10-Q 1 lqdt-20231231.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

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

 

For the quarterly period ended December 31, 2023

OR

 

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

 

For the transition period from to

Commission file number 0-51813

 

img213072822_0.jpg 

 

LIQUIDITY SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

52-2209244

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

 

 

6931 Arlington Road, Suite 460, Bethesda, MD

20814

(Address of Principal Executive Offices)

(Zip Code)

 

(202) 467-6868

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)

Securities registered to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value

LQDT

Nasdaq

 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No ☒


The number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of February 5, 2024, was 30,719,262.


 

 

INDEX

 

 

 

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

3

 

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income

5

 

 

 

 

Condensed Consolidated Statement of Stockholders' Equity

6

 

 

 

 

Condensed Consolidated Statements of Cash Flows

7

 

 

 

 

Notes to the Unaudited Condensed Consolidated Financial Statements

8

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

 

 

 

Item 4.

Controls and Procedures

27

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

28

 

 

 

Item 1A.

Risk Factors

28

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

28

 

 

 

Item 5.

Other Information

29

 

 

 

Item 6.

Exhibits

30

 

 

 

SIGNATURES

 

31

 

 

2


 

PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited)

 

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Par Value)

 

 

 

December 31, 2023

 

 

September 30, 2023

 

 

 

(Unaudited)

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

98,557

 

 

$

110,281

 

Short-term investments

 

 

8,480

 

 

 

7,891

 

Accounts receivable, net of allowance for doubtful accounts of $1,518 and $1,424

 

 

7,745

 

 

 

7,848

 

Inventory, net

 

 

14,465

 

 

 

11,116

 

Prepaid taxes and tax refund receivable

 

 

1,426

 

 

 

1,783

 

Prepaid expenses and other current assets

 

 

7,290

 

 

 

7,349

 

Total current assets

 

 

137,963

 

 

 

146,268

 

Property and equipment, net

 

 

16,774

 

 

 

17,156

 

Operating lease assets

 

 

9,052

 

 

 

9,888

 

Intangible assets, net

 

 

11,612

 

 

 

12,457

 

Goodwill

 

 

89,627

 

 

 

89,388

 

Deferred tax assets

 

 

6,439

 

 

 

7,050

 

Other assets

 

 

6,958

 

 

 

6,762

 

Total assets

 

$

278,425

 

 

$

288,970

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

32,389

 

 

$

39,115

 

Accrued expenses and other current liabilities

 

 

17,413

 

 

 

23,809

 

Current portion of operating lease liabilities

 

 

4,009

 

 

 

4,101

 

Deferred revenue

 

 

4,474

 

 

 

4,701

 

Payables to sellers

 

 

48,811

 

 

 

48,992

 

Total current liabilities

 

 

107,096

 

 

 

120,718

 

Operating lease liabilities

 

 

5,828

 

 

 

6,581

 

Other long-term liabilities

 

 

122

 

 

 

137

 

Total liabilities

 

 

113,046

 

 

 

127,436

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock, $0.001 par value; 120,000,000 shares authorized; 36,189,758 shares issued and outstanding at December 31, 2023; 36,142,346 shares issued and outstanding at September 30, 2023

 

 

36

 

 

 

36

 

Additional paid-in capital

 

 

268,096

 

 

 

265,945

 

Treasury stock, at cost; 5,501,737 shares at December 31, 2023, and 5,433,045 shares at September 30, 2023

 

 

(85,202

)

 

 

(84,031

)

Accumulated other comprehensive loss

 

 

(9,500

)

 

 

(10,457

)

Accumulated deficit

 

 

(8,051

)

 

 

(9,958

)

Total stockholders’ equity

 

 

165,379

 

 

 

161,533

 

Total liabilities and stockholders’ equity

 

$

278,425

 

 

$

288,970

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

3


 

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Purchase revenues

 

$

36,225

 

 

$

38,634

 

Consignment and other fee revenues

 

 

35,100

 

 

 

33,648

 

Total revenue

 

 

71,325

 

 

 

72,282

 

Costs and expenses from operations:

 

 

 

 

 

 

Cost of goods sold (excludes depreciation and amortization)

 

 

31,526

 

 

 

31,773

 

Technology and operations

 

 

14,238

 

 

 

14,704

 

Sales and marketing

 

 

12,980

 

 

 

10,790

 

