
$
$
110,281
7,891
7,848
11,116
1,783
7,349
146,268
17,156
9,888
12,457
89,388
7,050
6,762
288,970
39,115
23,809
4,101
4,701
48,992
120,718
6,581
137
127,436
36
265,945
(84,031 )
(10,457 )
(9,958 )
161,533
288,970
$
96,122
1,819
11,792
11,679
1,631
6,551
129,594
19,094
13,207
16,234
88,910
13,628
7,437
288,104
41,982
23,304
4,540
4,439
49,238
123,503
9,687
378
133,568
36
258,275
(62,554 )
(10,285 )
(30,936 )
154,536
288,104
See accompanying notes to the consolidated financial statements.
61
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
Purchase revenues
Consignment and other fee revenues
Total revenue
Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)
Technology and operations
Sales and marketing
General and administrative
Depreciation and amortization
Fair value adjustment of acquisition earn-outs
Other operating expenses, net
Total costs and expenses
Income from operations
Interest and other income, net
Income before provision for income taxes
Provision (benefit) for income taxes
Net income
Basic income per common share
Diluted income per common share
Basic weighted average shares outstanding
Diluted weighted average shares outstanding
$
$
$
$
2023
Year Ended September 30,
2022
2021
172,089 $
142,373
314,462
142,322
57,078
49,443
28,074
11,255
—
186
288,358
26,105
(2,912 )
29,016
8,039
20,978 $
0.68 $
0.65 $
151,271 $
128,779 $
280,050
119,407
55,522
43,224
28,282
10,322
(24,500 )
388
232,645
47,405
(248 )
47,653
7,329
40,324 $
1.25 $
1.20 $
146,151
111,380
257,531
107,678
47,673
37,635
28,938
6,969
—
1,470
230,363
27,168
(411 )
27,579
(23,370 )
50,949
1.53
1.45
31,075,648
32,074,561
32,292,978
33,719,424
33,333,557
35,024,108
See accompanying notes to the consolidated financial statements.
62
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars In Thousands)
Net income
Other comprehensive (loss) income:
Defined benefit pension plan—unrecognized amounts
Foreign currency translation
Other comprehensive (loss) income
Comprehensive income
$
$
2023
Year Ended September 30,
2022
2021
20,978 $
40,324 $
(1,411 )
1,238
(173 )
20,805 $
1,836
(3,110 )
(1,274 )
39,050 $
50,949
170
601
771
51,720
See accompanying notes to the consolidated financial statements.
63
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Dollars In Thousands)
Common Stock
Treasury Stock
Shares
34,082,40
6
—
Amount
$
$
34
—
1,605,618
(217,196 )
(13,733 )
Balance at September 30, 2020
Net income
Exercise of common stock options and vesting of
restricted stock
Tax settlements associated with stock compensation
expense
Forfeiture of restricted stock awards
Common stock repurchases
Common stock surrendered in the exercise of stock
options
Stock compensation expense
Defined benefit pension plan—unrecognized amounts,
net of taxes
Foreign currency translation and other
Balance at September 30, 2021
Net income
Exercise of common stock options, grants of restricted
stock awards, and vesting of restricted stock units
Taxes paid associated with net settlement of stock
compensation awards
Common stock repurchases
Common stock surrendered in the exercise of stock
options
Forfeiture of restricted stock awards
Stock compensation expense
Defined benefit pension plan—unrecognized amounts,
net of taxes
Foreign currency translation
Balance at September 30, 2022
Net income
Exercise of common stock options, grants of restricted
stock awards, and vesting of restricted stock units
Taxes paid associated with net settlement of stock
compensation awards
Common stock repurchases
Common stock surrendered in the exercise of stock
options
Forfeiture of restricted stock awards
Stock compensation expense
Defined benefit pension plan—unrecognized amounts,
net of taxes
Foreign currency translation and other
Balance at September 30, 2023
(140,202 )
—
—
—
—
35,457,09
5
—
664,921
—
—
(257,757 )
—
—
—
35,724,05
7
—
500,540
(82,252 )
—
—
—
—
—
—
36,142,34
5
Additio
nal
Paid-in
Capital
247,89
Shares
Amount
Accumul
ated
Other
Compreh
ensive
Income
(Loss)
Retained
Earnings
(Accumul
ated
Loss)
(122,34
Total
2
—
444
(547,508 ) $
—
(3,983 ) $
—
(9,782 ) $
—
6 ) $ 111,815
50,949
50,949
—
—
—
—
445
(3,915 )
—
—
—
—
—
—
—
—
—
(3,915 )
—
(1,591,9
—
63 )
(31,143 )
—
—
(31,143 )
1,502
6,094
(82,612 )
—
(1,502 )
—
—
—
—
—
—
6,094
—
—
—
—
—
—
170
601
(1 )
170
600
252,01
(2,222,0
$
$
35
—
7
—
83 ) $
—
(36,628 ) $
—
(9,011 ) $ (71,398 ) $ 135,015
40,324
40,324
—
$
$
36
—
1
—
—
—
—
—
—
—
(1 )
—
—
—
—
—
(2,805 )
—
—
—
—
(2,805 )
(1,567,2
—
77 )
(25,447 )
—
—
(25,447 )
478
—
8,586
—
—
(23,839 )
—
—
(479 )
—
—
—
—
—
—
—
—
(1 )
—
8,586
—
—
—
—
1,836
(3,110 )
—
138
1,836
(2,972 )
258,27
(3,813,1
5
—
495
99 ) $
—
(62,554 ) $ (10,285 ) $ (30,936 ) $ 154,536
20,978
20,978
—
—
—
—
—
—
495
(1,261 )
—
—
—
—
(1,261 )
(1,607,1
—
41 )
(21,277 )
—
—
(21,277 )
200
—
8,235
—
—
(12,705 )
—
—
(200 )
—
—
—
—
—
—
—
—
—
(1,411 )
1,238
—
—
—
—
1
—
—
8,235
(1,411 )
1,239
$
36
$
5
45 ) $
(84,031 ) $ (10,458 ) $
(9,958 ) $ 161,533
265,94
(5,433,0
1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
See accompanying notes to the consolidated financial statements.
64
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
2023
Year Ended September 30,
2022
2021
$
20,978 $
40,324
$
50,949
Depreciation and amortization
Change in fair value of earn-out liability
Stock compensation expense
Inventory adjustment to net realizable value
Provision for doubtful accounts
Deferred tax expense (benefit)
Impairment of long-lived and other non-current assets
(Gain) loss on disposal of property and equipment
Gain on disposal of lease assets
Changes in operating assets and liabilities:
Accounts receivable
Inventory
Prepaid taxes and tax refund receivable
Prepaid expenses and other assets
Operating lease assets and liabilities
Accounts payable
Accrued expenses and other current liabilities
Deferred revenue
Payables to sellers
Other liabilities
Net cash provided by operating activities
Investing activities
Purchases of property and equipment, including capitalized software
Proceeds from note receivable
Purchase of short-term investments
Maturities of short-term investments
Cash paid for business acquisition, net of cash acquired
Other investing activities, net
Net cash (used in) provided by investing activities
Financing activities
Payments of the principal portion of finance lease liabilities
Payments of debt issuance costs
Proceeds from exercise of common stock options, net of tax
Taxes paid associated with net settlement of stock compensation awards
Payment of earn-out liability related to business acquisition
Common stock repurchases
Net cash used in financing activities
Effect of exchange rate differences on cash and cash equivalents
Net increase (decrease) 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
Cash paid for income taxes, net
Non-cash: Common stock surrendered in the exercise of stock options
11,255
—
8,191
1,048
1,390
6,578
—
(36 )
—
2,725
(479 )
(152 )
(1,166 )
(228 )
(2,889 )
277
262
(581 )
(157 )
47,016
(5,386 )
—
(8,037 )
1,923
—
68
(11,432 )
(101 )
—
496
(1,262 )
—
(21,198 )
(22,065 )
640
14,159
96,122
110,281 $
10,322
(24,500 )
8,482
194
136
6,287
31
(14 )
(240 )
(6,290 )
441
82
(1,805 )
396
1,548
(2,653 )
(185 )
13,000
(723 )
44,833
(8,121 )
—
(1,820 )
—
(11,164 )
21
(21,084 )
(99 )
(91 )
—
(2,806 )
(3,500 )
(25,447 )
(31,943 )
(2,019 )
(10,213 )
106,335
96,122
1,590 $
200 $
885
479
$
$
$
6,969
—
6,947
174
297
(24,510 )
1,338
80
(23 )
(843 )
(7,035 )
(61 )
(2,022 )
(79 )
18,554
6,060
1,369
7,543
(290 )
65,417
(5,419 )
4,343
—
—
—
72
(1,004 )
(42 )
—
445
(3,915 )
—
(31,143 )
(34,655 )
541
30,299
76,036
106,335
1,442
1,502
$
$
$
See accompanying notes to the consolidated financial statements.
65
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization
Liquidity Services, Inc. (Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace platforms that
power the circular economy. We create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic
value of surplus. We connect millions of buyers and thousands of sellers through our leading e-commerce auction marketplaces, search engines, asset
management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items
owned by business and government sellers.
Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our online marketplace platforms. These platforms ignite
and enable a self-reinforcing cycle of value creation where buyers and sellers attract one another in greater numbers. The result of this cycle is a continuous
flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers,
buyers, and shareholders.
Liquidity Services was incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets is a
leading online marketplace focused on conducting real property auctions for government entities, including tax foreclosure sales and sheriff's sales. See
Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Operating Segments
The Company has four reportable segments under which we conduct business: GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group
(RSCG), and Machinio. Further information and operating results of our reportable segments can be found in Note 16 - Segment Information.
•
•
•
•
GovDeals. The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies
located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals
and Bid4Assets marketplaces (see Note 3 - Bid4Assets Acquisition).
RSCG. The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess,
returned, and overstocked consumer goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-
commerce solutions. This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination
of velocity, volume, and value.
CAG. The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus
assets. The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics.
CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. CAG benefits from a global
base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use
across the world. This segment primarily uses the AllSurplus and GovDeals marketplaces.
Machinio. The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction,
machine tool, transportation, printing and agriculture sectors. Machinio also offers the Machinio System service that provides equipment sellers
with a suite of online marketing tools that includes website hosting, email marketing, and inventory management, to support and enable
equipment sellers’ online business.
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 including inflationary pressures and
impacts from interest rate changes; armed conflicts around the world; 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 terminate or not renew their contracts
with the Company.