General and administrative

 

 

7,585

 

 

 

7,385

 

Depreciation and amortization

 

 

2,904

 

 

 

2,764

 

Other operating expenses, net

 

 

445

 

 

 

139

 

Total costs and expenses

 

 

69,678

 

 

 

67,555

 

Income from operations

 

 

1,647

 

 

 

4,727

 

Interest and other income, net

 

 

(1,141

)

 

 

(389

)

Income before provision for income taxes

 

 

2,788

 

 

 

5,116

 

Provision for income taxes

 

 

881

 

 

 

1,149

 

Net income

 

$

1,907

 

 

$

3,967

 

Basic income per common share

 

$

0.06

 

 

$

0.12

 

Diluted income per common share

 

$

0.06

 

 

$

0.12

 

Basic weighted average shares outstanding

 

 

30,605,475

 

 

 

31,815,160

 

Diluted weighted average shares outstanding

 

 

31,938,342

 

 

 

32,937,600

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


 

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Dollars in Thousands)

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Net income

 

$

1,907

 

 

$

3,967

 

Other comprehensive income:

 

 

 

 

 

Foreign currency translation

 

$

958

 

 

 

1,273

 

Other comprehensive income, net of taxes

 

 

958

 

 

 

1,273

 

Comprehensive income

 

$

2,865

 

 

$

5,240

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

5


 

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Dollars In Thousands)

 

 

 

 

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Treasury Stock

 

Comprehensive

 

Retained

 

 

 

 

Shares

 

Amount

 

Capital

 

Shares

 

Amount

 

Loss

 

Earnings

 

Total

 

Balance at September 30, 2023

 

36,142,345

 

$

36

 

$

265,945

 

 

(5,433,045

)

$

(84,031

)

$

(10,458

)

$

(9,958

)

$

161,533

 

Net Income

 

 

 

 

 

 

 

 

 

 

 

 

 

1,907

 

 

1,907

 

Exercise of common stock options, grants of restricted stock awards, and vesting of restricted stock units

 

59,471

 

 

 

 

127

 

 

 

 

 

 

 

 

 

 

127

 

Taxes paid associated with net settlement of stock compensation awards

 

(12,058

)

 

 

 

(224

)

 

 

 

 

 

 

 

 

 

(224

)

Common stock repurchase

 

 

 

 

 

 

 

(68,692

)

 

(1,171

)

 

 

 

 

 

(1,171

)

Stock compensation expense

 

 

 

 

 

2,249

 

 

 

 

 

 

 

 

 

 

2,249

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

958

 

 

 

 

958

 

Balance at December 31, 2023

 

36,189,758

 

$

36

 

$

268,096

 

 

(5,501,737

)

$

(85,202

)

$

(9,500

)

$

(8,051

)

$

165,379

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

6


 

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars In Thousands)

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Operating activities

 

 

 

 

 

 

Net income

 

$

1,907

 

 

$

3,967

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

2,904

 

 

 

2,764

 

Stock compensation expense

 

 

2,249

 

 

 

2,081

 

Provision for doubtful accounts

 

 

101

 

 

 

15

 

Deferred tax expense

 

 

612

 

 

 

1,181

 

Gain on disposal of property and equipment

 

 

(14

)

 

 

(45

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

64

 

 

 

3,954

 

Inventory

 

 

(3,266

)

 

 

(4,680

)

Prepaid taxes and tax refund receivable

 

 

358

 

 

 

(202

)

Prepaid expenses and other assets

 

 

40

 

 

 

(999

)

Operating lease assets and liabilities

 

 

(10

)

 

 

(65

)

Accounts payable

 

 

(6,757

)

 

 

(10,416

)

Accrued expenses and other current liabilities

 

 

(6,422

)

 

 

(1,744

)

Deferred revenue

 

 

(227

)

 

 

(417

)

Payables to sellers

 

 

(412

)

 

 

(5,935

)

Other liabilities

 

 

 

 

 

(120

)

Net cash used in operating activities

 

 

(8,873

)

 

 

(10,659

)

Investing activities

 

 

 

 

 

 

Purchases of property and equipment, including capitalized software

 

 

(1,731

)

 

 

(1,212

)

Purchase of short-term investments

 

 

(2,369

)

 

 

(1,847

)

Maturities of short-term investments

 

 

1,986

 

 

 

 

Other investing activities, net

 

 

31

 

 

 

44

 

Net cash used in investing activities

 

 

(2,083

)

 

 

(3,015

)

Financing activities

 

 

 

 

 

 

Common stock repurchases

 

 

(1,168

)

 

 

(7,199

)

Taxes paid associated with net settlement of stock compensation awards

 

 

(225

)

 

 

(244

)

Payments of the principal portion of finance lease liabilities

 

 

(26

)

 

 

(25

)

Proceeds from exercise of stock options, net of tax

 

 

127

 

 

 

496

 

Net cash used in financing activities

 

 

(1,292

)

 

 

(6,972

)

Effect of exchange rate differences on cash and cash equivalents

 

 

524

 

 

 

690

 

Net decrease in cash and cash equivalents

 

 

(11,724

)

 

 

(19,956

)

Cash and cash equivalents at beginning of period

 

 

110,281

 

 

 

96,122

 

Cash and cash equivalents at end of period

 

$

98,557

 

 

$

76,166

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash (received) paid for income taxes, net

 

$

(117

)

 

$

159

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

7


Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed 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.

Reportable Segments

The Company has four reportable segments under which we conduct business: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. Further information and operating results of our reportable segments can be found in Note 13 - 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.
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. This segment uses the AllSurplus, Secondipity, and Liquidation.com marketplaces.
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; ongoing international armed and geopolitical conflicts; 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.

2.
Summary of Significant Accounting Policies

Unaudited Interim Financial Information

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In management's opinion, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been included, and intercompany transactions and accounts have been eliminated in consolidation. The information disclosed in the notes to the condensed consolidated financial statements for these periods is unaudited. Operating results for the three months ended December 31, 2023, are not necessarily indicative of the results that may be expected for the year ending September 30, 2024, or for any future period.

 

8


Liquidity Services, Inc. and Subsidiaries

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

 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts in the condensed consolidated financial statements and accompanying notes. For the three months ended December 31, 2023, these estimates required the Company to make assumptions about the impact of ongoing international armed and geopolitical conflicts, and other disruptions to macroeconomic conditions and, in turn, the Company's results of operations. The Company will continue to update its assumptions as conditions change. Actual results could differ significantly from those estimates.

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 million as of December 31, 2023, and $0.9 million as of September 30, 2023, and is included in the line-item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability balance was $4.5 million as of December 31, 2023, and $4.7 million as of September 30, 2023, and is included in the line-item Deferred revenue on the Condensed Consolidated Balance Sheets. Of the September 30, 2023, contract liability balance, $2.2 million was earned as other fee revenue during the three months ended December 31, 2023.

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

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 as of December 31, 2023, and $2.2 million as of September 30, 2023, and is included in the line-item Prepaid expenses and other current assets, and Other assets on the Condensed Consolidated Balance Sheets. Amortization expense was $0.4 million and $0.3 million during the three months ended December 31, 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 Condensed Consolidated Balance Sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business.

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. $8.3 million and $5.8 million of inventory purchased under such contracts with Amazon.com, Inc. is included in the line-item Inventory on the Condensed Consolidated Balance Sheets as of December 31, 2023, and September 30, 2023, 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.

 

9


Liquidity Services, Inc. and Subsidiaries

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

 

Recent Accounting Pronouncements

Accounting Standards Adopted

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). The majority of the Company’s sales require payment in advance of the sale, but a limited number of buyers are approved to conduct sales on credit. Accounts receivables related to those sales are generally short-term in nature and do not require the posting of collateral. The Company estimates its allowances for credit loss based on historical collection trends, the age of outstanding receivables, existing economic conditions, and the specific facts and circumstances of individual customers. If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly. Past-due account balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due. The Company adopted the new standard effective October 1, 2023. The adoption of ASU 2016-13 did not have a material impact on our condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

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.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU will require organizations to disclose specific categories in their tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. The guidance will be effective for the Company beginning with its Annual Report on Form 10-K for the fiscal year ending September 30, 2026. The guidance is required to be applied on a prospective basis however, retrospective application is permitted. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

3.
Earnings per Share

Basic net income per share is computed by dividing Net income for the period by the weighted average number of shares outstanding during the period. Diluted net income per share is computed by dividing Net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The calculation of Diluted net income per share excludes all anti-dilutive common shares.