66
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires
management to make estimates and assumptions that affect amounts in the consolidated financial statements and accompanying notes. Actual results could
differ significantly from those estimates.
Principles of Consolidation and Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America. In addition, in the opinion of management, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair
presentation of the results for the periods presented have been included.
Business Combinations
The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the
acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in periods
subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price (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 Consolidated Statements of Operations in the period it is modified. All subsequent changes to a valuation allowance or uncertain
tax position that relate to the acquired company and existed at the acquisition date that occur both within the measurement period and as a result of facts
and circumstances that existed at the acquisition date, are recognized as an adjustment to goodwill. All other changes in valuation allowances are
recognized as a reduction or increase to income tax expense or as a direct adjustment to additional paid-in capital as required.
Cash and Cash Equivalents
The Company considers all highly liquid securities purchased with an initial maturity of three months or less to be cash equivalents and are included as a
current asset in the line-item Cash and cash equivalents within our Consolidated Balance Sheets. Interest income earned through our cash and cash
equivalents are recorded to Interest and other income, net within the Consolidated Statements of Operations.
Short-term Investments
The Company's short-term investments are designated as held-to-maturity investment securities, recorded at amortized cost, and are included as a current
asset in the line-item Short-term investments within our Consolidated Balance Sheets as their maturity is less than one year from the balance sheet date.
Interest income earned through our short-term investments are recorded to Interest and other income, net within the Consolidated Statements of Operations.
Accounts Receivable
Accounts receivable are recorded at the invoiced amount and are non-interest-bearing. The Company maintains an allowance for doubtful accounts to
reserve for potentially uncollectible receivables. Changes in allowances, which are included in Sales and marketing within the Consolidated Statements of
Operations, are based on management’s judgment, which considers historical bad debt experience, a specific review of all significant outstanding invoices,
customer-specific information and relevant conditions, and an assessment of general economic conditions. As of September 30, 2023, the Company's bad
debt allowance was $1.4 million.
67
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Inventory
Inventory consists of property obtained for resale, generally through the online auction process, and is stated at the lower of cost or net realizable value in
the line-item Inventory, net on the Consolidated Balance Sheets. Cost is generally determined using the specific identification method. Costs associated
with our warehouse operations are expensed as incurred and included within Technology and operations expenses in the Consolidated Statements of
Operations. Charges for unsellable inventory, as well as for inventory written down to 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, 2023, the Company's Inventory, net on its Consolidated Balance Sheet reflects
adjustments to net realizable value of $1.0 million. Adjustments to net realizable value reflected in the Inventory, net balances as of September 30, 2022,
were immaterial.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include the short-term portion of contract assets (described in "Contract Assets and Liabilities"), capitalized sales
commissions paid (described in "Contract Costs"), as well as other miscellaneous prepaid expenses.
Other Assets - Promissory Note
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 five-year interest-bearing
promissory note to the Company.
On October 10, 2019, the Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and Guaranty Agreement (the
Forbearance Agreement) with Tanager (now known as Jacobs Trading, LLC) and certain of its affiliates (collectively, JTC). In exchange for additional
collateral, security, and a higher interest rate, the Company granted JTC a new repayment schedule that requires quarterly payments to be made from
August 2020 to August 2023. Upon execution of the Forbearance Agreement, JTC repaid $2.5 million in principal, plus $0.4 million of accrued interest.
As of March 31, 2021, JTC had repaid $7.7 million of the $12.3 million owed to the Company and had an outstanding principal balance of $4.6 million.
On May 12, 2021, the Company entered into the First Amendment to the Forbearance Agreement with JTC, providing JTC with full satisfaction and
discharge from its indebtedness upon receipt of a $3.5 million payment made on May 17, 2021. As a result, the Company recorded a $1.1 million loss as
component of Other operating expenses in its Consolidated Statements of Operations during the year ended September 30, 2021, representing the difference
between the $4.6 million outstanding balance of principal and accrued interest and the $3.5 million payment received. There was no impact on the
consolidated financial statements from the Forbearance Agreement as of and during the fiscal years ended September 30, 2022 and 2023.
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
Equipment
Furniture and fixtures
Internally developed software for internal-use
Leasehold improvements
Buildings
Vehicles
Land
One to five years
Two to five years
Five to seven years
Two to five years
Shorter of lease term or useful life
Thirty-nine years
Five years
Not depreciated
68
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Leases
The Company determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract provides the right to control the use of
an identified asset for a period of time.
Lease assets and liabilities are recognized at the lease commencement date at an amount equal to the present value of the lease payments to be made over
the lease term. The lease payments represent the combination of lease and nonlease components. The discount rate used to determine the present value is
the Company’s incremental borrowing rate for a duration that is consistent with the lease term, as the rates implicit in the Company’s leases are generally
not determinable. The Company’s incremental borrowing rate is estimated using publicly available information for companies with comparable financial
profiles, adjusted for the impact of collateralization. The lease term includes the impacts of options to extend or terminate the lease only if it is reasonably
certain that the option will be exercised.
Lease expense related to operating lease assets and liabilities is recognized on a straight-line basis over the lease term. Lease expense related to finance
lease assets is recognized on a straight-line basis over the shorter of the useful life of the asset or the lease term, while lease expense related to finance lease
liabilities is recognized using the interest method. Lease-related payments not included in the determination of the lease assets and liabilities, such as
variable lease payments, are expensed as incurred.
Lease assets and liabilities are not recognized when the lease term is 12 months or less; however, short-term lease expense is still recognized on a straight-
line basis over the lease term.
Balances related to the Company's operating leases are included within Operating lease assets, Current portion of operating lease liabilities, and Operating
lease liabilities (non-current portion of operating lease liabilities) on the Consolidated Balance Sheets.
Balances related to the Company's finance leases are included within Other assets (finance lease assets), Accrued expenses and other current liabilities
(current portion of finance lease liabilities), and Other long-term liabilities (non-current portion of finance lease liabilities) on the Consolidated Balance
Sheets.
Lease assets are assessed for impairment in accordance with the Company’s accounting policy for the impairment of long-lived assets.
Intangible Assets
Intangible assets 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. The Company did not record
impairment charges on material long-lived assets during the years ended September 30, 2023, 2022, and 2021.
Goodwill
Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. The Company 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.
69
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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.
In applying a fair value-based test, 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.
Deferred Revenue
Deferred revenue is primarily derived from Machinio Advertising and System subscriptions that range primarily from one to twenty-four months.
Subscription fees are recognized ratably over the term of the agreements.
Revenue Recognition
In the Consolidated Statements of Operations, revenue from the resale of inventory that the Company purchases from sellers is recognized within Purchase
revenues. Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-consignment fee revenue, which includes
Machinio's subscription services, is recognized within Consignment and other fee revenues.
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: (a) whether the Company is primarily responsible for fulfilling the promise to provide the asset or assets; (b) whether the Company has
inventory risk of the asset or assets before they are transferred to the buyer; and (c) whether the Company has discretion in establishing the price for the
asset or assets.
The Company enters into contracts with buyers and sellers. The Company has master agreements with some sellers pertaining to the sale of a flow of
surplus assets over the term of the master agreement; however, a revenue contract for accounting purposes exists when the Company agrees to sell a
specific asset or assets. When acting as a principal (a “purchase” arrangement), the Company purchases an asset or assets from a seller and then the
Company seeks to sell the asset or assets to a buyer. The Company recognizes as Purchase revenues 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 Consignment revenues, which are composed of buyer's premiums and/or sales commissions, based on the
amounts that are paid to the Company by the buyers and sellers for utilizing the Company's services, which represent a percentage of the gross transaction
proceeds.
70
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
For the Company’s CAG segment, certain transactions may involve cooperation with third parties to satisfy the performance obligation of arranging for the
sale of assets to a buyer, with proceeds shared among the parties. When the Company controls whether to use third parties to fulfill its performance
obligation, it is considered the principal and revenue is recognized based on the gross purchase or consignment proceeds, with amounts due to third parties
recognized as an expense. When the seller requests multiple parties to fulfill its performance obligation, the Company is considered the agent and revenue
is recognized based on the net purchase or consignment proceeds to be retained by the Company.
In both purchase and consignment arrangements, the Company sometimes provides varying levels of services to the seller, such as returns management,
refurbishment of assets, or valuation services. These services are considered integrated with the broader performance obligation to sell the seller’s assets to
a buyer. Other services provided to sellers are not capable of being distinct, like providing access to the Company’s e-commerce marketplaces or promoting
the asset or assets for sale, because they could not benefit the seller separately from the sale of their assets.
The consideration received from buyers and sellers includes (a) buyer’s premiums, (b) seller’s commissions, and (c) fees for services, including reimbursed
expenses. Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the
service has been provided. Recognition of variable consideration that is based on the 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. 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. The Company's revenue is generally recorded subsequent to receipt of payment authorization, utilizing credit cards,
wire transfers and other methods of payments. Goods are generally not shipped before payment is received. For certain transactions, payment is due upon
invoice and the payment terms vary depending on the segments.
The Company collects and remits sales taxes on merchandise that it purchases and sells and has elected the practical expedient to exclude such sales tax
amounts from the transaction price. The Company also provides shipping and handling services in some arrangements and has elected the practical
expedient to treat those activities as fulfillment costs and will recognize the costs of these services at the time revenue is recognized for the related assets
sold. 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 purchase and consignment performance obligations are satisfied at the point in time when control of the asset is transferred to the buyer or
when the service is completed. The Company determines when control has transferred by evaluating the following five indicators: (a) whether the
Company has a present right to payment for the asset or assets; (b) whether the buyer has legal title to the asset; (c) whether the buyer has physical
possession of the asset or assets; (d) whether the buyer has the significant risks and rewards of ownership; and (e) whether the buyer has accepted the asset
or assets.
For the Company's Machinio segment, the performance obligation has been identified as the stand ready obligation to provide access to the Machinio
subscription services, which it satisfies over time and recognizes as other fee revenues. As of September 30, 2023, the Machinio segment had a remaining
performance obligation of $4.7 million; the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.
Cost of Goods Sold
Cost of goods sold includes direct and incremental costs of purchasing inventory, transporting property for auction, shipping and handling costs, and credit
card transaction fees. For transactions where the Company resells inventory that was purchased from sellers, the cost of goods sold includes the cost of that
inventory, generally using specific identification. There are no inventory costs associated with consignment sales.
71
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
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 $0.9 and $0.9 million as
of September 30, 2023, and 2022, respectively, and is included in the line-item Prepaid expenses and other current assets on the Consolidated Balance
Sheets.
Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from upfront
payments received in connection with Machinio's subscription services. The contract liability balance was $4.7 million and $4.4 million as of September
30, 2023, and 2022, respectively, and is included in the line-item Deferred revenue on the Consolidated Balance Sheet. Of the September 30, 2022 contract
liability balance, $4.4 million was earned as Fee Revenue during the year ended September 30, 2023.
Contract Costs
Contract costs relate to sales commissions paid on subscription contracts that are capitalized within our Machinio segment. Contract costs are amortized
over the expected life of the customer contract. The contract cost balance was $2.2 million and $1.8 million as of September 30, 2023, and 2022,
respectively, and is included in the line-item Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheets. Amortization
expense was $1.3 million and $1.1 million during the year ended September 30, 2023, and 2022, respectively.
Risk Associated with Certain Concentrations
For the majority of 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 on the Consolidated Balance Sheets. The Company releases the funds to the seller, less the Company's commission and other
fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct
business.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks within non-
interest bearing, interest-bearing, and earnings allowance checking accounts, as well as cash equivalent money market funds, all of which exceed the
applicable U.S. federal (FDIC and/or SIPC) and local jurisdiction (foreign banking institutions) insurance limits, and Accounts receivable.
The Company deposits its cash in interest bearing checking accounts, acquires cash equivalent money market funds, and holds short-term investments
designated as held-to-maturity investment securities, each with financial institutions that the Company considers to be of high credit quality. Management
continually monitors the financial institutions with whom we conduct business and responds appropriately, when necessary, to manage potential risk
exposure to our cash balances above the insurance limits.
We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While purchase model transactions
account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated
Costs of goods sold. $5.8 million and $8.1 million of inventory purchased under such contracts with Amazon.com, Inc. is included in our Consolidated
Inventory balances as of September 30, 2023, and 2022, respectively. Our vendor contracts with respect to sourcing or consigning merchandise for our
RSCG segment generally reflect the concentration dynamics inherent to the retail industry.
72
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Income Taxes
The Company accounts for income taxes using an asset and liability approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which the taxes
are expected to be paid or recovered. 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. 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. Where applicable, the expected term assumption is derived separately for homogenous groups
within the overall award population. 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 of 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 the award. The Company accelerates expense when a stock price target is achieved prior to the
derived service period, and reverses expense recognized if the stock price target(s) are not ultimately achieved, as required by liability accounting for
market-based awards.
The Company recognizes the impact of forfeitures in the period they occur.
Compensation expense from the stock awards is included in the same lines on the Consolidated Statements of Operations as the cash compensation to the
employees receiving the stock awards.
73
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Excess tax benefits realized from stock awards are reported as cash flows from operating activities on the Consolidated Statements of Cash Flows.
Advertising Costs
Advertising expenditures are expensed as incurred. Advertising costs charged to expense were $4.5 million, $4.6 million, and $3.2 million for the years
ended September 30, 2023, 2022, and 2021, respectively.
Treasury Stock
Treasury stock is presented at cost, including any applicable excise taxes, commissions and fees, as a reduction of stockholders’ equity in the Consolidated
Balance Sheets and Consolidated Statement of Stockholders' Equity. Treasury stock held by us may be retired or reissued in the future.
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, a separate
component of stockholders' equity. Realized and unrealized foreign currency transaction gains and losses are included in Interest and other income, net in
the Consolidated Statements of Operations.
Accumulated Other Comprehensive Loss
The following table shows the changes in accumulated other comprehensive loss, net of taxes (in thousands):
Balance at September 30, 2020
Current-period other comprehensive income
Balance at September 30, 2021
Current-period other comprehensive (loss)
Balance at September 30, 2022
Current-period other comprehensive (loss)
Balance at September 30, 2023
Recent Accounting Pronouncements
Accounting Standards Adopted
Foreign
Currency
Translation
Adjustments
Net Change
Pension and
Other
Postretirement
Benefit Plans
Accumulated
Other
Comprehensive
Loss
$
$
(8,085 ) $
601
(7,484 )
(3,110 )
(10,594 )
1,238
(9,356 ) $
(1,697 ) $
170
(1,527 )
1,836
309
(1,411 )
(1,102 ) $
(9,782 )
771
(9,011 )
(1,274 )
(10,285 )
(173 )
(10,458 )
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes. The Company adopted the new standard on a prospective basis effective October 1, 2021. This accounting
standard has not had a material impact on the Company's consolidated financial statements.
74
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or ASC 326. ASC 326, including all
amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on
financial instruments and other commitments to extend credit. ASC 326 will require estimation of expected credit losses using a methodology that takes
into consideration a broad range of reasonable and supportable information. The guidance will be effective for the Company beginning on October 1, 2023,
due to the fact that the Company was classified as a smaller reporting company defined by the SEC at the time the rule was effective for public business
entities. The guidance will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the
adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expects to estimate
credit losses on its financial assets such as its Accounts receivable and money market funds. We do not expect the adoption of this ASU will have a material
impact on our consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. It will require
organizations to provide enhanced disclosures primarily regarding significant segment expenses. The guidance will be effective for the Company
beginning with its Annual Report on Form 10-K for the fiscal year ending September 30, 2025. The guidance is required to be applied on a retrospective
basis, with all such required disclosures to be made with regard to all fiscal years presented in the financial statements. The Company is currently
evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.
3. Bid4Assets Acquisition
On November 1, 2021, our GovDeals segment purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland
corporation. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales
and sheriff's sales. The results of Bid4Assets' operations are included within our GovDeals reportable segment and reporting unit.
The acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $42.7 million consisting of
$14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a preliminary fair value of $28.0 million.
Former shareholders of Bid4Assets were eligible to receive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets'
achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.
The Company's allocation of the purchase price to the assets acquired and liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, is
as follows:
(in thousands)
Cash and cash equivalents
Intangible assets
Other assets
Total assets acquired
Payables to sellers
Operating lease liabilities
Deferred tax liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Total consideration transferred
75
Fair Value
3,576
16,500
346
20,422
3,715
204
3,847
7,766
12,656
30,083
42,739
$
$
$
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as Goodwill. The Goodwill associated with
our acquisition includes the acquired assembled work force, and the value associated with the opportunity to leverage the workforce to continue to grow by
adding additional customer relationships or new solutions in the future. Based on management's valuation of the fair value of tangible and intangible assets
acquired and liabilities assumed, Goodwill of approximately $30.1 million was recorded. The total Goodwill arising from the acquisition is included in the
GovDeals reportable segment and reporting unit and is not deductible for tax purposes.
The known intangible assets acquired were determined to consist of, and fair valued at, the following:
(in thousands)
Contract intangibles
Developed software
Trade name
Total identifiable intangible assets
Contract Intangibles
Useful Life (in years)
8
3
3
$
$
Fair Value
13,900
2,200
400
16,500
We recorded contract intangibles separately from goodwill based upon determination of the length, strength, and contractual nature of the relationship that
Bid4Assets shared with its suppliers. We valued the contract intangibles using the multi-period excess earnings method, an income approach valuation
model. The significant assumptions used in the income approach includes estimates about future expected cash flows from supplier contracts, the attrition
rate, and the discount rate. We are amortizing the contract intangibles, valued at $13.9 million, on a straight-line basis over a useful life of eight years,
which is materially consistent with the expected pattern of economic benefit.
Developed Software
Developed software primarily consists of intellectual property of the Bid4Assets e-commerce marketplace and associated mailing lists. We valued the
developed software by applying the relief-from-royalty method, an income approach valuation model. The significant assumptions used in the relief-from-
royalty method include estimates about future expected cash flows from the developed software, the royalty rate, the obsolescence factor and the discount
rate. We are amortizing the acquired developed technology, valued at $2.2 million, on a straight-line basis over a useful life of three years, which is
materially consistent with the expected pattern of economic benefit.
Trade Name
We valued the trade name acquired using a relief-from-royalty method. The significant assumptions used in the relief-from-royalty method include future
expected cash flows from the trade name, the royalty rate, and the discount rate. We are amortizing the trade name, valued at $0.4 million, on a straight-line
basis over a useful life of three years, which is materially consistent with the expected pattern of economic benefit.
Contingent Consideration
During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded contingent consideration in the amount
of $28.0 million on its Consolidated Balance Sheets. Through and as of the final measurement period ended December 31, 2022, $3.5 million in earn-out
payments were made. See further discussion of this matter within Note 13 - Fair Value Measurement.
Other Information
Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the consolidated financial statements and its
related notes for the years ended September 30, 2023, and 2022.
4. Earnings Per Share
76
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company calculates basic EPS by dividing net income by the weighted-average number of common shares outstanding during the reporting period,
excluding unvested restricted stock awards.
The Company calculates diluted net income per share by dividing net income by the weighted-average number of common shares and potentially dilutive
common shares outstanding during the reporting period using the treasury stock method.
The Company's potentially dilutive common shares include stock options, restricted stock units, and restricted stock awards. For such awards that have
performance- or market-conditions, they are considered dilutive 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.
In periods of net income, the calculation of diluted net income per share will exclude all anti-dilutive common shares.
The computation of basic and diluted net income per share is as follows:
Numerator:
Net income
Denominator:
Basic weighted average shares outstanding
Dilutive impact of stock options, RSUs and RSAs
Diluted weighted average shares outstanding
Basic income per common share
Diluted income per common share
Stock options, RSUs and RSAs excluded from income per diluted share because their
effect would have been anti-dilutive
$
$
5. Property and Equipment
2023
Year Ended September 30,
2022
2021
$
20,978 $
40,324 $
50,949
31,075,648
998,913
32,074,561
32,292,978
1,426,446
33,719,424
0.68 $
0.65 $
1.25 $
1.20 $
33,333,557
1,690,551
35,024,108
1.53
1.45
1,808,606
1,009,288
420,454
Property and equipment, including equipment under capital lease obligations, consists of the following:
Computers and purchased software
Developed software for internal-use
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,
2023
2022
(in thousands)
2,151 $
25,820
9,337
2,979
2,158
413
1,383
754
2,249
47,244
(30,088 )
17,156
$
2,058
22,168
8,536
3,256
2,158
527
1,406
754
1,812
42,675
(23,581 )
19,094
$
$
Depreciation and amortization expense related to property and equipment for the years ended September 30, 2023, 2022, and 2021, was $7.4 million, $6.5
million, and $5.6 million, respectively. Included in those amounts is amortization of internally developed software for internal use of $5.6 million, $4.7
million, and $3.9 million, respectively.
The Company did not record impairment charges on material property and equipment during the years ended September 30, 2023, 2022, and 2021.
6. Leases
77
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 5.3
years. Some of the leases have options to extend or terminate the leases. The exercise of such options is generally at the Company’s discretion. The lease
agreements do not contain any significant residual value guarantees or restrictive covenants. The Company also subleases excess corporate office space.
The Company's finance leases and related balances are not significant.
The components of lease expense are:
Finance lease – lease asset amortization
Finance lease – interest on lease liabilities
Operating lease cost
Operating lease impairment expense
Short-term lease cost
(1)
Variable lease cost
Sublease income
Total net lease cost
September 30,
2023
2022
78 $
11
5,328
—
413
1,300
(88 )
7,042 $
80
21
5,695
—
337
1,368
(111 )
7,390
$
$
(1) Variable lease costs primarily relate to the Company's election to combine non-lease components such as common area maintenance, insurance and taxes related to its real estate leases. To a
lesser extent, the Company's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.
Maturities of lease liabilities are:
2024
2025
2026
2027
2028
Thereafter
Total lease payments
(1)
Less: imputed interest
(2)
Total lease liabilities
(1) The weighted average remaining lease term is 2.8 years for operating leases and 2.9 years for finance leases.
(2) The weighted average discount rate is 6.2% for operating leases and 5.6% for finance leases.
Supplemental disclosures of cash flow information related to leases are:
Cash paid for amounts included in operating lease liabilities
Cash paid for amounts included in finance lease liabilities
Non-cash: lease liabilities arising from new operating lease assets obtained
Non-cash: lease liabilities arising from new finance lease assets obtained
Non-cash: adjustments to lease assets and liabilities
(1)
(1) These include adjustments due to lease modifications, renewals, and other related adjustments.
78
September 30,
2023
Operating Leases
Finance Leases
4,629 $
3,854
2,418
560
144
49
11,654
(928 ) $
10,726 $
Years Ended September 30,
2023
2022
4,754 $
101 $
725 $
— $
418 $
97
68
65
12
—
—
242
(18 )
224
4,368
99
4,664
175
(196 )
$
$
$
$
$
$
$
$
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
7. 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, 2020
Translation adjustments
Balance at September 30, 2021
Addition: Bid4Assets acquisition
Translation adjustments
Balance at September 30, 2022
Translation adjustments
Balance at September 30, 2023
GovDeals
CAG
Machinio
Total
$
$
$
$
23,731
$
—
23,731 $
30,083
—
53,814 $
—
53,814 $
21,550
$
33
21,583 $
—
(1,045 )
20,538 $
478
21,016 $
14,558 $
—
14,558 $
—
—
14,558 $
—
14,558 $
59,839
33
59,872
30,083
(1,045 )
88,910
478
89,388
Accumulated goodwill impairment losses as of September 30, 2023, and 2022 were $168.6 million.
Impairment Analysis
Goodwill is tested for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the
carrying value may not be recoverable. As of July 1, 2023, the Company performed a quantitative fair-value-based test for each of our reporting units,
determining that each of our reporting units with goodwill balances substantially exceeded their carrying values. The fair value test was performed utilizing
the discounted cash flow method under the Income approach and the guideline company method under the Market approach, the results of which were
weighted 75:25, respectively, in the ending determined fair value. The Company did not record impairment charges on its goodwill during the years ended
September 30, 2023, 2022, and 2021.
The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended September 30,
2023.
8. Intangible Assets
Intangible assets consist of the following:
September 30, 2023
September 30, 2022
Useful
Life
(in years)
Weighted
average
useful Life
(in years)
Gross
Carrying
Amount
Accumulate
d
Amortizatio
n
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulate
d
Amortizatio
n
Net
Carrying
Amount
6 - 8
3 - 5
7 - 10
8.0 $
6.1
9.1
17,000 $
5,300
2,375
(6,043 ) $
(4,361 )
(1,814 )
10,957 $
939
561
$
17,000
5,300
2,381
(3,789 ) $
(3,089 )
(1,569 )
13,211
2,211
812
$
24,675 $
(12,218 ) $
12,457 $
24,681
$
(8,447 ) $
16,234
(in thousands)
Contract intangibles
Technology
Patent and trademarks
Total intangible assets,
net
Future expected amortization of intangible assets at September 30, 2023, is as follows:
Year Ending September 30,
2024
2025
2026
2027
2028
Thereafter
Total
79
Amortization
(in thousands)
3,254
2,013
1,768
1,761
1,752
1,909
12,457
$
$
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Amortization expense related to intangible assets for the years ended September 30, 2023, 2022, and 2021 was $3.8 million, $3.7 million, and $1.3 million,
respectively. The increase in intangible amortization expense during the year ended September 30, 2022, was primarily due to the Bid4Assets acquisition.
The Company did not record impairment charges on any intangible assets during the years ended September 30, 2023, 2022, and 2021. The Company did
not identify any indicators of impairment requiring an interim impairment test on material long-lived assets during the year ended September 30, 2023.
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 of 1986, as
amended. The Plan is a defined contribution plan available to all eligible employees and allows participants to contribute up to the legal maximum of their
eligible compensation, not to exceed the maximum tax-deferred amount allowed by the Internal Revenue Service. The Plan also allows the Company to
make discretionary matching contributions.
During the fiscal year ended September 30, 2023, the Company stopped accepting investments in the Company’s stock fund under the Plan and all shares of
the Company and other Plan interests held in the stock fund under the Plan were reinvested into non-Company investment vehicles. On March 28, 2023, the
Company filed a post-effective amendment on Form S-8 with the SEC to deregister all of the previously registered shares and other Plan interests that
remained unissued and unsold under the Plan. As a result, interests in the Plan no longer require registration under the Securities Exchange Act of 1934, as
amended. On October 2, 2023, the Company filed a Form 15 to suspend the duty of the Plan to file reports under Section 15(d) of the Securities Exchange
Act of 1934, as amended.
For the years ended September 30, 2023, 2022, and 2021, the Company recorded expenses of $1.4 million, $1.0 million, and $1.1 million, respectively,
related to its contributions to the Plan.
10. Income Taxes
The components of the provision for income taxes of continuing operations are as follows:
Current tax provision (benefit):
U.S. Federal
State
Foreign
Deferred tax provision (benefit):
U.S. Federal
State
Foreign
Total provision (benefit)
2023
Year Ended September 30,
2022
(in thousands)
2021
$
— $
— $
1,179
282
1,461
5,251
1,280
47
6,578
8,039 $
487
555
1,042
4,962
1,275
50
6,287
7,329 $
$
—
293
847
1,140
(23,315 )
(1,252 )
57
(24,510 )
(23,370 )
Deferred taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
80
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Deferred tax assets:
Net operating losses—Foreign
Net operating losses—U.S.
Accrued vacation and bonus
Inventory capitalization
Inventory reserves
Allowance for doubtful accounts
Stock compensation expense
Operating lease liabilities
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
Operating/right of use assets
Pension liability
Total deferred tax liabilities
Net deferred taxes
81
September 30,
2023
2022
(in thousands)
16,403 $
14,581
831
486
243
363
3,288
3,552
386
40,133
(16,029 )
24,104
2,666
7,964
1,004
1,440
3,365
615
17,054 $
7,050 $
12,409
24,054
701
683
24
113
2,198
3,565
845
44,592
(12,259 )
32,333
3,453
7,595
938
2,786
3,325
608
18,705
13,628
$
$
$
The reconciliation of the U.S. federal statutory rate to the effective rate for continuing operations is as follows:
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
U.S. statutory rate
Stock-based stock compensation expense
Nondeductible compensation expense
Fair value adjustments of acquisition earn-outs
Other permanent items
State taxes
Net foreign rate differential
Unrecognized tax benefits
Change in valuation allowance
Write-down of deferred tax assets on share-based stock compensation
Write-down of deferred tax assets on net operating loss
Other
Effective rate
2023
Year Ended September 30,
2022
2021
21.0 %
(1.3 )%
0.5 %
— %
0.1 %
7.8 %
— %
(0.5 )%
1.4 %
0.2 %
(0.8 )%
(0.7 )%
27.7 %
21.0 %
(2.0 )%
2.0 %
(10.8 )%
(0.4 )%
3.3 %
0.1 %
0.0 %
(3.3 )%
0.5 %
4.2 %
0.8 %
15.4 %
21.0 %
(14.1 )%
5.5 %
— %
0.1 %
3.0 %
0.5 %
0.1 %
(98.9 )%
0.7 %
(2.8 )%
0.2 %
(84.7 )%
As of September 30, 2023, and 2022, the Company had federal and state deferred tax assets of $6.6 million and $13.4 million, respectively, related to
available federal and state net operating loss (NOL) carryforwards, foreign tax credit carryforwards, and other U.S. deductible temporary differences. The
federal and state NOL carryforwards expire beginning in 2038 and 2024, respectively. The Company's ability to use these various carryforwards to offset
any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions. The foreign tax credit
carryforwards expire beginning in 2024. At September 30, 2023 and 2022, the Company had deferred tax assets related to available foreign NOL
carryforwards of $16.4 million and $12.4 million, respectively. All but $0.5 million of our foreign NOLs maintain an indefinite carry forward life. The
NOLs with limited carryforward periods will expire beginning in 2027.
The Company evaluates the recoverability of its deferred tax assets on a jurisdictional basis by considering whether deferred tax assets will be realized on a
more likely than not basis. To the extent a portion or all of the applicable deferred tax assets do not meet the more likely than not threshold, a valuation
allowance is recorded. Consideration was given to the tax planning strategies and, when applicable, future taxable income as to how much of the relevant
deferred tax asset could be realized on a more likely than not basis. The Company has recorded a valuation allowance of $16.0 million and $12.3 million
against its gross deferred tax asset balance at September 30, 2023 and 2022, respectively. At each reporting date, the Company considers new evidence,
both positive and negative, that could affect its view of the future realization of deferred tax assets. As of September 30, 2023, the Company determined
that there was sufficient positive evidence to conclude that it is more likely than not that all of its U.S. deferred tax assets are realizable, except for $0.2
million of foreign tax credit carry forwards that expire beginning in 2024.
The Tax Act and Jobs Act of 2017 (the Tax Act) subjects a U.S. shareholder to a minimum tax on "global intangible low-taxed income" (GILTI) earned by
certain foreign subsidiaries. The FASB Staff Q&A Topic 740 No. 5. Accounting for Global Intangible Low-Taxed Income states that an entity can make an
accounting policy election to either recognize deferred taxes for temporary differences expected to reverse as GILTI in future years or provide for the tax
expense related to GILTI resulting from those items in the year the tax is incurred. The Company has elected to recognize the resulting tax on GILTI as an
expense in the period the tax is incurred.
The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur
after December 31, 2022, and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. The CAMT will be
effective for us beginning in fiscal year 2024. We currently are not expecting the IRA to have a material adverse impact on our financial statements.
82
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
On November 1, 2021, the Company acquired 100% of the stock of Bid4Assets, Inc. for $42.7 million. Under the acquisition method of accounting, the
Company recorded a net deferred tax liability of $3.8 million composed primarily of acquired intangibles netted against NOLs and other deferred assets.
The total amount of NOLs, which are subject to limitations under Section 382, were $1.2 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 $10.6 million as of
September 30, 2023. As of September 30, 2023, and 2022, $19.1 million and $20.3 million, respectively, of cash and cash equivalents was held overseas
and not available to fund domestic operations without incurring taxes upon repatriation.
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):
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
$
2023
Year Ended September 30,
2022
2021
143 $
—
—
(143 )
—
— $
143 $
—
—
—
—
143 $
123
—
20
—
—
143
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 2023, the Company did not identify any new uncertain tax positions and released $0.1 million of
prior year uncertain tax positions 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 jurisdictions, primarily Canada and the U.K. The Company
has no open income tax examinations in the U.S. and the statute of limitations for years prior to 2020 is now closed; however, certain tax attribute
carryforwards that were generated prior to fiscal year 2020 may be adjusted upon examination by tax authorities if they are utilized.
11. Debt
On February 10, 2022, the Company entered into a Credit Agreement with Wells Fargo Bank, National Association (the Credit Agreement). Terms of the
Credit Agreement provide for revolving loans (the Line of Credit) up to a maximum aggregate principal amount of $25.0 million with a $10.0 million
sublimit for standby letters of credit.
During the year ended September 30, 2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First
Amendment). No other changes, including with respect to the borrowing terms of capacities, were made to the Credit Agreement as a result of the First
Amendment.
The applicable interest rate on any draws under the Line of Credit is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate
(SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. The Company pays an Unused Commitment Fee (as defined in
the Credit Agreement), on a quarterly basis, equal to 0.05% per annum on the daily amount of the available, but unused, balance on the Line of Credit. The
Company also pays a Line of Credit Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 1.25% on the daily amount available to be
drawn for standby letters of credit. Interest incurred on any draws under the Line of Credit, as well as the Unused Commitment Fee and Letter of Credit
Fee, are included within Interest and other (income) expense, net in the Condensed Consolidated Statements of Operations.
The Company may draw upon the Line of Credit for general corporate purposes. Repayments of any borrowings under the Line of Credit shall become
available for redraw at any time by the Company.
83
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum
level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and
restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends
and other restricted payments. As of September 30, 2023, the Company was in full compliance with the terms and conditions of the Credit Agreement.
During the year ended September 30, 2023, the Company did not make any draws under the Credit Agreement. As of September 30, 2023, the Company
had no outstanding borrowings under the Credit Agreement.
During the year ended September 30, 2023, interest expense incurred by the Company under the Credit Agreement was immaterial to the consolidated
financial statements.
12. Equity Transactions
Stock Compensation Incentive Plans
The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock
appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended, and a plan
and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets. As of September 30, 2023, the Company has reserved a
total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and
grants of RSAs count as 1.5x shares against the plan reserves. As of September 30, 2023, 972,531 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
Total Equity-classified award
Liability-classified awards:
SARs
Total stock compensation expense:
Year Ended September 30,
2023
2022
2021
$
$
2,002 $
6,233
8,235
(44 )
8,191 $
2,673 $
5,912
8,585
(104 )
8,481 $
3,117
2,977
6,094
853
6,947
The Company’s total liabilities for liability-classified stock compensation awards were $0 and $0.2 million as of September 30, 2023 and 2022,
respectively.
The table below presents the components of share-based compensation expense by line item within our Consolidated Statements of Operations (in
thousands):
Stock Compensation Expense by Line Item
Technology and operations
Sales and marketing
General and administrative
Total stock compensation expense:
Share-Based Award Activity
Stock Options
The table below presents stock option activity (aggregate intrinsic value in thousands):
84
2023
Year Ended September 30,
2022
2021
$
$
1,226 $
2,363
4,602
8,191 $
1,307 $
2,148
5,026
8,481 $
1,016
1,541
4,390
6,947
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Outstanding as of September 30, 2022
Granted
Exercised
Forfeited
Expired
Outstanding as of September 30, 2023
Vested and expected to vest as of September 30, 2023
Exercisable as of September 30, 2023
Stock Options
Exercise Price
Weighted-
Average
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregat
e
Intrinsic
Value
2,705,436 $
353,958 $
(372,362 ) $
(34,019 ) $
(23,816 ) $
2,629,197 $
2,614,187 $
1,851,754 $
10.76
14.43
7.34
15.23
40.11
11.41
11.35
9.59
5.58 $ 18,397
—
2,997
143
—
$
$
$
$
5.12 $ 18,549
5.11 $ 18,549
4.05 $ 15,924
Of the 777,443 stock options not yet exercisable as of September 30, 2023, 449,438 can become exercisable by satisfying service conditions only, and
328,005 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, 2023, there was $2.6 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 2.2 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, 2023, 2022, and 2021 were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
2023
Year Ended September 30,
2022
—
—
56.9% - 62.2%
3.4% - 3.9%
4.5- 7.6 years
57.0% - 62.2%
1.1% - 3.5%
4.5- 7.4 years
2021
—
51.0% - 55.9%
0.4% - 0.8%
4.6 - 7.6 years
The weighted-average grant date fair value of options granted during the year-ended September 30, 2023, 2022, and 2021 was $7.49, $10.70, and $4.81,
respectively. The total intrinsic value of options exercised during 2023, 2022, and 2021 was $3.0 million, $3.8 million, and $15.0 million, respectively.
Stock options containing performance conditions are discussed separately in the section below.
RSUs & RSAs
The table below presents RSU & RSA activity (aggregate fair value in thousands):
Outstanding as of September 30, 2022
Granted
Vested
Forfeited
Outstanding as of September 30, 2023
Expected to vest as of September 30, 2023
Weighted-
Average
Grant Date
Fair Value
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Fair Value
RSU & RSA
1,102,039 $
767,233 $
(252,228 ) $
(59,703 ) $
1,557,341 $
1,487,341 $
18.66
15.16
14.56
17.22
17.65
17.46
2.94 $
$
$
$
2.56 $
2.66 $
17,919
11,628
3,773
909
27,440
26,207
Of the outstanding RSUs & RSAs as of September 30, 2023, 835,526 can vest by satisfying service conditions only, and 721,815 can vest by satisfying
service and performance or market conditions.
85
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
RSUs containing only service conditions vest ratably each year over periods of one to four years. Stock compensation cost is expensed ratably over the
entire service period. As of September 30, 2023, there was $10.3 million of unrecognized compensation cost related to RSUs containing only service
conditions, which is expected to be recognized over a weighted-average period of 2.7 years. RSUs and RSAs containing performance conditions and
market conditions are discussed separately in the section below.
SARs
The table below presents SAR award activity (aggregate intrinsic value in thousands):
Outstanding as of September 30, 2022
Exercised
Forfeited
Outstanding as of September 30, 2023
Vested and expected to vest as of September 30, 2023
Exercisable as of September 30, 2023
SARs
24,150 $
(24,150 ) $
— $
— $
— $
— $
Weighted-
Average
Exercise Price
6.11
6.11
—
—
—
—
Weighted-
Average
Remaining
Contractual
Term (years)
Aggregate
Intrinsic
Value
0.25 $
$
$
$
$
$
245
193
—
—
—
—
The Company made cash payments of $0.2 million, $0.2 million and $0.4 million to settle SARs exercised during the years ended September 30, 2023,
2022, and 2021, respectively. As of September 30, 2023, there were no SARs outstanding. No new SARs were awarded during the year ended September
30, 2023.
The fair value of outstanding SARs containing only service conditions is estimated using the Black-Scholes option-pricing model. The range of
assumptions used to determine the fair value of outstanding SARs as of September 30, 2023, 2022, and 2021 were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected term
Year Ended September 30,
2023
2022
2021
—
—
—
—
—
71.7 %
4.0 %
0.25
—
78.3 %
0.1 %
1.25
As of September 30, 2022, and 2021, the weighted-average fair value of SARs outstanding was $9.82 and $18.86 per award, respectively. SARs containing
performance conditions and market conditions are discussed separately in the section below.
Stock Awards Containing Performance and Market Conditions
Stock awards containing performance conditions vest upon the achievement of specified financial targets of the Company 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, 2023, there was $0.9 million of unrecognized compensation costs related to stock options and RSUs & RSAs, containing performance
conditions that are considered probable of being met, which is expected to be recognized over a weighted-average period of approximately 1 year.
86
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Stock awards containing market conditions vest upon the achievement of specified increases in the Company’s share price. Vesting is measured the first day
of each fiscal quarter over the four-year terms of the award, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the
trailing 20-days average of the Company’s share price. Stock compensation cost is expensed on a straight-line basis over the 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, 2023, there was $1.4 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 1.6 years.
The fair value of stock options, RSUs and SARs containing market conditions is estimated using Monte Carlo simulations. The range of assumptions used
to determine the fair value of these awards during the years ended September 30, 2023, 2022, and 2021 were as follows:
Dividend yield
Expected volatility
Risk-free interest rate
Expected holding period (% of remaining term)
Year Ended September 30,
2023
2022
—
—
—
—
—
57.2% - 62.9%
1.1% - 1.5%
29.4% - 100.0%
2021
—
51.6% - 54.6%
0.3% - 0.9%
31.7% - 100.0%
There were no awards containing market conditions for which to determine their fair value during the year ended September 30, 2023.
Share Repurchase Program
From time to time, we may be authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by
our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions, or otherwise, at times and in
such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price,
corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be
funded using our available cash.
On December 6, 2021, and May 13, 2022, the Company's Board of Directors authorized new stock repurchase plans of up to $20 million and $12 million,
respectively. The Company repurchased 408,211 shares for $5.4 million during the year ended September 30, 2022.
On December 6, 2022, March 13, 2023, and September 8, 2023, the Company's Board of Directors authorized new stock repurchase plans of up to $8.4
million, $8.0 million and $15.2 million, respectively. The Company repurchased 1,607,141 shares for $21.2 million during the year ended September 30,
2023.
As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.
Other Share Repurchases
Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common
stock equivalent in value to the exercise price due.
During the year ended September 30, 2023, and September 30, 2022, participants surrendered 12,705 and 23,839 shares of common stock in the exercise of
stock options, respectively. Any shares surrendered to the Company in this manner are not available for future grant.
87
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
13. Fair Value Measurement
The Company measures and records in the accompanying consolidated financial statements certain assets and liabilities at fair value on a recurring basis.
Authoritative guidance issued by the FASB establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between
assumptions based on market data (observable inputs) and the Company's assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1
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.
Cash and cash equivalents. The Company had $51.4 million and $22.0 million of money market funds considered cash equivalents as of September 30,
2023, and 2022, respectively. These assets were measured at fair value as of September 30, 2023, and 2022, and were classified as Level 1 assets within the
fair value hierarchy. There were no transfers between levels during the periods presented.
Contingent consideration. During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary
fair value of contingent consideration in the amount of $28.0 million on its Consolidated Balance Sheets as of the acquisition date. The contingent
consideration is based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter
ended December 31, 2022. The liability for this consideration is included in Accrued expenses and other current liabilities within the Consolidated Balance
Sheets.
The Company's initial estimate of the fair value of the earn-out consideration was informed by the Monte Carlo valuation method and considered potential
outcomes based upon the terms and conditions of the merger agreement. The fair value measurements utilized were classified as Level 3 assets within the
fair value hierarchy under the provisions of ASC 820, Fair Value Measurements, and ASC 805, Business Combinations. The significant unobservable
inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out
period, volatility of operating results (expense components ranged from 20% to 55%), and the discount rate (13%). The earn-out consideration was valued
at approximately $28.0 million as of the acquisition date. Fair value of the earn-out consideration was remeasured at the end of each calendar quarter until
December 31, 2022.
The changes in earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value during the year ended
September 30, 2022, was as follows (in thousands):
Balance at September 30, 2021
Earn-out from business acquisition
Measurement period adjustment
Payment of achieved earn-out threshold
Change in fair value
Balance at September 30, 2022
Contingent Consideration
$
$
—
26,900
1,100
(3,500 )
(24,500 )
—
During the year ended September 30, 2022, the Company recorded a measurement period adjustment of $1.1 million for the preliminary earn-out
consideration fair value with a corresponding increase to goodwill, based on facts and circumstances in existence as of the effective date of the acquisition
related to the discount rates associated with the expected earn-out payments. Based on results as of March 31, 2022, Bid4Assets achieved a trailing twelve-
month EBITDA threshold resulting in a $3.5 million payment made by the Company to the former shareholders of Bid4Assets.
88
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
During the twelve months ended September 30, 2022, the fair value of the earn-out liability was reduced by $24.5 million, such that no amount of fair value
was determined present as of September 30, 2022. This reduction was due to a decline in the auction events and transactions that were expected to be
completed during the earn-out period ended December 31, 2022, which included extended timelines to advance legislation that allows for online auctions of
foreclosed real estate in certain target markets, and other client specific delays in bringing foreclosed real estate to auction. These changes resulted from
events occurring subsequent to the November 1, 2021, acquisition date and therefore, were not known nor knowable at that time. These changes in fair
value were recorded as a gain within Fair value adjustment of acquisition earn-outs in the Consolidated Statements of Operations.
Other Information. When valuing its Level 3 liability, management's estimation of fair value is based on the best information available in the circumstances
and may incorporate management's own assumptions around market demand which could involve a level of judgment, taking into consideration a
combination of internal and external factors.
The Company’s financial assets and liabilities not measured at fair value are cash, short-term investments, accounts receivable, and accounts payable. The
Company believes the carrying values of these instruments approximate fair value.
As of September 30, 2023, the Company had no non-financial instruments measured at fair value on a non-recurring basis. As of September 30, 2023, and
2022, the Company did not have any material assets or liabilities measured at fair value on a non-recurring basis.
14. Defined Benefit Pension Plan
Certain employees of Liquidity Services UK Limited (GoIndustry), 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 is recognized within Interest and other income, net in the Consolidated Statements of Operations, and for the years ended
September 30, 2023, 2022, and 2021, included the following components:
Interest cost
Expected return on plan assets
Amortization of prior service cost
Settlement loss recognized
Total net periodic benefit
2023
Year Ended September 30,
2022
(in thousands)
2021
794 $
(876 )
26
—
(56 ) $
446 $
(775 )
19
61
(249 ) $
438
(793 )
21
—
(334 )
$
$
89
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, 2023, and 2022:
Change in benefit obligation
Beginning balance
Interest cost
Benefits paid
Actuarial 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
Plan Settlements
Foreign currency exchange rate changes
Ending balance at fair value
Overfunded status of the Scheme
Year Ended September 30,
2023
2022
(in thousands)
13,329 $
794
(761 )
(786 )
1,271
13,847 $
Year Ended September 30,
2023
2022
(in thousands)
16,554 $
(1,344 )
(761 )
293
—
1,590
16,332 $
2,485 $
26,955
446
(634 )
(7,613 )
(5,825 )
13,329
28,208
(5,056 )
(634 )
134
(1,182 )
(4,916 )
16,554
3,225
$
$
$
$
$
The pension asset of $2.5 million is recorded in Other long-term assets in the Consolidated Balance Sheets. Because the Scheme is closed to new
participants, the accumulated benefit obligation is equal to the projected benefit obligation, which was $13.8 million and $13.3 million at September 30,
2023 and 2022, respectively.
During the year ended September 30, 2022, the Company extended early settlement offers to all members of the Scheme. There was no material impact to
the consolidated financial statements as a result of the early settlement offers.
The 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, 2023, and 2022, is shown in the following table:
Accumulated other comprehensive income (loss) at beginning of year
Net actuarial loss
Foreign currency translation adjustments
Accumulated other comprehensive (loss) income at end of year
Year Ended September 30,
2023
2022
(in thousands)
278 $
(334 )
(1,038 )
(1,094 ) $
(1,885 )
(328 )
2,491
278
$
$
The plan complies with the funding provisions of the U.K. Pensions Act 2004 and the Occupational Pension Schemes Regulations Act 2005. The Company
does not plan to make contributions to the plan in the near future.
90
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Actuarial Assumptions
The actuarial assumptions used to determine the benefit obligations at September 30, 2023 and 2022, 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, 2023
September 30, 2022
5.50 %
6.45 %
5.70 %
3.20 %
3.80 %
2.00 %
4.82 %
5.50 %
3.40 %
3.80 %
Mortality—101% for males and 98% for females of S3PMA mortality tables, projected in line with the 2021 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,
2023
2024
2025
2026
2027
2028 through 2033
Total
Fair Value Measurements
Pension Benefits
(in thousands)
$
$
1,126
931
858
888
823
4,924
9,550
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.
91
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
The assets are allocated among government bonds, 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 basis of the Trustees’ strategy is to divide the Scheme’s assets
between a “growth” portfolio, comprising assets such as multi-asset / diversified growth funds, and a “stabilizing” portfolio, comprising assets such as
government bonds (both fixed and inflation-linked) and corporate bonds. The Trustees recognize the benefits of diversification across asset classes, as well
as within them, in reducing the risk that results from investing in any one particular market. The Company has elected to use a bid value of Scheme assets
to calculate the expected return on assets in the net periodic benefit cost. The assets consisted of the following as of September 30, 2023, and 2022:
Government bonds
Equity securities
Corporate bonds
Diversified fund
Cash
Total
September 30, 2023 September 30, 2022
0.0 %
21.6 %
51.1 %
27.0 %
0.3 %
100.0 %
59.7 %
0.0 %
29.8 %
10.1 %
0.4 %
100.0 %
The expected long-term rate of return for the plan's total assets is based on the expected returns of each of the above categories, weighted based on the
current target allocation for each class. The Trustees evaluate whether adjustments are needed based on historical returns to more accurately reflect
expectations of future returns.
The Company is required to present certain fair value disclosures related to its postretirement benefit plan assets, even though those assets are not included
in 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.
Balance as of September 30, 2023
Level 1
Level 2
Level 3
Total
Government bonds
Corporate bonds
Diversified fund
Cash
Total
Balance as of September 30, 2022
Equity securities
Corporate bonds
Diversified fund
Cash
Total
Valuation Techniques
— $
—
—
61
61 $
(in thousands)
9,757 $
4,860
1,653
—
16,270 $
— $
—
—
—
— $
9,757
4,860
1,653
61
16,331
Level 1
Level 2
Level 3
Total
— $
—
—
43
43 $
(in thousands)
3,582 $
8,462
4,467
—
16,511 $
— $
—
—
—
— $
3,582
8,462
4,467
43
16,554
$
$
$
$
The Company relies on pricing inputs from investment fund managers to value investments. The fund manager prices the underlying securities using
independent external pricing sources.
15. Legal Proceedings
The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that a liability is probable and reasonably estimable.
From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business; however, unless
otherwise noted, there are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company's
management's judgment have a material adverse effect on the Company.
92
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Former Employee Matters
In May 2021, the Company’s former Vice President, Human Resources filed a complaint against the Company in the United States District Court for the
District of Maryland (the “District Court”), alleging wrongful termination on the basis of gender, race, and age. The Company’s employment practices
liability insurance carrier, CNA, accepted tender of these claims. In December 2022, the District Court granted the Company’s motion to dismiss with
respect to the age discrimination claim but denied the motion with respect to the race and gender claims. Trial on the race and gender claims began on
October 30, 2023. The jury was unable to reach a unanimous verdict on either claim and the judge declared a mistrial on November 6, 2023. To date, a
retrial date has not been set. The Company continues to assert substantial defenses and cannot estimate a range of potential liability, if any, at this time.
On December 28, 2022, the Company’s former Chief Marketing Officer (the “Former CMO”) filed a complaint (the “Original Complaint”) in the District
Court, alleging wrongful termination on the basis of race and age and that the Company retaliated against him. On April 26, 2023, the Former CMO filed
an amended complaint with the District Court, alleging the same claims made in the Original Complaint. The Company filed a motion to dismiss certain of
the Former CMO’s claims on September 1, 2023. The District Court has not yet ruled on the motion. The Company asserts substantial defenses and cannot
estimate a range of potential liability, if any, at this time. CNA has accepted tender of these claims as well.
16. Segment Information
The Company provides operating results in four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and
Machinio. Descriptions of our reportable segments are as follows:
•
•
•
•
GovDeals. The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies
located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals
and Bid4Assets marketplaces (see Note 3 - Bid4Assets Acquisition).
RSCG. The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess,
returned, and overstocked consumer goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-
commerce solutions. This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination
of velocity, volume, and value.
CAG. The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus
assets. The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics.
CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. CAG benefits from a global
base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use
across the world. This segment primarily uses the AllSurplus and GovDeals marketplaces.
Machinio. The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction,
machine tool, transportation, printing and agriculture sectors. Machinio also offers the Machinio System service that provides equipment sellers
with a set of online marketing tools that includes website hosting, email marketing, and inventory management, which support and enable
equipment sellers’ online business.
93
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
We also report results of Corporate & Other, including elimination adjustments.
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 reportable segment information based on the internal
performance measures used by the CODM to assess the performance of each operating segment in a given period. In connection with that assessment, the
CODM uses segment direct profit to evaluate the performance of each segment. Segment direct profit, previously referred to as segment gross profit,
continues to be calculated as total revenue less cost of goods sold (excludes depreciation and amortization).
The following table sets forth certain financial information for the Company's reportable segments:
(in thousands)
GovDeals:
RSCG:
CAG:
Machinio:
Purchase revenue
Consignment and other fee revenues
Total revenue
Segment direct profit
Purchase revenue
Consignment and other fee revenues
Total revenue
Segment direct profit
Purchase revenue
Consignment and other fee revenues
Total revenue
Segment direct profit
Purchase revenue
Consignment and other fee revenues
Total revenue
Segment direct profit
Corporate & Other, including elimination adjustments:
Purchase revenue
Consignment and other fee revenues
Total revenue
Segment direct profit
Consolidated:
Purchase revenue
Consignment and other fee revenues
Total revenue
Total Segment direct profit
2023
Year Ended September 30,
2022
2021
$
—
62,010
62,010
58,810
$
$
161,780
38,438
200,218
68,068
$
$
10,309
28,167
38,476
32,215
$
$
—
13,821
13,821
13,110
$
—
$
(62 )
(62 )
(62 ) $
$
—
59,352
59,352
56,408
$
$
134,092
32,007
166,100
63,704
$
$
17,179
25,396
42,575
29,120
$
$
—
12,083
12,083
11,471
$
—
$
(60 )
(60 )
(60 ) $
$
172,089
142,373
314,462
$
151,271
128,779
280,050
172,140
$
160,643
$
—
49,579
49,579
47,030
130,790
28,016
158,806
64,564
15,361
24,284
39,645
29,324
—
9,559
9,559
8,992
—
(57 )
(57 )
(57 )
146,151
111,380
257,531
149,853
$
$
$
$
$
$
$
$
$
$
$
$
94
The following table reconciles segment direct profit used in the reportable segments to the Company's consolidated results:
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(in thousands)
Reconciliation:
Total segment direct profit
Other costs and expenses from operations
Fair value adjustment of acquisition earn-outs
Interest and other (income) expense, net
Income before provision for income taxes
(1)
2023
Year Ended September 30,
2022
2021
$
$
172,140
145,850
—
(2,726 )
29,016
$
$
160,643 $
137,350
(24,500 )
140
47,653 $
149,853
121,215
—
1,058
27,579
(1) Other costs and expenses from operations is defined as Total costs and expenses from operations per the Consolidated Statements of Operations, less Cost of goods sold (which is included in the
calculation of Segment direct profit).
Total segment assets reconciled to consolidated amounts are as follows:
(in thousands)
Segment Assets:
GovDeals
RSCG
CAG
Machinio
Corporate & Other
Total Segment Assets:
September 30,
2023
2022
$
$
256,215
110,592
96,828
36,362
(211,026 )
288,970
$
$
237,697
99,430
96,393
32,771
(178,188 )
288,104
Revenue attributed to countries that represent a significant portion of consolidated revenues are as follows:
(in thousands)
Revenue by geographic area
United States
Rest of the world
Consolidated
Total long-lived assets by geographic areas are as follows:
(in thousands)
Assets by geographic area
United States
Rest of the world
Total Long-lived Assets
2023
Year Ended September 30,
2022
2021
$
$
278,734
35,729
314,462
$
$
237,720 $
42,330
280,050 $
214,162
43,369
257,531
September 30,
2023
2022
$
$
17,039
117
17,156
$
$
18,867
227
19,094
95
Liquidity Services, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
LIQUIDITY SERVICES, INC.
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Deferred tax valuation allowance (deducted from net deferred tax assets)
Year ended September 30, 2021
Year ended September 30, 2022
Year ended September 30, 2023
Allowance for doubtful accounts (deducted from accounts receivable)
Year ended September 30, 2021
Year ended September 30, 2022
Year ended September 30, 2023
Provision for inventory allowance (deducted from inventory)
Year ended September 30, 2021
Year ended September 30, 2022
Year ended September 30, 2023
96
Balance at
beginning
of period
Charged
(credited) to
expense
Reductions
Balance at
end of
period
$
$
$
$
$
$
41,788
13,813
12,259
(27,975 )
(1,554 )
3,770
— $
—
— $
13,813
12,259
16,029
389
490
449
300
174
96
297
136
1,392
174
96
1,048
(196 ) $
(177 )
(417 ) $
(300 ) $
(174 )
(100 ) $
490
449
1,424
174
96
1,044
Exhibit No.
EXHIBIT INDEX
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.
2.4 Agreement and Plan of Merger, dated November 1, 2021, by and among the Company, Liquidity Services RE Ventures, Inc., Bid4Assets,
Inc. (“Bid4Assets”), USA B4A Sellers Rep LLC, and certain holders of the outstanding stock of Bid4Assets, incorporated herein by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K, filed with the SEC on November 1, 2021.
3.1 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.
3.1.1 Certificate of Amendment to the Company’s Fourth Amended and Restated Certificate of Incorporation, incorporated herein by reference
to Appendix A to the Company’s Schedule 14A filed with the SEC on January 24, 2023.
3.2 Amended and Restated Bylaws, incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, filed with
the SEC on August 5, 2022.
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 Credit Agreement, dated February 10, 2022, by and between Liquidity Services, Inc., and Wells Fargo Bank, National Association,
incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K, filed with the SEC on February 10, 2022.
10.1.1 First Amendment to Credit Agreement, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K,
filed with the SEC on April 4, 2023.
10.2# Form of Amended and Restated Executive Employment Agreement, incorporated herein by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed with the SEC on January 20, 2023.
10.3# Form of Change in Control Agreement, incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K,
filed with the SEC on January 20, 2023.
10.4# Form of Indemnification Agreement for directors and officers, incorporated herein by reference to Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q, filed with the SEC on February 2, 2023
10.5# Form of Employee Agreement Regarding Confidentiality, Intellectual Property, and Competitive Activities, incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q, filed with the SEC on February 2, 2023.
97
10.8# Liquidity Services, Inc. Third 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 28, 2020.
10.8.1# 2022 Amendment to the Liquidity Services, Inc. Third 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 24, 2022.
10.9# 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.
10.10# Form of Notice of Time-Based Stock Option Grant.
10.11# Form of Notice of Time-Based Restricted Stock Units Grant.
10.12# Form of Notice of Performance Based Stock Option Grant.
10.13# Form of Notice of Performance-Based Restricted Stock Units Grant.
10.14# Liquidity Services Inc. Annual Incentive Plan, adopted on December 2, 2020, incorporated herein by reference to Exhibit 10.20 to the
Company’s Annual Report on Form 10-K, filed with the SEC on December 11, 2020.
16.1 Letter of Ernst & Young LLP, dated December 27, 2021
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
23.2 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.
99.1 Revised Liquidity Services, Inc. Clawback Policy, incorporated herein by reference to Exhibit 99.1 to the Company's Quarterly Report on
Form 10-Q, filed with the SEC on August 3, 2023.
101 The following materials from the Registrant's Annual Report on Form 10-K for the year ended September 30, 2023, formatted in
Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets as of September 30, 2023 and 2022, (ii) Consolidated
Statements of Operations for each of the three years in the period ended September 30, 2023, (iii) Consolidated Statements of
Comprehensive Income (Loss) for each of the three years in the period ended September 30, 2023, (iv) Consolidated Statements of
Stockholders' Equity for each of the three years in the period ended September 30, 2023, (v) Consolidated Statements of Cash Flows for
each of the three years in the period ended September 30, 2023, and (vi) Notes to Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
# Indicates management contract or compensatory plan.
Item 16. Form 10-K Summary.
None.
98
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 7, 2023.
SIGNATURES
LIQUIDITY SERVICES, INC.
By:
/s/ WILLIAM P. ANGRICK, III
William P. Angrick, III
Chairman of the Board of Directors
and Chief Executive Officer
We, the undersigned directors and officers of Liquidity Services, Inc., hereby severally constitute William P. Angrick, III, Jorge A. Celaya, and Mark A.
Shaffer, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities
indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities indicated on December 7, 2023.
Signature
Title
/s/ WILLIAM P. ANGRICK, III
William P. Angrick, III
/s/ JORGE A. CELAYA
Jorge A. Celaya
/s/ PHILLIP A. CLOUGH
Phillip A. Clough
/s/ KATHARIN S. DYER
Katharin S. Dyer
/s/ GEORGE H. ELLIS
George H. Ellis
/s/ THIERNO A. FALL
Thierno A. Fall
/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 and Principal Accounting Officer)
Director
Director
Director
Director
Director
Director
Director
99
DESCRIPTION OF COMMON STOCK
Exhibit 4.2
Our authorized capital stock consists of 120,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of preferred stock, $0.001 par value.
The following description summarizes important terms of our common stock. Because it is only a summary, it does not contain all the information that may
be important to you. For a complete description, you should refer to our certificate of incorporation and bylaws, copies of which have been filed as exhibits
to the Annual Report on Form 10-K for the fiscal year ended September 30, 2023, as well as the relevant portions of the Delaware General Corporation
Law (the “DGCL”).
Common Stock
General. As of December 4, 2023, there were 36,189,174 shares of our common stock outstanding. As of November 13, 2023, there were approximately
10,345 beneficial holders of our common stock and 26 holders of record of our common stock.
Voting Rights. The holders of our common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders,
including the election of directors, and do not have cumulative voting rights. Unless otherwise required by law, matters submitted to a vote of our
stockholders require the approval of a majority of votes cast by stockholders represented in person or by proxy and entitled to vote on such matter, except
that directors are elected by a plurality of votes cast. Accordingly, the holders of a majority of the shares of common stock entitled to vote in any election of
directors can elect all of the directors standing for election, if they so choose.
Dividends. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of common stock are entitled to receive ratably
those dividends, if any, as may be declared by the board of directors out of legally available funds.
Liquidation, Dissolution and Winding Up. Upon our liquidation, dissolution or winding up, the holders of common stock will be entitled to share ratably in
the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the prior rights of any
preferred stock then outstanding.
Preemptive Rights. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking
funds provisions applicable to the common stock.
Assessment. All outstanding shares of common stock are fully paid and nonassessable.
Preferred Stock
The board of directors has the authority, without further action by the stockholders, to issue from time to time up to 5,000,000 undesignated shares of
preferred stock in one or more series and to fix the number of shares, designations, preferences, powers, and relative, participating, optional or other special
rights and the qualifications or restrictions thereof. The preferences, powers, rights and restrictions of different series of preferred stock may differ with
respect to dividend rates, amounts payable on liquidation, voting rights, conversion rights, redemption provisions, sinking fund provisions, and purchase
funds and other matters. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to holders of common
stock or adversely affect the rights and powers, including voting rights, of the holders of common stock and may have the effect of delaying, deferring or
preventing a change in control of our company.
Anti-Takeover Effects of Provisions of our Certificate of Incorporation, Bylaws and the DGCL
Some provisions of the DGCL and our certificate of incorporation and bylaws contain provisions that could make the following transactions more difficult:
(1) acquisition of us by means of a tender offer; (2) acquisition of us by means of a proxy contest or otherwise; or (3) removal of our incumbent officers and
directors. These provisions, summarized below, are intended to encourage persons seeking to acquire control of us to first negotiate with our board of
directors. These provisions also serve to discourage hostile takeover practices and inadequate takeover bids. We believe that
these provisions are beneficial because the negotiation they encourage could result in improved terms of any unsolicited proposal.
Undesignated Preferred Stock. Our board of directors has the ability to authorize undesignated preferred stock, which allows the board of directors to issue
preferred stock with voting or other rights or preferences that could impede the success of any unsolicited attempt to change control of our company. This
ability may have the effect of deferring hostile takeovers or delaying changes in control or management of our company.
Stockholder Meetings. Our bylaws provide that a special meeting of stockholders may be called only by our President, our Chairman of the board of
directors or by a resolution adopted by a majority of our board of directors.
Requirements for Advance Notification of Stockholder Nominations and Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of our board of
directors or a committee of our board of directors.
Elimination of Stockholder Action by Written Consent. Our certificate of incorporation eliminates the right of stockholders to act by written consent without
a meeting.
Election and Removal of Directors. Our board of directors is divided into three classes. The directors in each class will serve for a three-year term, one class
being elected each year by our stockholders. Once elected, directors may be removed only for cause and only by the affirmative vote of at least 662/3% of
our outstanding common stock. This system of electing and removing directors may tend to discourage a third party from making a tender offer or
otherwise attempting to obtain control of us because it generally makes it more difficult for stockholders to replace a majority of the directors.
Amendment of Certain Provisions in Our Organizational Documents. The amendment of any of the above provisions would require approval by holders of
at least 662/3% of our then outstanding common stock.
The provisions of the DGCL and our certificate of incorporation and bylaws could have the effect of discouraging others from attempting hostile takeovers
and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored
hostile takeover attempts. Such provisions may also have the effect of preventing changes in our management. It is possible that these provisions could
make it more difficult to accomplish transactions which stockholders may otherwise deem to be in their best interests.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Computershare Trust Company, N.A.
SUBSIDIARIES OF LIQUIDITY SERVICES, INC.
The following is a list of subsidiaries of Liquidity Services, Inc., the names under which such subsidiaries do business, and the state or country in which
each was organized as of December 7, 2023. The list does not include subsidiaries which would not, if considered in the aggregate as a single subsidiary,
constitute a significant subsidiary within the meaning of Item 601(b)(21)(ii) of Regulation S-K.
Company
Jurisdiction of Organization
DBAs
Exhibit 21.1
Liquidity Services Operations LLC
Liquidity Services Limited
GoIndustry-DoveBid Limited
Machinio Corp.
Delaware
United Kingdom
United Kingdom
Delaware
GovDeals
AllSurplus Liquidation.com
N/A
N/A
N/A
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statements No. 333-132192, No. 333-159004, No. 333-202548,
No. 333-216242, No. 333-226114, No. 333-236547, and No. 333-263036 on Forms S-8 of our reports dated December 7, 2023,
relating to the consolidated financial statements of Liquidity Services, Inc. and the effectiveness of Liquidity Services, Inc.’s
internal control over financial reporting appearing in this Annual Report on Form 10-K for the year ended September 30, 2023.
Exhibit 23.1
/s/ Deloitte & Touche LLP
McLean, VA
December 7, 2023
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.2
We consent to the incorporation by reference in the following Registration Statements:
•
•
•
•
•
•
•
Registration Statement (Form S-8 No. 333-132192) pertaining to the 2005 Stock Option and Incentive Plan and the 2006 Omnibus Long-Term
Incentive Plan of Liquidity Services, Inc.,
Registration Statement (Form S-8 No. 333-159004) pertaining to the 2006 Omnibus Long-Term Incentive Plan of Liquidity Services, Inc.,
Registration Statement (Form S-8 No. 333-202548) pertaining to the Amended and Restated 2006 Omnibus Long-Term Incentive Plan of
Liquidity Services, Inc.,
Registration Statement (Form S-8 No. 333-216242) pertaining to the Second Amended and Restated 2006 Omnibus Long-Term Incentive Plan of
Liquidity Services, Inc.,
Registration Statement (Form S-8 No. 333-226114) pertaining to the Machinio Corp. 2014 Stock Incentive Plan,
Registration Statement (Form S-8 No. 333-236547) pertaining to the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan of
Liquidity Services, Inc.; and
Registration Statement (Form S-8 No. 333-263036) pertaining to the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan of
Liquidity Services, Inc.
of our report dated December 9, 2021, with respect to the consolidated financial statements and schedule of Liquidity Services, Inc. and subsidiaries, for the
year ended September 30, 2021 included in this Annual Report (Form 10-K) of Liquidity Services, Inc. for the year ended September 30, 2023.
/s/ Ernst & Young LLP
Tysons, Virginia
December 7, 2023
EXHIBIT 31.1
I, William P. Angrick, III, certify that:
CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Liquidity Services, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 7, 2023
By: William P. Angrick, III
Title:
Chairman of the Board of Directors and Chief
Executive Officer
EXHIBIT 31.2
I, Jorge A. Celaya, certify that:
CERTIFICATION PURSUANT TO RULE 13a-14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Liquidity Services, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, 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;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: December 7, 2023
By: Jorge A. Celaya
Title:
Executive Vice President and Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the annual report of Liquidity Services, Inc. (the “Company”) on Form 10-K for the period ended September 30, 2023 as
filed with the Securities and Exchange Commission (the “Report”), I, William P. Angrick, III, Chief Executive Officer of the Company, certify, to the
best of my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
December 7, 2023
William P. Angrick, III
Chairman of the Board of Directors and Chief Executive Officer
THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 AND IS NOT BEING FILED AS PART OF THE FORM 10-K OR AS A SEPARATE DISCLOSURE DOCUMENT.
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT
AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE
ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO LIQUIDITY SERVICES,
INC. AND WILL BE RETAINED BY LIQUIDITY SERVICES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION
OR ITS STAFF UPON REQUEST.
CERTIFICATION PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the annual report of Liquidity Services, Inc. (the “Company”) on Form 10-K for the period ended September 30, 2023 as
filed with the Securities and Exchange Commission (the “Report”), I, Jorge A. Celaya, Chief Financial Officer of the Company, certify, to the best of
my knowledge, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
December 7, 2023
Jorge A. Celaya
Executive Vice President and Chief Financial Officer
THE FOREGOING CERTIFICATION IS BEING FURNISHED SOLELY PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002 AND IS NOT BEING FILED AS PART OF THE FORM 10-K OR AS A SEPARATE DISCLOSURE DOCUMENT.
A SIGNED ORIGINAL OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, OR OTHER DOCUMENT
AUTHENTICATING, ACKNOWLEDGING, OR OTHERWISE ADOPTING THE SIGNATURE THAT APPEARS IN TYPED FORM WITHIN THE
ELECTRONIC VERSION OF THIS WRITTEN STATEMENT REQUIRED BY SECTION 906, HAS BEEN PROVIDED TO LIQUIDITY SERVICES,
INC. AND WILL BE RETAINED BY LIQUIDITY SERVICES, INC. AND FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION
OR ITS STAFF UPON REQUEST.
Corporate information
Leadership
Meet the executive team driving
the world’s leading marketplace for
surplus assets to benefit buyers,
sellers, and the planet.
William P. Angrick, III
Chief Executive Officer and
Chairman of the Board of Directors
Jorge A. Celaya
Chief Financial
Officer
John P. Daunt
Chief Commercial
Officer
Steven J. Weiskircher
Chief Technology
Officer
Anthony D. Long
Vice President,
Marketing
Mark A. Shaffer
Chief Legal Officer and
Corporate Secretary
Novelette E. Murray
Chief Human Resources
Officer
Board of
Directors
William P. Angrick, III
Chairman of the Board
Jaime Mateus-Tique
Director
Phillip A. Clough
Director*
Katharin S. Dyer
Director
Amath Fall
Director
Beatriz V. Infante
Lead Director
George H. Ellis
Director
Edward J. Kolodzieski
Director
* Retiring February 2, 2024
Additional
Information
Investor Relations
Investor Relations
investorrelations@liquidity
servicesinc.com
Stock Transfer Agent
Computershare Trust
Company, N.A.
P.O. Box 505000
Louisville, KY 40233-5000
Phone: 781.575.2879
www.computershare.com
Corporate Secretary
Mark Shaffer
Chief Legal Officer and
Corporate Secretary
Independent
Registered Public
Accounting Firm
Deloitte & Touche LLP
7900 Tysons One Place
Suite 800
McLean, VA 22102
Phone: 703.251.1000
About Liquidity Services
Liquidity Services (NASDAQ:LQDT) operates the world’s largest B2B e-commerce
marketplace platform for surplus assets with over $10 billion in completed transactions
to more than five million qualified buyers and 15,000 corporate and government sellers
worldwide. The company supports its clients’ sustainability efforts by helping them
extend the life of assets, prevent unnecessary waste and carbon emissions, and reduce
the number of products headed to landfills.
Visit us at LiquidityServices.com
From the U.S.: 1-800-310-4604
Internationally: +1-202-467-6868
investorrelations@liquidityservicesinc.com