The computation of Basic and Diluted net income per share is as follows:

 

 

 

Three months ended December 31,

 

 

 

2023

 

 

2022

 

Numerator:

 

 

 

 

 

 

Net income

 

$

1,907

 

 

$

3,967

 

Denominator:

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

30,605,475

 

 

 

31,815,160

 

Dilutive impact of stock options, RSUs and RSAs

 

 

1,332,867

 

 

 

1,122,440

 

Diluted weighted average shares outstanding

 

 

31,938,342

 

 

 

32,937,600

 

Basic income per common share

 

$

0.06

 

 

$

0.12

 

Diluted income per common share

 

$

0.06

 

 

$

0.12

 

Stock options, RSUs and RSAs excluded from income per diluted share because their effect would have been anti-dilutive

 

 

1,977,805

 

 

 

1,906,513

 

 

 

10


Liquidity Services, Inc. and Subsidiaries

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

 

4.
Leases

The Company has operating leases for its corporate offices, warehouses, vehicles, and equipment. During the three months ended December 31, 2023, the Company entered into a lease for warehouse space in Brownsburg, IN, which has not yet commenced but is expected to during the year ended September 30, 2024. This warehouse will serve our RSCG buyers and sellers upon expiration of our Plainfield, IN lease.

The operating leases have remaining terms of up to 3.1 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:

 

 

Three Months Ended December 31,

 

 

2023

 

 

2022

 

Finance lease – lease asset amortization

$

20

 

 

$

20

 

Finance lease – interest on lease liabilities

 

3

 

 

 

4

 

Operating lease cost

 

1,293

 

 

 

1,358

 

Short-term lease cost

 

39

 

 

 

137

 

Variable lease cost (1)

 

323

 

 

 

375

 

Sublease income

 

(3

)

 

 

(25

)

Total net lease cost

$

1,675

 

 

$

1,869

 

 

(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:

 

 

December 31, 2023

 

 

Operating Leases

 

 

Finance Leases

 

Remainder of 2024

$

3,436

 

 

$

67

 

2025

 

4,067

 

 

 

68

 

2026

 

2,418

 

 

 

65

 

2027

 

560

 

 

 

12

 

2028

 

144

 

 

 

 

Thereafter

 

49

 

 

 

 

Total lease payments (1)

$

10,674

 

 

$

213

 

Less: imputed interest (2)

 

(792

)

 

 

(15

)

Total lease liabilities

$

9,882

 

 

$

198

 

 

(1)
The weighted average remaining lease term is 2.6 years for operating leases and 2.7 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:

 

 

Three Months Ended December 31,

 

 

2023

 

 

2022

 

Cash paid for amounts included in operating lease liabilities

$

1,154

 

 

$

1,205

 

Cash paid for amounts included in finance lease liabilities

$

26

 

 

$

25

 

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)

$

293

 

 

$

 

 

(1)
These include adjustments due to lease modifications, renewals, and other related adjustments.
5.
Goodwill

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

 

(in thousands)

GovDeals

 

CAG

 

Machinio

 

Total

 

September 30, 2022

$

53,814

 

$

20,538

 

$

14,558

 

$

88,910

 

Translation adjustments

 

 

 

478

 

 

 

 

478

 

September 30, 2023

 

53,814

 

 

21,016

 

 

14,558

 

 

89,388

 

Translation adjustments

 

 

 

239

 

 

 

 

239

 

December 31, 2023

$

53,814

 

$

21,255

 

$

14,558

 

$

89,627

 

 

 

11


Liquidity Services, Inc. and Subsidiaries

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

 

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. The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended December 31, 2023.

6.
Intangible Assets

Intangible assets consist of the following:

 

 

 

 

 

December 31, 2023

 

 

September 30, 2023

 

(in thousands)

 

Useful
Life
(in years)

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

 

Gross
Carrying
Amount

 

 

Accumulated
Amortization

 

 

Net
Carrying
Amount

 

Contract intangibles

 

6 - 8

 

$

17,000

 

 

$

(6,606

)

 

$

10,394

 

 

$

17,000

 

 

$

(6,043

)

 

$

10,957

 

Technology

 

3 - 5

 

 

5,300

 

 

 

(4,578

)

 

 

722

 

 

 

5,300

 

 

 

(4,361

)

 

 

939

 

Patent and trademarks

 

7 - 10

 

 

2,376

 

 

 

(1,880

)

 

 

496

 

 

 

2,375

 

 

 

(1,814

)

 

 

561

 

Total intangible assets, net

 

 

 

$

24,676

 

 

$

(13,064

)

 

$

11,612

 

 

$

24,675

 

 

$

(12,218

)

 

$

12,457

 

 

Future expected amortization of intangible assets as of December 31, 2023, is as follows:

 

(in thousands)

 

 

 

Years ending September 30,

 

Expected Future Amortization

 

Remainder of 2024

 

$

2,408

 

2025

 

 

2,013

 

2026

 

 

1,768

 

2027

 

 

1,761

 

2028 and thereafter

 

 

3,662

 

Total

 

$

11,612

 

Intangible asset amortization expense was $0.8 million and $1.0 million for the three months ended December 31, 2023 and 2022, respectively.

The Company did not record impairment charges on any intangible assets during the three months ended December 31, 2023 and 2022. The Company did not identify any indicators of impairment requiring an interim impairment test on material long-lived assets during the three months ended December 31, 2023.

7.
Income Taxes

The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate. The Company recorded pre-tax income in the first three months of fiscal year 2024 and its corresponding effective tax rate is 31.6% compared to 22.5% for the first three months of fiscal year 2023. The change in the effective tax rate for the three months ended December 31, 2023, as compared to the same period in the prior year, was primarily due to state and foreign taxes, and the utilization of net operating losses. The effective tax rate differed from the U.S. statutory federal rate of 21% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments.

The Inflation Reduction Act (IRA) was enacted on August 16, 2022. The IRA includes provisions imposing a 1% excise tax on share repurchases that occur after December 31, 2022, and introduces a 15% corporate alternative minimum tax (CAMT) on adjusted financial statement income. The CAMT is effective for us in fiscal year 2024. The IRA has not had a material adverse impact on our financial statements.

The Company applies the authoritative guidance related to uncertainty in income taxes. ASC 740, Income Taxes, states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of technical merits. During the three months ended December 31, 2023, the Company did not record any unrecognized tax benefits. 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 United Kingdom. As of December 31, 2023, 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.

8.
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 regarding the borrowing terms of capacities, were made to the Credit Agreement as a result of the First Amendment.

 

12


Liquidity Services, Inc. and Subsidiaries

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

 

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 Line of Credit Fee, are included within Interest and other income, net in the Condensed Consolidated Statements of Operations.

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

The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains affirmative and restrictive covenants including covenants placing limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of December 31, 2023, the Company complied 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 December 31, 2023, the Company had no outstanding borrowings under the Credit Agreement.

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

9.
Stockholders’ Equity

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

 

 

 

 

 

 

Additional

 

 

 

 

 

Accumulated
Other

 

 

 

 

 

 

Common Stock

 

Paid-in

 

Treasury Stock

 

Comprehensive

 

Retained

 

 

 

 

Shares

 

Amount

 

Capital

 

Shares

 

Amount

 

Loss

 

Earnings

 

Total

 

Balance at September 30, 2022

 

35,724,057

 

$

36

 

$

258,275

 

 

(3,813,199

)

$

(62,554

)

$

(10,285

)

$

(30,936

)

$

154,536

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

3,967

 

 

3,967

 

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units

 

190,119

 

 

 

 

495

 

 

 

 

 

 

 

 

 

 

495

 

Taxes paid associated with net settlement of stock compensation awards

 

(14,536

)

 

 

 

(244

)

 

 

 

 

 

 

 

 

 

(244

)

Common stock repurchased

 

 

 

 

 

 

 

(531,819

)

 

(7,199

)

 

 

 

 

 

(7,199

)

Stock compensation expense

 

 

 

 

 

2,126

 

 

 

 

 

 

 

 

 

 

2,126

 

Foreign currency translation and other

 

 

 

 

 

 

 

 

 

 

 

1,273

 

 

 

 

1,273

 

Balance at December 31, 2022

 

35,899,640

 

$

36

 

$

260,653

 

 

(4,345,018

)

$

(69,754

)

$

(9,012

)

$

(26,970

)

$

154,953

 

 

Stock Compensation Incentive Plans

The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended (LTIP), and a plan and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets. As of December 31, 2023, the Company has reserved a total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5x shares against the plan reserves. As of December 31, 2023, 66,635 shares of common stock remained available for use under the LTIP.

 

Stock Compensation Expense

 

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

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Equity-classified awards:

 

 

 

 

 

 

Stock options

 

$

500

 

 

$

475

 

RSUs & RSAs

 

 

1,749

 

 

 

1,651

 

Total Equity-classified award

 

 

2,249

 

 

 

2,126

 

Liability-classified awards:

 

 

 

 

 

 

SARs

 

 

 

 

 

(44

)

Total stock compensation expense:

 

$

2,249

 

 

$

2,081

 

 

 

13


Liquidity Services, Inc. and Subsidiaries

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

 

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

 

 

 

Three Months Ended December 31,

 

 

 

2023

 

 

2022

 

Stock-compensation expense by function

 

 

 

 

 

 

Technology and operations

 

$

330

 

 

$

256

 

Sales and marketing

 

 

638

 

 

 

508

 

General and administrative

 

 

1,281

 

 

 

1,317

 

Total stock compensation expense:

 

$

2,249

 

 

$

2,081

 

 

Stock Options and RSUs & RSAs

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

 



 

Three Months Ended December 31, 2023

 

Stock Options granted:

 



 

Options containing only service conditions:

 

 

125,955

 

Weighted average exercise price

 

$

18.00

 

Weighted average grant date fair value

 

$

9.03

 



 



 

Options containing performance conditions:

 

 

125,955

 

Weighted average exercise price

 

$

18.00

 

Weighted average grant date fair value

 

$

9.03

 



 



 

RSUs & RSAs granted:

 



 

RSUs & RSAs containing only service conditions:

 

 

240,080

 

Weighted average grant date fair value

 

$

19.55

 



 



 

RSUs & RSAs containing performance conditions:

 

 

235,080

 

Weighted average grant date fair value

 

$

19.59

 

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

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

 

 

 

Three Months Ended

 

 

 

December 31, 2023

 

Dividend yield

 

 

 

Expected volatility

 

59.08% - 60.83%

 

Risk-free interest rate

 

3.83% - 3.88%

 

Expected term

 

4.5 - 5.0 years

 

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.

As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.

The Company repurchased 68,692 shares for $1.2 million during the three months ended December 31, 2023. As of December 31, 2023, the Company had $15.8 million of remaining authorization to repurchase shares through December 31, 2025.

 

14


Liquidity Services, Inc. and Subsidiaries

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

 

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. Any shares surrendered to the Company in this manner are not available for future grant.

During the three months ended December 31, 2023 and 2022, no shares of common stock were surrendered by participants in the exercise of stock options.

10.
Fair Value Measurement

The Company measures and records certain assets and liabilities at fair value on a recurring basis. Authoritative guidance issued by the FASB establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date;

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; and

Level 3: Unobservable inputs for the asset or liability.

Cash and cash equivalents. The Company had $42.9 million and $51.4 million of money market funds considered cash equivalents at December 31, 2023, and September 30, 2023, respectively. These assets were measured at fair value as of December 31, 2023, and September 30, 2023, and were classified as Level 1 assets within the fair value hierarchy. There were no transfers between levels during the periods presented.

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, accounts payable, and payables to sellers. The Company believes the carrying values of these instruments approximate fair value.

As of December 31, 2023, the Company had no non-financial instruments measured at fair value on a non-recurring basis. As of December 31, 2023, and September 30, 2023, the Company did not have any material assets or liabilities measured at fair value on a non-recurring basis.

11.
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 net periodic pension (benefit) cost is recognized within Interest and other income, net in the Condensed Consolidated Statements of Operations, and was immaterial for the three months ended December 31, 2023 and 2022.

12.
Legal Proceedings and Other Contingencies

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.

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. The District Court and the parties are in the process of selecting a date for retrial. The Company continues to assert substantial defenses and cannot estimate a range of potential liability, if any, at this time.

 

15


Liquidity Services, Inc. and Subsidiaries

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

 

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.

13.
Segment Information

The Company has four reportable segments under which we conduct business: 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.
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. This segment uses the AllSurplus, Secondipity, and Liquidation.com marketplaces.
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.

We also report results for Corporate, 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 is 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:

 

16


Liquidity Services, Inc. and Subsidiaries

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

 

 

 

 

 

Three Months Ended December 31,

 

 

(in thousands)

2023

 

 

2022

 

 

GovDeals: