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 ~~June 30,~~December 31, 2021


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

For the transition period from to

Commission file number 0-51813

LIQUIDITY SERVICES, INC.

(Exact Name of Registrant as Specified in Its Charter)


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

6931 Arlington Road, Suite 200, 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 ~~August 2, 2021~~January 31, 2022 was ~~35,440,468.~~35,564,964.

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 (~~Loss~~)	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	2122

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	3233

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3334

Item 1A.	Risk Factors	3334

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3334

Item 5.	Other Information	3334

Item 6.	Exhibits	3435

SIGNATURES		3536

Table of Contents

PART I—FINANCIAL INFORMATION

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

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(Dollars in Thousands, Except Par Value)


		June 30, 2021		September 30, 2020			December 31, 2021		September 30, 2021
		(Unaudited)					(Unaudited)
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	112,666	$	76,036	Cash and cash equivalents	$	91,321	$	106,335

Accounts receivable, net of allowance for doubtful accounts of $634 and $389		5,470		5,322
Accounts receivable, net of allowance for doubtful accounts of $478 and $490						Accounts receivable, net of allowance for doubtful accounts of $478 and $490	7,797		5,866
Inventory, net	Inventory, net	13,799		5,607		Inventory, net	13,225		12,468
Prepaid taxes and tax refund receivable	Prepaid taxes and tax refund receivable	1,600		1,652		Prepaid taxes and tax refund receivable	1,677		1,713
Prepaid expenses and other current assets	Prepaid expenses and other current assets	5,970		5,962		Prepaid expenses and other current assets	6,465		5,460
Total current assets	Total current assets	139,505		94,579		Total current assets	120,485		131,842
Property and equipment, net of accumulated depreciation of $17,834 and $14,555		17,003		17,843
Property and equipment, net of accumulated depreciation of $20,058 and $18,558						Property and equipment, net of accumulated depreciation of $20,058 and $18,558	18,164		17,634
Operating lease assets	Operating lease assets	12,008		10,561		Operating lease assets	15,309		13,478
Intangible assets, net	Intangible assets, net	3,777		4,758		Intangible assets, net	19,187		3,453
Goodwill	Goodwill	60,023		59,839		Goodwill	88,727		59,872
Deferred tax assets	Deferred tax assets	762		806		Deferred tax assets	19,217		23,822
Other assets	Other assets	5,325		8,248		Other assets	5,789		5,475
Total assets	Total assets	$	238,403	$	196,634	Total assets	$	286,878	$	255,576
Liabilities and stockholders’ equity	Liabilities and stockholders’ equity					Liabilities and stockholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	39,748	$	21,957	Accounts payable	$	31,957	$	40,611
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	22,226		19,124		Accrued expenses and other current liabilities	35,709		25,975
Current portion of operating lease liabilities	Current portion of operating lease liabilities	4,081		3,818		Current portion of operating lease liabilities	4,382		4,250

Deferred revenue	Deferred revenue	4,517		3,255		Deferred revenue	4,685		4,624
Payables to sellers	Payables to sellers	39,426		26,170		Payables to sellers	48,288		33,713
Total current liabilities	Total current liabilities	109,998		74,324		Total current liabilities	125,021		109,173
Operating lease liabilities	Operating lease liabilities	8,872		7,499		Operating lease liabilities	11,774		10,098
Other long-term liabilities	Other long-term liabilities	2,972		2,996		Other long-term liabilities	13,004		1,290
Total liabilities	Total liabilities	121,842		84,819		Total liabilities	149,799		120,561
Commitments and contingencies (Note 12)	Commitments and contingencies (Note 12)	0		0		Commitments and contingencies (Note 12)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized; 35,417,715 shares issued and outstanding at June 30, 2021; 34,082,406 shares issued and outstanding at September 30, 2020		35		34
Common stock, $0.001 par value; 120,000,000 shares authorized; 35,533,071 shares issued and outstanding at December 31, 2021; 35,457,095 shares issued and outstanding at September 30, 2021						Common stock, $0.001 par value; 120,000,000 shares authorized; 35,533,071 shares issued and outstanding at December 31, 2021; 35,457,095 shares issued and outstanding at September 30, 2021	36		35
Additional paid-in capital	Additional paid-in capital	251,048		247,892		Additional paid-in capital	253,536		252,017
Treasury stock, at cost; 1,587,199 shares at June 30, 2021 and 547,508 shares at September 30, 2020		(21,628)		(3,983)
Treasury stock, at cost; 2,373,946 shares at December 31, 2021 and 2,222,083 shares at September 30, 2021						Treasury stock, at cost; 2,373,946 shares at December 31, 2021 and 2,222,083 shares at September 30, 2021	(39,691)		(36,628)
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(8,740)		(9,782)		Accumulated other comprehensive loss	(9,142)		(9,011)
Accumulated deficit	Accumulated deficit	(104,154)		(122,346)		Accumulated deficit	(67,660)		(71,398)
Total stockholders’ equity	Total stockholders’ equity	116,561		111,815		Total stockholders’ equity	137,079		135,015
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	238,403	$	196,634	Total liabilities and stockholders’ equity	$	286,878	$	255,576

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
		2021		2020		2021		2020			2021		2020
		(Unaudited)									(Unaudited)
Revenue	Revenue	$	37,862	$	30,442	$	104,902	$	95,994	Revenue	$	36,217	$	31,071
Fee revenue	Fee revenue	31,804		17,280		82,302		54,056		Fee revenue	30,490		24,680
Total revenue	Total revenue	69,666		47,722		187,204		150,050		Total revenue	66,707		55,751
Costs and expenses from operations:	Costs and expenses from operations:									Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)	Cost of goods sold (excludes depreciation and amortization)	28,543		22,494		77,501		73,289		Cost of goods sold (excludes depreciation and amortization)	27,762		22,573

Technology and operations	Technology and operations	12,307		9,515		34,952		32,342		Technology and operations	13,918		10,573
Sales and marketing	Sales and marketing	9,661		7,412		27,679		27,126		Sales and marketing	10,044		9,108
General and administrative	General and administrative	7,676		6,217		21,578		21,321		General and administrative	8,230		6,996
Depreciation and amortization	Depreciation and amortization	1,705		1,567		5,246		4,716		Depreciation and amortization	2,302		1,871
Other operating expenses		1,180		319		1,390		500
Other operating (income) expenses										Other operating (income) expenses	(32)		4
Total costs and expenses	Total costs and expenses	61,072		47,524		168,346		159,294		Total costs and expenses	62,224		51,125
Income (loss) from operations		8,594		198		18,858		(9,244)
Income from operations										Income from operations	4,483		4,626
Interest and other income, net	Interest and other income, net	(254)		(224)		(468)		(733)		Interest and other income, net	(131)		(185)
Income (loss) before provision for income taxes		8,848		422		19,326		(8,511)
Income before provision for income taxes										Income before provision for income taxes	4,614		4,811
Provision for income taxes	Provision for income taxes	429		209		1,133		710		Provision for income taxes	1,012		297
Net income (loss)		$	8,419	$	213	$	18,193	$	(9,221)
Basic income (loss) per common share		$	0.25	$	0.01	$	0.55	$	(0.27)
Diluted income (loss) per common share		$	0.24	$	0.01	$	0.52	$	(0.27)
Net income										Net income	$	3,602	$	4,514
Basic income per common share										Basic income per common share	$	0.11	$	0.14
Diluted income per common share										Diluted income per common share	$	0.10	$	0.13
Basic weighted average shares outstanding	Basic weighted average shares outstanding	33,371,906		33,695,936		33,345,580		33,621,740		Basic weighted average shares outstanding	32,971,709		33,176,895
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	35,437,761		33,815,332		35,006,898		33,621,740		Diluted weighted average shares outstanding	34,868,869		34,911,119

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income ~~(Loss)~~

(Dollars in Thousands)

Three Months Ended June 30, Nine Months Ended June 30,
2021 2020 2021 2020
(Unaudited)
Net income (loss) $ 8,419 $ 213 $ 18,193 $ (9,221)
Other comprehensive income (loss):
Foreign currency translation 23 424 1,042 (46)
Other comprehensive income (loss) 23 424 1,042 (46)
Comprehensive income (loss) $ 8,442 $ 637 $ 19,235 $ (9,267)


	Three Months Ended December 31,
	2021		2020
	(Unaudited)
Net income	$	3,602	$	4,514
Other comprehensive (loss) income:
Foreign currency translation	(131)		896
Other comprehensive (loss) income	(131)		896
Comprehensive income	$	3,471	$	5,410

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders’ Equity

(Dollars In Thousands)

Common Stock Treasury Stock
Shares Amount Additional
Paid-in
Capital Shares Amount Accumulated
Other
Comprehensive
Loss Accumulated
Deficit Total
(Unaudited)
Balance at September 30, 2020 34,082,406 $ 34 $ 247,892 (547,508) $ (3,983) $ (9,782) $ (122,346) $ 111,815
Net income — — — — — — 4,514 4,514
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 151,845 — 197 — — — — 197
Taxes paid associated with net settlement of stock compensation awards (7,703) — (57) — — — — (57)
Forfeitures of restricted stock awards (13,733) — — — — — — —
Common stock repurchased — — — (309,496) (4,103) — — (4,103)
Common stock surrendered in the exercise of stock options — — 169 (9,384) (169) — — 0
Stock compensation expense — — 1,801 — — — — 1,801
Foreign currency translation — — — — — 896 — 896
Balance at December 31, 2020 34,212,815 $ 34 $ 250,002 (866,388) $ (8,255) $ (8,886) $ (117,832) $ 115,063
Net income — — — — — — 5,260 5,260
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 1,079,955 1 154 — — — — 155
Taxes paid associated with net settlement of stock compensation awards (177,463) — (3,145) — — — — (3,145)
Common stock repurchased — — — (647,583) (12,040) — — (12,040)
Common stock surrendered in the exercise of stock options — — 1,333 (73,228) (1,333) — — 0
Stock compensation expense — — 1,522 — — — — 1,522
Foreign currency translation — — — — — 123 — 123
Balance at March 31, 2021 35,115,307 $ 35 $ 249,866 (1,587,199) $ (21,628) $ (8,763) $ (112,572) $ 106,938
Net income — — — — — — 8,419 8,419
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 318,242 — — — — — — —
Taxes paid associated with net settlement of stock compensation awards (15,834) — (343) — — — — (343)
Stock compensation expense — — 1,525 — — — — 1,525
Foreign currency translation and other — — — — — 23 (1) 22
Balance at June 30, 2021 35,417,715 $ 35 $ 251,048 (1,587,199) $ (21,628) $ (8,740) $ (104,154) $ 116,561


	Common Stock					Treasury Stock
	Shares	Amount		Additional Paid-in Capital		Shares	Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
	(Unaudited)
Balance at September 30, 2021	35,457,095	$	35	$	252,017	(2,222,083)	$	(36,628)	$	(9,011)	$	(71,398)	$	135,015
Net income	—	—		—		—	—		—		3,602		3,602
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units	131,070	1		—		—	—		—		—		1
Taxes paid associated with net settlement of stock compensation awards	(40,239)	—		(851)		—	—		—		—		(851)
Forfeitures of restricted stock awards	(14,855)	—		—		—	—		—		—		—
Common stock repurchased	—	—		—		(147,185)	(2,963)		—		—		(2,963)
Common stock surrendered in the exercise of stock options	—	—		100		(4,678)	(100)		—		—		—
Stock compensation expense	—	—		2,270		—	—		—		—		2,270
Foreign currency translation and other	—	—		—		—	—		(131)		136		5
Balance at December 31, 2021	35,533,071	$	36	$	253,536	(2,373,946)	$	(39,691)	$	(9,142)	$	(67,660)	$	137,079

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Liquidity Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Dollars In Thousands)


		Nine Months Ended June 30,					Three Months Ended December 31,
		2021		2020			2021		2020
		(Unaudited)					(Unaudited)
Operating activities	Operating activities					Operating activities
Net income (loss)		$	18,193	$	(9,221)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income						Net income	$	3,602	$	4,514
Adjustments to reconcile net income to net cash provided by operating activities:						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	5,246		4,716		Depreciation and amortization	2,302		1,871
Stock compensation expense	Stock compensation expense	5,793		3,785		Stock compensation expense	2,280		2,229
Inventory adjustment to net realizable value						Inventory adjustment to net realizable value	98		—
Provision for doubtful accounts	Provision for doubtful accounts	269		131		Provision for doubtful accounts	11		15
Deferred tax provision	Deferred tax provision	96		228		Deferred tax provision	881		32
Loss (gain) on disposal of property and equipment		87		(29)
Change in fair value of earnout liability		0		200
Impairment of long-lived and other assets		1,338		0
Gain on disposal of property and equipment						Gain on disposal of property and equipment	(6)		(1)
Gain on termination of lease						Gain on termination of lease	(205)		—

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(420)		1,415		Accounts receivable	(1,795)		506
Inventory	Inventory	(8,192)		(1,572)		Inventory	(855)		(4,324)
Prepaid and deferred taxes	Prepaid and deferred taxes	57		(551)		Prepaid and deferred taxes	35		208
Prepaid expenses and other assets	Prepaid expenses and other assets	(2,477)		942		Prepaid expenses and other assets	(1,137)		(1,235)
Operating lease assets and liabilities	Operating lease assets and liabilities	5		(165)		Operating lease assets and liabilities	214		(89)
Accounts payable	Accounts payable	17,791		13,951		Accounts payable	(8,815)		3,301
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	2,242		(9,525)		Accrued expenses and other current liabilities	(5,193)		(1,994)
Distributions payable		0		(1,675)

Deferred revenue	Deferred revenue	1,262		(23)		Deferred revenue	60		174
Payables to sellers	Payables to sellers	13,256		6,072		Payables to sellers	11,199		1,069
Other liabilities	Other liabilities	(275)		522		Other liabilities	(805)		(238)
Net cash provided by operating activities	Net cash provided by operating activities	54,271		9,201		Net cash provided by operating activities	1,871		6,038
Investing activities	Investing activities					Investing activities
Cash paid for business acquisition, net of cash acquired						Cash paid for business acquisition, net of cash acquired	(11,063)		—
Purchases of property and equipment, including capitalized software						Purchases of property and equipment, including capitalized software	(1,964)		(1,363)
Increase in intangibles	Increase in intangibles	(23)		(53)		Increase in intangibles	(1)		(5)
Purchases of property and equipment, including capitalized software		(3,488)		(3,608)
Proceeds from sales of property and equipment	Proceeds from sales of property and equipment	68		47		Proceeds from sales of property and equipment	7		14
Proceeds from promissory note	Proceeds from promissory note	4,343		2,553		Proceeds from promissory note	—		508
Purchases of short-term investments		0		(25,000)
Maturities of short-term investments		0		55,000
Net cash provided by investing activities		900		28,939

Net cash used by investing activities						Net cash used by investing activities	(13,021)		(846)
Financing activities	Financing activities					Financing activities
Payments of the principal portion of finance lease liabilities	Payments of the principal portion of finance lease liabilities	(35)		(26)		Payments of the principal portion of finance lease liabilities	(27)		(9)
Taxes paid associated with net settlement of stock compensation awards	Taxes paid associated with net settlement of stock compensation awards	(3,545)		(564)		Taxes paid associated with net settlement of stock compensation awards	(851)		(58)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	353		36		Proceeds from exercise of stock options	—		197
Payment of earnout liability related to business acquisition		0		(1,200)

Common stock repurchased	Common stock repurchased	(16,143)		0		Common stock repurchased	(2,963)		(4,103)
Net cash (used in) financing activities		(19,370)		(1,754)
Net cash used by financing activities						Net cash used by financing activities	(3,841)		(3,973)
Effect of exchange rate differences on cash and cash equivalents	Effect of exchange rate differences on cash and cash equivalents	829		(154)		Effect of exchange rate differences on cash and cash equivalents	(23)		589
Net increase in cash and cash equivalents		36,630		36,232
Net (decrease) increase in cash and cash equivalents						Net (decrease) increase in cash and cash equivalents	(15,014)		1,808
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	76,036		36,497		Cash and cash equivalents at beginning of period	106,335		76,036
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	112,666	$	72,729	Cash and cash equivalents at end of period	$	91,321	$	77,844
Supplemental disclosure of cash flow information	Supplemental disclosure of cash flow information					Supplemental disclosure of cash flow information
Cash paid for income taxes, net		$	907	$	203
Cash (received) paid for income taxes, net						Cash (received) paid for income taxes, net	$	(28)	$	208
Non-cash: Earnout liability for acquisition activity						Non-cash: Earnout liability for acquisition activity	$	26,900	$	—
Non-cash: Common stock surrendered in the exercise of stock options	Non-cash: Common stock surrendered in the exercise of stock options	$	1,502	$	0	Non-cash: Common stock surrendered in the exercise of stock options	$	100	$	169

See accompanying notes to the unaudited condensed consolidated financial statements.

Table of Contents

Liquidity Services, Inc. and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements

1. Organization

Liquidity Services, Inc. (the Company) ~~operates~~is a ~~network of e-commerce marketplaces~~leading global commerce company providing trusted marketplace platforms that power the circular ~~economy which benefits businesses, society,~~economy. We create a better future for organizations, individuals, and the ~~environment through~~planet by capturing and unleashing the ~~safe and effective resale and redeployment~~intrinsic value of ~~surplus assets; reducing waste, carbon emissions and transportation costs; and by creating markets for items that would otherwise be landfilled. The Company's marketplaces enable~~surplus. We connect millions of buyers and thousands of sellers ~~to transact in an~~through our leading auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, ~~automated environment offering over~~ ~~600 product categories and~~ ~~provide professional buyers access to a global, organized supply~~sustainable recovery of ~~new, surplus and idle assets presented with digital images and other relevant product information. The Company's marketplaces enable corporate~~value from excess items owned by business and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation and sale of surplus assets. The Company's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service tools for its sellers. ~~The Company organizes the products on its marketplaces~~

Results from our operations are organized into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, heavy equipment, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are: www.allsurplus.com, www.liquidation.com, www.govdeals.com, www.secondipity.com, and www.go-dove.com. The Company also operates a global search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has 4 reportable segments: ~~GovDeals,~~ Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. See Note 13 - Segment Informationfor ~~Segment Information.~~more information.

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

On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets auctions distressed real estate for the federal government, sheriffs, county tax-collectors, financial institutions and real estate funds. See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.

The Company's operations are subject to certain risks and uncertainties, many of which are associated with technology-oriented companies, including, but not limited to, the Company's dependence on use of the Internet; the effect of general business and economic trends, including the extent and duration of ~~travel restrictions and~~ the COVID-19 ~~pandemic's impact on current and future macroeconomic conditions;~~pandemic; 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 the opinion of management, 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 ~~and nine~~ months ended ~~June 30,~~December 31, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2021~~2022 or for any future period.

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 ~~and nine~~ months ended ~~June 30,~~December 31, 2021, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations. As there remains uncertainty associated with the COVID-19 pandemic, 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 $~~0.4~~0.7 million as of ~~June 30,~~December 31, 2021 and ~~$0.4~~$0.6 million as of September 30, ~~2020~~2021 and is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Liquidity Services, Inc. and Subsidiaries

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

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~~$4.7 million as of ~~June 30,~~December 31, 2021 and ~~$3.3~~$4.6 million as of September 30, ~~2020~~2021 and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets. Of the September 30, ~~2020~~2021 contract liability balance, $2.1 million wa ~~balance, $3.0 million was~~s earned as Fee revenue during the ~~nine~~three months ended ~~June 30,~~December 31, 2021.

~~For the Company's Machinio business segment, performance~~Performance obligations for Machinio's subscription services are satisfied over time as the Company provides the services over the term of the subscription. At ~~June 30,~~December 31, 2021, the ~~Machinio business segment had~~Company has a remaining performance obligation of ~~$4.5 million;~~$4.7 million for these subscription services, and the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.

Contract Costs

Contract costs relate to sales commissions paid on subscription contracts that are capitalized. Contract costs are amortized over the expected life of the customer contract. The contract cost balance was ~~$1.5~~$1.7 million as of ~~June 30,~~December 31, 2021 and ~~$0.7~~$1.6 million as of September 30, ~~2020~~2021 and is included in the line items Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets. Amortization expense was $0.2 million and $~~0.5~~0.1 million during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and ~~was $0.1 million and $0.3 million during the three and nine months ended June 30, 2020.~~2020, respectively.

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 in 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 Condensed Consolidated Statement of Operations during the three ~~and nine~~ months ended June 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 unaudited financial statements from this transaction as of and for the three months ended December 31, 2021 and December 31, 2020.

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 and cash equivalent money market funds in accounts which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable. The Company deposits its cash and acquires cash equivalent money market funds with financial institutions that the Company considers to be of high credit quality.

Liquidity Services, Inc. and Subsidiaries

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

Additionally, the Company has multiple vendor contracts with Amazon.com, Inc. under which the Company acquires and sells commercial merchandise. The property purchased under these contracts with Amazon.com, Inc. represented ~~63.5%~~60.5% and ~~60.4%~~60.0% of consolidated Cost of goods sold for the three months ended ~~June 30, 2021 and 2020, respectively, and 61.7% and 54.5% of consolidated Cost of goods sold for the nine months ended June 30,~~December 31, 2021 and 2020, respectively. These contracts are included within the RSCG reportable segment.

Recent Accounting Pronouncements

Accounting Standards Adopted

OnIn December 2019, the FASB issued 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, ~~2020, the Company adopted ASU 2018-15,~~ ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract~~.2021. This accounting standard has not had a material impact on the Company's condensed consolidated financial ~~statements as no significant implementations of cloud computing arrangements have occurred since adoption.~~statements.

Accounting Standards Not Yet Adopted

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

3. Bid4Assets Acquisition

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

As of December ~~2019,~~31, 2021, the ~~FASB issued ASU 2019-12,~~ Company's purchase price allocation related to this acquisition is preliminary and subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The revisions may have a significant impact on our condensed consolidated financial statements. The allocation of the purchase price will be finalized once all the information that was known and knowable as of the acquisition date is obtained and analyzed, but not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, the valuation of intangible assets acquired and earn-out liability, and the residual goodwill. The preliminary amounts assigned to intangible assets by type for this acquisition were based upon our valuation model and historical experiences with entities with similar business characteristics.

The preliminary acquisition date fair value of the consideratio~~Simplifying~~n transferred to the ~~Accounting~~shareholders of Bid4Assets was approximately $41.6 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 $26.9 million. Shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

Liquidity Services, Inc. and Subsidiaries

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

The Company's preliminary 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)	Fair Value
Cash and cash equivalents	$	3,576
Intangible assets	16,500
Other assets	368
Total assets acquired	20,443
Payables to sellers	3,701
Operating lease liabilities	204
Deferred tax liabilities	3,724
Total liabilities assumed	7,629
Net identifiable assets acquired	$	12,815
Goodwill	28,825
Total consideration transferred	$	41,639

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 preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, goodwill of approximately $28.8 million was recorded. The total goodwill arising from the acquisition is included in the GovDeals reportable segment and is not deductible for ~~Income Taxes~~tax purposes.

~~. ASU 2019-12 seeks~~

The known intangible assets acquired were determined to ~~improve the consistent application~~consist of, and ~~simplify~~preliminarily fair valued at, the ~~guidance~~following:


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

Contract Intangibles

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, preliminarily 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, preliminarily 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.

Liquidity Services, Inc. and Subsidiaries

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

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, preliminarily 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 three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary contingent consideration in the amount of $26.9 million on its Condensed Consolidated Balance Sheets. See further discussion of this matter within Note 10 - Fair Value Measurement.

Other Information

Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the condensed consolidated financial statements and its related notes for the ~~accounting for income taxes. The ASU removes certain exceptions to the general principals in ASC 740,~~three months ended ~~Income Taxes~~,December 31, 2021 and clarifies and amends other existing guidance. The ASU will become effective for the Company beginning October 1, 2021. The Company does not expect the adoption of this ASU will have a material impact on its consolidated financial statements.2020, as applicable.

3.4. Earnings per Share

Basic net income ~~(loss)~~ per share is computed by dividing net income ~~(loss)~~ for the period by the weighted average number of shares outstanding during the period. Diluted net income ~~(loss)~~ 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 June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
		2021		2020		2021		2020			2021		2020
Numerator:	Numerator:									Numerator:
Net income (loss)		$	8,419	$	213	$	18,193	$	(9,221)
Net income										Net income	$	3,602	$	4,514
Denominator:	Denominator:									Denominator:
Basic weighted average shares outstanding	Basic weighted average shares outstanding	33,371,906		33,695,936		33,345,580		33,621,740		Basic weighted average shares outstanding	32,971,709		33,176,895
Dilutive impact of stock options, RSUs and RSAs	Dilutive impact of stock options, RSUs and RSAs	2,065,855		119,396		1,661,318		0		Dilutive impact of stock options, RSUs and RSAs	1,897,160		1,734,224
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	35,437,761		33,815,332		35,006,898		33,621,740		Diluted weighted average shares outstanding	34,868,869		34,911,119
Basic income (loss) per common share		$	0.25	$	0.01	$	0.55	$	(0.27)
Diluted income (loss) per common share		$	0.24	$	0.01	$	0.52	$	(0.27)
Basic income per common share										Basic income per common share	$	0.11	$	0.14
Diluted income per common share										Diluted income per common share	$	0.10	$	0.13
Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive	Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive	198,308		3,841,385		592,588		4,829,473		Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive	786,593		1,711,221

1012

Liquidity Services, Inc. and Subsidiaries

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

4.5. Leases

The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to ~~5.0~~5.1 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 June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020
Finance lease – lease asset amortization	Finance lease – lease asset amortization	$	18	$	16	$	50	$	53	Finance lease – lease asset amortization	$	21	$	16
Finance lease – interest on lease liabilities	Finance lease – interest on lease liabilities	4		6		14		18		Finance lease – interest on lease liabilities	5		5
Operating lease cost	Operating lease cost	1,218		1,310		3,873		3,990		Operating lease cost	1,478		1,389
Operating lease impairment expense		0		0		172		0

Short-term lease cost	Short-term lease cost	45		48		166		92		Short-term lease cost	53		74
Variable lease cost (1)	Variable lease cost (1)	360		371		1,178		1,122		Variable lease cost (1)	384		363
Sublease income	Sublease income	(34)		(61)		(141)		(200)		Sublease income	(36)		(76)
Total net lease cost	Total net lease cost	$	1,611	$	1,690	$	5,312	$	5,075	Total net lease cost	$	1,905	$	1,771

(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.

~~Liquidity Services, Inc. and Subsidiaries~~

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

Maturities of lease liabilities are:


		June 30, 2021					December 31, 2021
(in thousands)	(in thousands)	Operating Leases		Finance Leases		(in thousands)	Operating Leases		Finance Leases
2021		$	1,284	$	26
2022	2022	4,509		103		2022	$	3,934	$	88
2023	2023	3,602		103		2023	4,768		117
2024	2024	2,501		83		2024	3,860		98
2025	2025	1,852		55		2025	3,170		69
2026						2026	2,139		66
Thereafter	Thereafter	822		50		Thereafter	389		12
Total lease payments (1)	Total lease payments (1)	$	14,570	$	420	Total lease payments (1)	$	18,260	$	450
Less: imputed interest (2)	Less: imputed interest (2)	(1,617)		(59)		Less: imputed interest (2)	(2,104)		(49)
Total lease liabilities	Total lease liabilities	$	12,953	$	361	Total lease liabilities	$	16,156	$	401

(1) The weighted average remaining lease term is ~~3.6~~3.9 years for operating leases and ~~4.4~~4.3 years for finance leases.

(2) The weighted average discount rate is ~~6.6%~~6.3% for operating leases and ~~7.0%~~5.5% for finance leases.

~~Additionally, the Company has approximately $4.8 million of future payment obligations related to executed warehouse lease agreements that have not yet commenced as of June 30, 2021.~~

Supplemental disclosures of cash flow information related to leases are:


		Nine Months Ended June 30,					Three Months Ended December 31,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2021		2020
Cash paid for amounts included in operating lease liabilities	Cash paid for amounts included in operating lease liabilities	$	3,225	$	3,642	Cash paid for amounts included in operating lease liabilities	$	1,060	$	1,240
Cash paid for amounts included in finance lease liabilities	Cash paid for amounts included in finance lease liabilities	35		26		Cash paid for amounts included in finance lease liabilities	27		9
Non-cash: lease liabilities arising from new operating lease assets obtained ~~(1)~~	Non-cash: lease liabilities arising from new operating lease assets obtained ~~(1)~~	885		12,188		Non-cash: lease liabilities arising from new operating lease assets obtained ~~(1)~~	3,224		468
Non-cash: lease liabilities arising from new finance lease assets obtained	Non-cash: lease liabilities arising from new finance lease assets obtained	130		10		Non-cash: lease liabilities arising from new finance lease assets obtained	179		—
Non-cash: adjustments to lease assets and liabilities		3,705		1,592
Non-cash: adjustments to lease assets and liabilities1						Non-cash: adjustments to lease assets and liabilities1	(205)		3,187

(1) ~~Nine months ended June 30, 2020 amount includes $12.2 million of~~These include adjustments due to lease ~~liabilities recognized upon~~modifications, renewals, and other related adjustments.

Liquidity Services, Inc. and Subsidiaries

Notes to the ~~adoption of ASC 842 on October 1, 2019.~~Unaudited Condensed Consolidated Financial Statements - (Continued)

5.6. Goodwill

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


(in thousands)	(in thousands)	CAG		GovDeals		Machinio		Total		(in thousands)	CAG		GovDeals		Machinio		Total
Balance at September 30, 2019		$	21,178	$	23,731	$	14,558	$	59,467
Translation adjustments		372		0		0		372
Balance at September 30, 2020	Balance at September 30, 2020	$	21,550	$	23,731	$	14,558	$	59,839	Balance at September 30, 2020	$	21,550	$	23,731	$	14,558	$	59,839
Translation adjustments	Translation adjustments	184		0		0		184		Translation adjustments	33		—		—		33
Balance at June 30, 2021		$	21,734	$	23,731	$	14,558	$	60,023
Balance at September 30, 2021										Balance at September 30, 2021	$	21,583	$	23,731	$	14,558	$	59,872
Bid4Assets acquisition (see Note 3)										Bid4Assets acquisition (see Note 3)	—		28,825		—		28,825
Translation adjustments										Translation adjustments	30		—		—		30
Balance at December 31, 2021										Balance at December 31, 2021	$	21,613	$	52,556	$	14,558	$	88,727

The increase in the goodwill balance of $28.8 million at the GovDeals reportable segment during the three months ended December 31, 2021 is due to the Bid4Assets acquisition. See Note 3 - Bid4Assets Acquisition for further information.

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 has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its goodwill. ~~As there have been favorable developments in the factors that previously indicated an interim goodwill impairment test was necessary during the prior fiscal year ended September 30, 2020, the~~The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021.

~~Liquidity Services, Inc. and Subsidiaries~~

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

6.7. Intangible Assets

Intangible assets consist of the following:


			June 30, 2021						September 30, 2020								December 31, 2021						September 30, 2021
(dollars in thousands)		Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
(in thousands)															(in thousands)	Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Contract intangibles	Contract intangibles	6	$	3,100	$	(1,550)	$	1,550	$	3,100	$	(1,162)	$	1,938	Contract intangibles	6 - 8	17,000		(2,098)		14,902		3,100		(1,679)		1,421
Technology	Technology	5	2,700		(1,620)		1,080		2,700		(1,215)		1,485		Technology	3 - 5	5,300		(2,033)		3,267		2,700		(1,755)		945
Patent and trademarks	Patent and trademarks	7 - 10	2,350		(1,203)		1,147		2,329		(994)		1,335		Patent and trademarks	3 - 10	2,360		(1,342)		1,018		2,360		(1,273)		1,087
Total intangible assets	Total intangible assets		$	8,150	$	(4,373)	$	3,777	$	8,129	$	(3,371)	$	4,758	Total intangible assets		$	24,660	$	(5,473)	$	19,187	$	8,160	$	(4,707)	$	3,453

The gross carrying amount of total intangible assets increased by $16.5 million during the three months ended December 31, 2021 due to the Bid4Assets acquisition. The acquired developed software and trade name are included in the above line items of Technology and Patent and trademarks, respectively. See Note 3 - Bid4Assets Acquisition for further information.

Future expected amortization of intangible assets at ~~June 30,~~December 31, 2021, is as follows:


(in thousands)	(in thousands)	Expected Amortization Expense		(in thousands)	Expected Amortization Expense
Years ending September 30,	Years ending September 30,			Years ending September 30,
Remainder of 2021		$	333
2022		1,330
Remainder of 2022				Remainder of 2022	$	2,951
2023	2023	1,186		2023	3,791
2024	2024	648		2024	3,253
2025	2025	280		2025	2,012
2026 and thereafter				2026 and thereafter	7,180

Total	Total	$	3,777	Total	$	19,187

Intangible asset amortization expense was ~~$0.3~~$0.8 million and $0.3 million for the three months ended ~~June 30, 2021 and 2020, respectively, and $1.0 million and $1.0 million for the nine months ended June 30,~~December 31, 2021 and 2020, respectively.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its long-lived assets. The Company has not identified indicators of impairment requiring an interim impairment test on material long-lived assets during the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021.

Liquidity Services, Inc. and Subsidiaries

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

8. 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 ~~nine~~three months of fiscal year ~~2021~~2022 and its corresponding effective tax rate is ~~5.9%~~21.3% compared to ~~(8.4%)~~6.2% for the first ~~nine~~three months of fiscal year ~~2020.~~2021. The change in the effective tax rate for the ~~nine~~three months ended ~~June 30,~~December 31, 2021 as compared to the same period in the prior year was primarily due to state and foreign ~~taxes.~~taxes, and the utilization of net operating losses. Tax expense in the ~~nine~~three months ended ~~June 30,~~December 31, 2021 is due to state and foreign taxes ~~paid.~~paid 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 utilization of net operating losses and~~ the impact of foreign, state, and local income taxes and permanent tax adjustments.

The Company applies the authoritative guidance related to uncertainty in income taxes. ASC Topic 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. The Company identified no new uncertain tax positions during the ~~nine~~three months ended ~~June 30,~~December 31, 2021. 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 ~~June 30,~~December 31, 2021, ~~none of~~ the ~~Company's federal or state income tax returns are under examination, however, we remain subject to examination for certain of our foreign income tax returns. The~~ Company has no open income tax examinations in the U.S. and the statute of limitations for years prior to 2018 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 2018 may be adjusted upon examination by tax authorities if they are utilized.

On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, accelerates the recovery of alternative minimum tax (AMT) credits into fiscal year 2020. During fiscal year 2020, the Company recovered its full AMT refund of $1.7 million. Prior to the CARES Act, the Company’s AMT credits were recoverable in fiscal years 2021 through 2023. The CARES Act also permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

~~Liquidity Services, Inc. and Subsidiaries~~

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

In addition, NOLs incurred in fiscal years 2019, 2020, and 2021 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but at present does not expect the NOL provisions of the CARES Act to result in a material cash benefit.

8.9. Stockholders’ Equity

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


		Common Stock												Common Stock					Treasury Stock
(dollars in thousands)	(dollars in thousands)	Shares	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total		(dollars in thousands)	Shares	Amount		Additional Paid-in Capital		Shares		Amount		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total
Balance at September 30, 2019		33,687,115	$	34	$	242,686	$	(7,973)	$	(118,572)	$	116,175
Net loss		—	—		—		—		(5,196)		(5,196)
Balance at September 30, 2020													Balance at September 30, 2020	34,082,406	$	34	$	247,892	$	(547,508)	$	(3,983)	$	(9,782)	$	(122,346)	$	111,815
Net income													Net income	—	—		—		—		—		—		4,514		4,514
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units	Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units	283,164	—		2		—		—		2		Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units	151,845	—		197		—		—		—		—		197
Taxes paid associated with net settlement of stock compensation awards	Taxes paid associated with net settlement of stock compensation awards	(67,688)	—		(498)		—		—		(498)		Taxes paid associated with net settlement of stock compensation awards	(7,703)	—		(57)		—		—		—		—		(57)
Forfeitures of restricted stock awards	Forfeitures of restricted stock awards	(15,000)	—		—		—		—		—		Forfeitures of restricted stock awards	(13,733)	—		—		—		—		—		—		—
Common stock repurchased													Common stock repurchased	—	—		—		(309,496)		(4,103)		—		—		(4,103)
Common stock surrendered in the exercise of stock options													Common stock surrendered in the exercise of stock options	—	—		169		(9,384)		(169)		—		—		—
Stock compensation expense	Stock compensation expense	—	—		1,121		—		—		1,121		Stock compensation expense	—	—		1,801		—		—		—		—		1,801
Foreign currency translation	Foreign currency translation	—	—		—		833		—		833		Foreign currency translation	—	—		—		—		—		896		—		896
Balance at December 31, 2019		33,887,591	$	34	$	243,311	$	(7,140)	$	(123,768)	$	112,437
Net loss		—	—		—		—		(4,238)		(4,238)
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units		111,272	—		32		—		—		32
Taxes paid associated with net settlement of stock compensation awards		(10,065)	—		(60)		—		—		(60)
Balance at December 31, 2020													Balance at December 31, 2020	34,212,815	$	34	$	250,002	$	(866,388)	$	(8,255)	$	(8,886)	$	(117,832)	$	115,063

Stock compensation expense		—	—		1,244		—		—		1,244
Foreign currency translation		—	—		—		(1,303)		—		(1,303)
Balance at March 31, 2020		33,988,798	$	34	$	244,527	$	(8,443)	$	(128,006)	$	108,112
Net income		—	—		—		—		213		213
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units		34,185	—		1		—		—		1
Taxes paid associated with net settlement of stock compensation awards		(1,210)	—		(6)		—		—		(6)
Stock compensation expense		—	—		1,494		—		—		1,494
Foreign currency translation and other		—	—		—		424		—		424
Balance at June 30, 2020		34,021,773	$	34	$	246,016	$	(8,019)	$	(127,793)	$	110,238

1415

Liquidity Services, Inc. and Subsidiaries

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

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.~~Machinio and Bid4Assets. As of ~~June 30,~~December 31, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5x shares against the plan reserves. As of ~~June 30,~~December 31, 2021, ~~1,901,415~~994,605 shares of common stock remained available for use.

Stock Compensation Expense

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


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
		2021		2020		2021		2020			2021		2020
Equity-classified awards:	Equity-classified awards:									Equity-classified awards:
Stock options	Stock options	$	762	$	546	$	2,491	$	1,523	Stock options	$	1,077	$	884
RSUs & RSAs	RSUs & RSAs	763		948		2,357		2,337		RSUs & RSAs	1,193		918
Total equity-classified awards	Total equity-classified awards	$	1,525	$	1,494	$	4,848	$	3,860	Total equity-classified awards	$	2,270	$	1,802
Liability-classified awards:	Liability-classified awards:									Liability-classified awards:
SARs	SARs	278		22		945		(75)		SARs	10		427
Total stock compensation expense:	Total stock compensation expense:	$	1,803	$	1,516	$	5,793	$	3,785	Total stock compensation expense:	$	2,280	$	2,229

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


	Three Months Ended December 31,
	2021		2020
Stock Compensation Expense by Line Item
Technology and operations	$	303	$	367
Sales and marketing	490		580
General and administrative	1,487		1,282
Total stock compensation expense:	$	2,280	$	2,229

Liquidity Services, Inc. and Subsidiaries

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

Stock Options and RSUs & RSAs

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


	~~Nine~~Three Months Ended
	~~June 30,~~December 31, 2021
Stock Options granted:
Options containing only service conditions:	~~558,673~~129,945
Weighted average exercise price	$	~~10.69~~23.14
Weighted average grant date fair value	$	~~4.49~~10.83

Options containing performance or market conditions:	~~549,600~~129,945
Weighted average exercise price	$	~~10.51~~23.14
Weighted average grant date fair value	$	~~4.34~~10.30

RSUs & RSAs granted:
RSUs & RSAs containing only service conditions:1	~~139,945~~316,085
Weighted average grant date fair value	$	~~13.48~~22.10

RSUs & RSAs containing performance or market conditions:1	~~139,600~~331,085
Weighted average grant date fair value	$	~~9.22~~18.80

________________

1 55,000 RSUs containing service conditions and 70,000 RSUs containing performance conditions were granted by private placement.

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 ~~its segments.~~a division of a segment. The stock options and RSUs & RSAs containing market conditions will 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 awards, 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.

~~Liquidity Services, Inc. and Subsidiaries~~

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

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Scholes option-pricing model during the ~~nine~~three months ended ~~June 30,~~December 31, 2021 were as follows:


						~~Nine~~Three Months Ended
						~~June 30,~~December 31, 2021
Dividend yield						0—
Expected volatility						~~51.0%~~58.7% - ~~55.9%~~61.2%
Risk-free interest rate						~~0.4%~~1.1% - ~~0.8%~~1.3%
Expected term						~~4.6~~4.5 - ~~7.6~~5.0 years

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the ~~nine~~three months ended ~~June 30,~~December 31, 2021 were as follows:


						~~Nine~~Three Months Ended
						~~June 30,~~December 31, 2021
Dividend yield						0—
Expected volatility						~~51.6%~~57.2% - ~~54.6%~~62.9%
Risk-free interest rate						~~0.3%~~1.1% - ~~0.9%~~1.5%
Expected holding period (% of remaining term)						~~31.7%~~29.4% - 100.0%

Liquidity Services, Inc. and Subsidiaries

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

SARs

During the ~~nine~~three months ended ~~June 30,~~December 31, 2021, the Company did 0tnot issue any SARs, ~~43,959~~750 SARs were exercised requiring the Company to make cash payments of ~~$0.4~~less than $0.1 million, and ~~73,681~~2,500 SARs were canceled. As of ~~June 30,~~December 31, 2021, ~~43,170~~38,795 SARs were outstanding.

Share Repurchase Program

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

~~As of the fiscal year ended September 30, 2020, we~~The Company had ~~$6.1 million of~~no remaining share repurchase ~~authorization.~~authorization as of September 30, 2021. On ~~March 8, 2021, our Board of Directors authorized an additional $10 million of share repurchases of the Company's outstanding shares of common stock through March 31, 2023. We repurchased~~ ~~647,583~~ ~~shares for~~ ~~$12.0 million~~ ~~and~~ ~~957,079~~ ~~shares for~~ ~~$16.1 million~~ ~~under this program during the three and six months ended~~ ~~March 31, 2021, respectively. As of~~ ~~March 31, 2021, we had 0 remaining authorization to repurchase shares under these programs.~~

~~On May 3,~~December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the ~~“May 3, 2021~~"December 6 Stock Repurchase ~~Plan”~~Plan") of up to ~~$15~~$20 million of ~~our outstanding~~the Company's outstanding shares of common stock through ~~June 30,~~December 31, 2023. ~~We made 0 repurchases under the May 3, 2021 Stock Repurchase Plan during~~During the three months ended ~~June 30, 2021.~~December 31, 2021, the Company repurchased a total of 147,185 shares for $3.0 million under this program. As of December 31, 2021, the company may repurchase an additional $17.0 million of shares under this program.

Other Share Repurchases

During the three months ended ~~June 30,~~December 31, 2021 0and December 31, 2020, participants surrendered 4,678 and 9,384 shares of common stock, ~~were surrendered by participants~~respectively, in the exercise of stock options.~~During the nine months ended June 30, 2021, participants surrendered 82,612 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.

~~Liquidity Services, Inc. and Subsidiaries~~

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

9.10. 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 market prices in active markets for identical assets or liabilities;

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

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

The Company had $40.0 million of money market funds considered cash equivalents at ~~June 30,~~December 31, 2021 and September 30, ~~2020.~~2021. These assets were measured at fair value at ~~June 30,~~December 31, 2021 and September 30, ~~2020~~2021 and were classified as Level 1 assets within the fair value hierarchy. There were no transfers between levels during the periods presented.

During the three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $26.9 million on its Condensed Consolidated Balance Sheets. 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 has $14.5 million included in Accrued expenses and other current liabilities and $12.4 million recorded in Other long-term liabilities within the Condensed Consolidated Balance Sheets.

The Company fair valued the earn-out consideration using Monte Carlo valuation method. The fair value measurements utilized were classified as Level 3 assets within the fair value hierarchy under the provisions of ASC 820 and ASC 805. The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out period, volatility of gross profit and operating expenses, and the discount rate. The earn-out consideration was preliminarily valued at approximately $26.9 million at the acquisition date. Fair value of the earn-out consideration will be remeasured at the end of each calendar quarter until December 31, 2022.

Liquidity Services, Inc. and Subsidiaries

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

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 three months ended December 31, 2021, is as follows (in thousands):


	Contingent Consideration
Balance at September 30, 2021	$	—
Earn-out from business acquisition	26,900


Balance at December 31, 2021	$	26,900

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. Changes in the fair value of the Company's Level 3 liability are recorded in Other operating (income) expenses in the Condensed Consolidated Statements of Operations.

The Company’s financial assets and liabilities not measured at fair value are cash, accounts receivable, and accounts payable. The Company believes the carrying values of these ~~assets and liabilities~~instruments approximate fair value.

As of ~~June~~December 31, 2021, the Company had no non-financial instruments measured at fair value on a non-recurring basis other than fair value measurements associated with the preliminary purchase accounting for Bid4Assets. See Note 3 - Bid4Assets Acquisition for more information. As of September 30, 2021, ~~and September 30, 2020,~~ the Company did 0tnot have any material assets or liabilities measured at fair value on a non-recurring basis.

~~10.~~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 (benefit) is recognized within Interest and other income, net in the Condensed Consolidated Statements of Operations, and for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and 2020 included the following components:


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2021		2020

Interest cost	Interest cost	$	142	$	119	$	343	$	336	Interest cost	$	132	$	107
Expected return on plan assets	Expected return on plan assets	(245)		(192)		(637)		(595)		Expected return on plan assets	(235)		(194)
Amortization of prior service cost	Amortization of prior service cost	6		5		17		15		Amortization of prior service cost	5		5

Total net periodic (benefit)	Total net periodic (benefit)	$	(97)	$	(68)	$	(277)	$	(244)	Total net periodic (benefit)	$	(98)	$	(82)

During the three months ended June 30, 2021, the Company extended early settlement offers to all members of the Scheme. The impact of the potential pension settlement, which could be significant, has not been reflected in the financial statements for the three and nine months ended June 30, 2021 as the window for members to respond to the early settlement offer extends into the three months ended September 30, 2021.

~~Liquidity Services, Inc. and Subsidiaries~~

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

~~11. Business Realignment Expenses~~

Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving actions, and include employee severance and benefit costs associated with terminations, occupancy costs associated the ceased use of facilities, and other related costs, such as impairments. Business realignment expenses are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.

~~For the year ended September 30, 2020, business realignment expenses were incurred related to the elimination of certain employee positions in response to the COVID-19 pandemic.~~

~~The table below sets forth the significant components and activity in the liability for business realignment initiatives, on a segment and consolidated basis:~~

(in thousands) Liability Balance at September 30, 2019 Adoption of ASC 842 Business
Realignment
Expenses Cash
Payments Liability Balance at September 30, 2020 Business
Realignment
Expenses Cash
Payments Liability Balance at June 30, 2021
Employee severance and benefit costs:
GovDeals $ 0 $ 0 $ 29 $ (25) $ 4 $ 0 $ (4) $ 0
RCSG 0 0 84 (64) 20 0 (20) 0
CAG 414 0 120 (481) 53 5 (58) 0
Corporate & Other 238 0 172 (410) 0 0 0 0
Total employee severance and benefit costs $ 652 $ 0 $ 405 $ (980) $ 77 $ 5 $ (82) $ 0
Occupancy and other costs:
CAG 169 (169) 0 0 0 0 0 0
Corporate & Other 0 0 0 0 0 0 0 0
Total occupancy and other costs $ 169 $ (169) $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Total business realignment $ 821 $ (169) $ 405 $ (980) $ 77 $ 5 $ (82) $ 0

~~Liquidity Services, Inc. and Subsidiaries~~

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

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.

Former Employee Matters

On December 22, 2020, the Company’s former Vice President, Human Resources (the ~~“Plaintiff”~~“HR Plaintiff”) filed a claim with the Equal Employment Opportunity Commission (“EEOC”) for wrongful termination on the basis of gender, race, and age. The ~~Equal Employment Opportunity Commission~~EEOC subsequently assigned HR Plaintiff’s claim to the Montgomery County Office of Human Rights for investigation, which, in turn, dismissed HR Plaintiff’s claim after ~~plaintiff~~HR Plaintiff filed a complaint in the United States District Court for the District of Maryland Southern Division on May 19, 2021. The Company believes this claim is without merit and cannot estimate a range of potential liability, if any, at this time. The Company’s employment practices liability insurance carrier, CNA, has accepted tender of this claim.

~~Separately, Plaintiff also alleged outside~~

Liquidity Services, Inc. and Subsidiaries

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

On October 22, 2021, the Company’s former Chief Marketing Officer (“Marketing Plaintiff”) filed a claim with the EEOC alleging that the Company discriminated against him on the basis of his race and age and that the Company retaliated against him. The Company believes these claims are without merit and cannot estimate a range of potential liability, if any, at this time. CNA has accepted tender of the ~~above process wage and hour violations under Maryland law for failure to pay his fiscal year 2020 performance bonus. The parties settled the wage and hour claims for an immaterial amount in May 2021.~~claims.

Unless otherwise noted, based on the information currently available, there are no claims or actions pending or threatened against the Company that, if adversely determined, would have, in Company’s management’s judgement based on the ~~Company's management's judgment have~~information known to management, a material adverse effect based on the Company in the Company.

13. Segment Information

The Company provides operating results in 4 reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Asset Group (CAG), and Machinio. Descriptions of our reportable segments are as follows:

•The GovDeals reportable segment provides self-directed service solutions ~~in which sellers list their own assets, and it consists of marketplaces~~ that enable local and state government entities including city, county and state agencies, ~~as well as quasi-governmental businesses~~ located in the United States and Canada to sell surplus, salvage and ~~salvage assets.~~real estate assets through our GovDeals ~~also offers a suite of services to sellers that includes asset sales~~ and ~~marketing.~~Bid4Assets marketplaces (see Note 3).

•The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell surplus and salvage consumer ~~goods and retail capital assets.~~goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-commerce services. This segment includes the Company's Liquidation.com, Secondipity and AllSurplus Deals marketplaces. Through the end of third quarter fiscal 2021, RSCG operated the Liquidation.com DIRECT ~~and Secondipity marketplaces.~~marketplace for truckload quantities of retail surplus. Those assets are now sold on the Liquidation.com marketplace.

•The CAG reportable segment provides ~~full-service~~managed and self-directed service solutions to sellers and it consists of marketplaces that enable commercial businesses to sell surplus and idle assets. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. Commercial ~~sellers~~seller assets are located ~~in the United States,~~across North America, Europe, Australia, Asia, and ~~Asia.~~Africa. This segment includes the Company's Network International and GoIndustry DoveBid ~~marketplace~~marketplaces and self-directed ~~and full-service~~service solutions for commercial businesses on the AllSurplus marketplace.

•The Machinio reportable segment operates a global ~~online~~search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

We also report results of Corporate & Other, 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 gross profit to evaluate the performance of each segment. Segment gross profit is calculated as total revenue less cost of goods sold (excludes depreciation and amortization).

1920

Liquidity Services, Inc. and Subsidiaries

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

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

Three Months Ended June 30, Nine Months Ended June 30,
(in thousands) 2021 2020 2021 2020
GovDeals:
Revenue $ 0 $ 0 $ 0 $ 0
Fee revenue 14,658 6,021 36,448 21,858
Total revenue 14,658 6,021 36,448 21,858
Gross profit $ 13,965 $ 5,637 $ 34,544 $ 20,361
RSCG:
Revenue $ 35,923 $ 29,454 $ 95,997 $ 89,857
Fee revenue 8,172 4,099 22,086 11,650
Total revenue 44,095 33,553 118,083 101,507
Gross profit $ 17,755 $ 12,022 $ 48,315 $ 34,721
CAG:
Revenue $ 1,939 $ 988 $ 8,905 $ 6,137
Fee revenue 6,528 5,384 16,967 15,216
Total revenue 8,467 6,372 25,872 21,353
Gross profit $ 7,099 $ 5,892 $ 20,445 $ 16,628
Machinio:
Revenue $ 0 $ 0 $ 0 $ 0
Fee revenue 2,446 1,776 6,801 5,332
Total revenue 2,446 1,776 6,801 5,332
Gross Profit $ 2,304 $ 1,677 $ 6,399 $ 5,051
Corporate & Other, including elimination adjustments:
Revenue $ 0 $ 0 $ 0 $ 0
Fee revenue 0 0 0 0
Total revenue 0 0 0 0
Gross profit $ 0 $ 0 $ 0 $ 0
Consolidated:
Revenue $ 37,862 $ 30,442 $ 104,902 $ 95,994
Fee revenue 31,804 17,280 82,302 54,056
Total revenue 69,666 47,722 187,204 150,050
Gross profit $ 41,123 $ 25,228 $ 109,703 $ 76,761


		Three Months Ended December 31,
(in thousands)			2021		2020
GovDeals:
	Revenue		$	—	$	—
	Fee revenue		13,984		10,818
	Total revenue		13,984		10,818
	Gross profit		$	13,295	$	10,203

RSCG:
	Revenue		$	32,083	$	28,161
	Fee revenue		6,601		6,745
	Total revenue		38,684		34,906
	Gross profit		$	14,257	$	14,627

CAG:
	Revenue		$	4,134	$	2,910
	Fee revenue		7,073		5,003
	Total revenue		11,207		7,913
	Gross profit		$	8,719	$	6,358

Machinio:
	Revenue		$	—	$	—
	Fee revenue		2,832		2,114
	Total revenue		2,832		2,114
	Gross Profit		$	2,674	$	1,991

Corporate & Other, including elimination adjustments:
	Revenue		$	—	$	—
	Fee revenue		—		—
	Total revenue		—		—
	Gross profit		$	—	$	—

Consolidated:
	Revenue		$	36,217	$	31,071
	Fee revenue		30,490		24,680
	Total revenue		66,707		55,751
	Gross profit		$	38,945	$	33,178

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


			Three Months Ended June 30,				Nine Months Ended June 30,						Three Months Ended December 31,
(in thousands)	(in thousands)		2021		2020		2021		2020		(in thousands)		2021		2020
Reconciliation:	Reconciliation:										Reconciliation:
		Gross profit	$	41,123	$	25,228	$	109,703	$	76,761		Gross profit	$	38,945	$	33,178
		Operating expenses	31,349		24,711		89,455		85,505			Operating expenses	34,494		28,548
		Other operating expenses	1,180		319		1,390		500			Other operating (income) expenses	(32)		4
		Interest and other income, net	(254)		(224)		(468)		(733)			Interest and other income, net	(131)		(185)
		Income (loss) before provision for income taxes	$	8,848	$	422	$	19,326	$	(8,511)		Income before provision for income taxes	$	4,614	$	4,811

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended ~~June 30,~~December 31, 2021 and 2020 ~~was 14.4%~~ was 13.5% and ~~11.2%, respectively, and the percent of our revenues that came from transactions conducted outside the United States for the~~ ~~nine months ended June 30, 2021 and 2020~~ ~~was 16.2% and 12.5%~~9.6%, respectively.

2021

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

FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.

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

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

Overview

~~The Company operates~~About us. Liquidity Services is a ~~network of e-commerce marketplaces~~leading global commerce company providing trusted marketplace platforms that power the circular ~~economy which benefits businesses, society,~~economy. We create a better future for organizations, individuals, and the ~~environment~~planet by capturing and unleashing the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the ~~safe~~transparent, efficient, sustainable recovery of value from excess items owned by business and ~~effective resale and redeployment~~government sellers.

Our business delivers value to shareholders through its ability to unleash the intrinsic value of surplus ~~assets; reducing waste, carbon emissions~~from our marketplace platforms. These platforms ignite and ~~transportation costs; and by creating markets for items that would otherwise be landfilled. Our marketplaces~~ enable a self-reinforcing cycle of value creation where buyers and sellers attract one another in ever-increasing numbers. The result is a continuous flow of goods that becomes increasingly valuable as more participants join the platform, thereby creating positive network effects that benefit sellers, buyers, and shareholders.

Results from our operations are organized into four reportable segments: Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), GovDeals, and Machinio. See Note 13 - Segment Informationto ~~transact~~the Condensed Consolidated Financial Statements for more information regarding our reportable segments.

On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in ~~an efficient, automated environment offering over 600 product categories~~Silver Spring, MD. Bid4Assets auctions distressed real estate for the federal government, sheriffs, county tax-collectors, financial institutions and provide professional buyers access to a global, organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information. Our marketplaces enable corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. The Company's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service toolsreal estate funds. See Note 3 - Bid4Assets Acquisition for its sellers. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are: www.liquidation.com, www.govdeals.com, www.secondipity.com, and www.go-dove.com. We also operate a global search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has over 15,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies.more information regarding this transaction.

Impacts of the COVID-19 Pandemic

The Company has been closely monitoring the COVID-19 pandemic. In April 2020, the Company experienced the largest impacts on its operations thus far stemming from the initial actions taken by governments and the private sector to limit the spread of COVID-19. The restrictions on economic activity were caused, in part, by business closures, limitations on the operations of business activity and significant prioritization of essential business functions. ~~Starting in~~Since May 2020, we have seen subsequent increases in ~~Gross Merchandise Volume (GMV)~~GMV and revenues as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income ~~for~~since the third ~~and fourth quarters~~quarter of fiscal ~~2020,~~2020. However, COVID-19 and ~~has continued throughout fiscal 2021. However, our international business continues~~its variants continue to ~~experience impacts~~impact the global economy and the ability to conduct cross-border commerce due to ongoing travel restrictions in various countries. At this time, the likelihood, magnitude and timing of business developments across our reportable segments are difficult to predict given the current economic uncertainty, unknown duration and overall impact of the global pandemic. As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.

2122

Throughout the COVID-19 pandemic, the Company has actively monitored its liquidity position and working capital needs. During ~~each quarter of~~ fiscal 2021 ~~including~~and during the three months ended ~~June 30,~~December 31, 2021, the Company determined that its liquidity position and working capital were more than sufficient to meet its projected needs. As discussed in Note 89 - ~~Shareholder's~~Stockholders' Equity, ~~during this time~~on December 6, 2021, the ~~Company repurchased~~ ~~647,583~~Company's Board of Directors authorized the repurchase of up to $20.0 million of the Company's outstanding shares ~~for~~ ~~$12.0 million~~ ~~and~~ ~~957,079~~ ~~shares for~~ ~~$16.1 million~~ ~~under our share repurchase program during the three and six months ended~~ ~~March~~of common stock through December 31, ~~2021, respectively. While we made no repurchases under our May 3, 2021 Stock Repurchase Plan during~~2023. During the three months ended ~~June 30,~~December 31, 2021, the Company repurchased a total of 147,185 shares for $3.0 million under this program. Future timing and actual number of shares repurchased will depend on a variety of factors, including price, general business and market conditions, and the existence of alternative investment opportunities. The repurchase program will be executed consistent with the Company's capital allocation strategy of prioritizing investment to grow the business over the long term.

In the longer term, we continue to be highly focused on creating efficiencies and benefits for our sellers and our buyers by focusing on the platform services and support that will deliver optimal liquidity in the reverse supply chain and further enable our growth through an asset light, low-touch marketplace solution. As e-commerce penetration continues to grow substantially for both consumers and business-to-business (B2B), we believe that our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy.

Our Marketplace Transactions

We believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the twelve months ended ~~June 30,~~December 31, 2021, the approximate number of registered buyers increased from 3,839,000~~3,719,000~~ to ~~3,970,000,~~4,713,000, or ~~6.7%~~23%. Of the increase, approximately 16% is attributable to the Bid4Assets registered buyer base acquired in Q1-FY22.

Our revenue. Substantially all of our revenue is earned through the following transaction models:

Purchase model. Under our purchase transaction model, we recognize revenue within the Revenue line item on the Condensed Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our 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. For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 ~~our purchase transaction model accounted for 14.8%~~ and ~~16.3% of our GMV,~~ ~~and 54.3% and 56.0% of our total revenues, respectively. For the three and nine months ended June 30,~~ 2020, our purchase transaction model accounted for ~~22.1%~~14.5% and ~~22.4%~~16.2% of our ~~GMV,~~ Gross Merchandise Volume (GMV), and ~~63.8%~~54.3% and ~~64.0%~~55.7% of our total revenues, respectively. These amounts included sales of commercial merchandise sourced from vendor contracts with Amazon.com, Inc. by our RSCG reportable segment. ~~The commercial merchandise we purchased under these contracts with~~See further discussion regarding our Amazon.com, Inc. ~~represented 63.5% and 61.7%~~contracts at Note 2 - Summary of consolidated Costs of goods sold for the three and nine months ended June 30, 2021, respectively, and 60.4% and 54.5% of consolidated Cost of goods sold for the three and nine months ended June 30, 2020, respectively.Significant Accounting Policies.

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 Fee revenue line item on the Condensed Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to seller commissions, we also collect buyer premiums. For the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and 2020, our consignment model accounted for ~~85.2%~~85.5% and ~~83.7%~~83.8% of our GMV, and ~~37.4%~~38.4% and ~~36.2%~~36.7% of our total revenues, respectively. ~~For the three and nine months ended June 30, 2020, our consignment model accounted for 77.9% and 77.6% of our GMV, and 30.2% and 29.9% of our total revenues, respectively~~

Other — fee revenue. We also earn non-consignment fee revenue from Machinio's ~~sales listing~~Advertising and System subscription ~~and MachineryHost~~ services, as well as other services including returns management, refurbishment of assets, and asset valuation services. Other revenues accounted for ~~8.2%~~7.3% and ~~7.8% of our total revenues for the~~ ~~three and nine months ended June 30, 2021, respectively, and 6.0% and 6.2%~~7.6% of our total revenues for the three ~~and nine~~ months ended ~~June 30,~~December 31, 2021 and 2020, respectively.

Industry trends. ~~While we continue to review and assess the COVID-19 pandemic's impact on our customers, our suppliers, and our business, we~~We believe there are several industry trends positively impacting the long-term growth of our ~~Company~~business including: (1) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (3) the increase in outsourcing the disposition of surplus and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain; (4) ~~the~~an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical; (5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets; and (6) the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.

Our Vendor Agreements

Our commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which the Company acquires and sells commercial merchandise. The property purchased under these contracts with Amazon.com, Inc. represented ~~63.5%~~60.5% and ~~60.4%~~60.0% of consolidated Cost of goods sold for the three months ended ~~June 30, 2021 and 2020, respectively, and 61.7% and 54.5% of consolidated Cost of goods sold for the nine months ended June 30,~~December 31, 2021 and 2020, respectively. These contracts are included within our RSCG reportable segment. Our agreements with our other sellers are generally terminable at will by either party.

Key Business Metrics

Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources, and our capacity to fund capital expenditures and expand our business. These key business metrics include:

Gross merchandise volume (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.

Total registered buyers. We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list.

Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of ~~June 30,~~December 31, 2021 and 2020, we had approximately ~~3,970,000~~4,713,000 and ~~3,719,000~~3,839,000 registered buyers, respectively. Of the increase, approximately 16% is attributable to the Bid4Assets registered buyer base acquired in Q1-FY22.

Total auction participants. For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended ~~June 30,~~December 31, 2021 and 2020, approximately ~~617,000~~642,000 and ~~420,000,~~517,000, respectively, total auction participants participated in auctions on our marketplaces. ~~During the nine months ended June 30, 2021 and 2020, approximately 1,695,000 and 1,363,000, respectively, total auction participants participated in auctions on our marketplaces.~~

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 three months ended ~~June 30,~~December 31, 2021 and 2020, we completed approximately ~~185,000~~211,000 and ~~134,000 transactions, respectively. During the nine months ended June 30, 2021 and 2020, we completed approximately 511,000 and 420,000~~152,000 transactions, respectively.

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 income, net excluding the non-service components of net periodic pension (benefit); provision for income taxes; and depreciation and amortization. Interest and other income, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our 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. 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 Condensed 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;

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

The table below reconciles net income (loss) to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.


		Three Months Ended June 30,				Nine Months Ended June 30,					Three Months Ended December 31,
		2021		2020		2021		2020			2021		2020
(in thousands)	(in thousands)	(Unaudited)								(in thousands)	(Unaudited)
Net income (loss)		$	8,419	$	213	$	18,193	$	(9,221)
Net income										Net income	$	3,602	$	4,514
Interest and other income, net1	Interest and other income, net1	(157)		(156)		(191)		(489)		Interest and other income, net1	(33)		(103)
Provision for income taxes	Provision for income taxes	429		209		1,133		710		Provision for income taxes	1,012		297
Depreciation and amortization	Depreciation and amortization	1,705		1,567		5,246		4,716		Depreciation and amortization	2,302		1,871
Non-GAAP EBITDA	Non-GAAP EBITDA	$	10,396	$	1,833	$	24,381	$	(4,284)	Non-GAAP EBITDA	$	6,883	$	6,579
Stock compensation expense	Stock compensation expense	1,803		1,516		5,793		3,785		Stock compensation expense	2,280		2,229
Acquisition costs and impairment of long-lived and other assets2	Acquisition costs and impairment of long-lived and other assets2	1,136		—		1,338		5		Acquisition costs and impairment of long-lived and other assets2	211		—
Business realignment expenses2, 3	Business realignment expenses2, 3	—		328		5		328		Business realignment expenses2, 3	—		5
Fair value adjustments to acquisition earn-outs2		—		—		—		200
Deferred revenue purchase accounting adjustment		—		—		—		3

Non-GAAP Adjusted EBITDA	Non-GAAP Adjusted EBITDA	$	13,335	$	3,677	$	31,517	$	37	Non-GAAP Adjusted EBITDA	$	9,374	$	8,813

1 Represents Interest and other income, net, per the Statement of Operations, excluding the non-service components of net periodic pension (benefit).

2 Acquisition costs, impairment of long-lived assets and other assets, fair value adjustments to acquisition earn-outs, and business realignment expenses are components of Other operating (income) expenses on the Statements of Operations. For the three and nine months ended June 30, 2021, this amount included a $1.1 million impairment expense from the settlement of a note receivable associated with a previous divestiture (see Note 2 to the Consolidated Financial Statements).

3 Business realignment expense includes the amounts accounted for as exit costs under ASC 420, ~~as described in Note 11 to the Consolidated Financial Statements,~~ and the related impacts of business realignment actions subject to other accounting guidance. ~~There were no related impacts for the three and nine months ended June 30, 2021 and 2020.~~

Critical Accounting Policies and Estimates

The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, ~~2020,~~2021, and in Note 2 — Summary of Significant Accounting Policies to the condensed consolidated financial statements. The following discussion is a supplement to the disclosures referenced in connection with accounting estimates made in preparing the preliminary purchase accounting for the acquisition Bid4Assets as of November 1, 2021.

Business combinations. The Company recognizes all of the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair value on the acquisition date. Acquisition-related costs are recognized separately from the acquisition and expensed as incurred. Restructuring costs incurred in periods subsequent to the acquisition date are expensed when incurred. Subsequent changes to the purchase price (i.e., working capital adjustments) or other fair value adjustments determined during the measurement period are recorded as an adjustment to goodwill, with the exception of contingent consideration, which is recognized in the statement of operations in the period it is modified.

2526

AsIntangible 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. The preliminary fair value of acquired intangible assets, excluding goodwill, arising from the Bid4Assets acquisition was ~~June 30, 2021~~$16.5 million,. This balance consisted of the ~~Company has a~~following identified intangible assets, each with their own significant assumptions used, as follows:

•Contract Intangibles - We valued the contract intangibles using the multi-period excess earnings method, an income approach valuation ~~allowance of $28 million against its net deferred tax assets~~model. The significant assumptions used in the ~~United States.~~income approach includes estimates about future expected cash flows from supplier contracts, the attrition rate, and the discount rate.

•Developed Software - We valued the developed software by applying the relief-from-royalty method, an income approach valuation model. The ~~Company intends~~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.

•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.

Earnout Liability. Shareholders of Bid4Assets are eligible to ~~continue~~receive up to ~~maintain its valuation allowance~~$37.5 million in cash, payable based on ~~these~~Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022. The earn-out consideration was preliminarily fair valued at approximately $26.9 million as of the acquisition date. 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 gross profit and operating expenses, and the discount rate.

Goodwill. Goodwill represents the costs in excess of the fair value of net ~~deferred tax~~ assets ~~until there is sufficient positive evidence~~acquired through acquisitions by the Company. Pursuant to ~~support a partial or full reversal. Should~~our preliminary purchase price allocation, goodwill arising from the Company’s improved operating results continue, sufficient positive evidence may accumulate in a future period that changes our valuation allowance conclusions, resulting in a partial or full reversal. In a period where significant valuation allowances are reversed, the Company will reflect a material tax benefit in its provision (benefit) for income taxes that could cause its effective tax rateacquisition was determined to be ~~negative.~~$28.8 million. See Note 3 - Bid4Assets Acquisition for further information.

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 in our Annual Report on Form 10-K for discussion of the Company's related accounting policies.

Cost of goods sold. Refer to the discussion in Note 2 — Summary of Significant Accounting Policies in our 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 consist primarily of the cost of technical staff who develop, deploy, and maintain our marketplaces and corporate infrastructure. These personnel also develop and upgrade the software systems that support our operations, such as sales processing. Technology expenses also includes certain costs associated with our e-commerce platform.

Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, Internal-use ~~software.~~software. As such, we are capitalizing certain development costs associated with our e-commerce platform, as well as other software development activities.

Operations expenses consist primarily of operating costs, including buyer relations, shipping logistics and distribution center operating costs.

Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional activities. These activities include all sales and marketing-related activity, including but not limited to trade shows and online marketing campaigns such as paid search advertising.

General and administrative. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces.

Depreciation and amortization. Depreciation and amortization expenses consist of depreciation of property and equipment, amortization of internally developed software, and amortization of intangible assets.

Other operating ~~expenses~~ (income). expense. Other operating (income) expense includes impairment of long-lived and other assets, the change in fair value of contingent consideration, 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 money market funds and the prior promissory note issued to JTC, the components of net periodic pension (benefit) other than the service component and impacts of foreign currency fluctuations.

Income taxes. For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income (loss). Our effective income tax rate ~~before~~after discrete items was ~~5.9%~~21.3% for the ~~nine~~three months ended ~~June 30,~~December 31, 2021. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the ~~utilization of net operating losses and the~~ impact of foreign, state, and local income taxes and permanent tax adjustments.

Results of Operations

The following table sets forth, for the periods indicated, our operating results:


		Three Months Ended June 30,								Nine Months Ended June 30,									Three Months Ended December 31,
(dollars in thousands)	(dollars in thousands)	2021		2020		$ Change		% Change		2021		2020		$ Change		% Change		(dollars in thousands)	2021		2020		$ Change		% Change
Revenue	Revenue	$	37,862	$	30,442	$	7,420	24.4	%	$	104,902	$	95,994	$	8,908	9.3	%	Revenue	$	36,217	$	31,071	$	5,146	16.6	%
Fee revenue	Fee revenue	31,804		17,280		14,524		84.1		82,302		54,056		28,246		52.3		Fee revenue	30,490		24,680		5,810		23.5
Total revenue	Total revenue	69,666		47,722		21,944		46.0		187,204		150,050		37,154		24.8		Total revenue	66,707		55,751		10,956		19.7
Costs and expenses from operations:	Costs and expenses from operations:																	Costs and expenses from operations:
Cost of goods sold (excludes depreciation and amortization)	Cost of goods sold (excludes depreciation and amortization)	28,543		22,494		6,049		26.9		77,501		73,289		4,212		5.7		Cost of goods sold (excludes depreciation and amortization)	27,762		22,573		5,189		23.0

Technology and operations	Technology and operations	12,307		9,515		2,792		29.3		34,952		32,342		2,610		8.1		Technology and operations	13,918		10,573		3,345		31.6
Sales and marketing	Sales and marketing	9,661		7,412		2,249		30.3		27,679		27,126		553		2.0		Sales and marketing	10,044		9,108		936		10.3
General and administrative	General and administrative	7,676		6,217		1,459		23.5		21,578		21,321		257		1.2		General and administrative	8,230		6,996		1,234		17.6
Depreciation and amortization	Depreciation and amortization	1,705		1,567		138		8.8		5,246		4,716		530		11.2		Depreciation and amortization	2,302		1,871		431		23.0
Other operating expenses		1,180		319		861		269.9		1,390		500		890		178.0
Other operating (income) expenses																		Other operating (income) expenses	(32)		4		(36)		NM
Total costs and expenses	Total costs and expenses	61,072		47,524		13,548		28.5		168,346		159,294		9,052		5.7		Total costs and expenses	62,224		51,125		11,099		21.7
Income (loss) from operations		8,594		198		8,396		4,240.4		18,858		(9,244)		28,102		NM
Income from operations																		Income from operations	4,483		4,626		(143)		(3.1)
Interest and other income, net	Interest and other income, net	(254)		(224)		(30)		(13.4)		(468)		(733)		265		36.2		Interest and other income, net	(131)		(185)		54		29.2
Income (loss) before provision for income taxes		8,848		422		8,426		1,996.7		19,326		(8,511)		27,837		NM
Income before provision for income taxes																		Income before provision for income taxes	4,614		4,811		(197)		(4.1)
Provision for income taxes	Provision for income taxes	429		209		220		105.3		1,133		710		423		59.6		Provision for income taxes	1,012		297		715		240.7
Net income (loss)		$	8,419	$	213	$	8,206	3,852.6%		$	18,193	$	(9,221)	$	27,414	NM
Net income																		Net income	$	3,602	$	4,514	$	(912)	(20.2)%

NM = not meaningful

2728

The following table presents reportable segment GMV, revenue, gross profit (which is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization)), and gross profit margin for the periods indicated:

Three Months Ended June 30, Nine Months Ended June 30,
(dollars in thousands) 2021 2020 2021 2020
GovDeals:
GMV $ 146,058 $ 57,906 $ 364,601 $ 214,255
Total revenue $ 14,658 $ 6,021 $ 36,448 $ 21,858
Gross profit $ 13,965 $ 5,637 $ 34,544 $ 20,361
Gross profit margin 95.3 % 93.6 % 94.8 % 93.2 %
RSCG:
GMV $ 61,231 $ 44,991 $ 171,557 $ 129,181
Total revenue $ 44,095 $ 33,553 $ 118,083 $ 101,507
Gross profit $ 17,755 $ 12,022 $ 48,315 $ 34,721
Gross profit margin 40.3 % 35.8 % 40.9 % 34.2 %
CAG:
GMV $ 37,379 $ 27,191 $ 106,222 $ 79,546
Total revenue $ 8,467 $ 6,372 $ 25,872 $ 21,353
Gross profit $ 7,099 $ 5,892 $ 20,445 $ 16,628
Gross profit margin 83.8 % 92.5 % 79.0 % 77.9 %
Machinio:
GMV $ — $ — $ — $ —
Total revenue $ 2,446 $ 1,776 $ 6,801 $ 5,332
Gross profit $ 2,304 $ 1,677 $ 6,399 $ 5,051
Gross profit margin 94.2 % 94.4 % 94.1 % 94.7 %
Consolidated:
GMV $ 244,668 $ 130,088 $ 642,380 $ 422,982
Total revenue $ 69,666 $ 47,722 $ 187,204 $ 150,050
Gross profit $ 41,123 $ 25,228 $ 109,703 $ 76,761
Gross profit margin 59.0 % 52.9 % 58.6 % 51.2 %


		Three Months Ended December 31,
(dollars in thousands)			2021			2020
GovDeals:
	GMV		$	156,935		$	107,604
	Total revenue		$	13,984		$	10,818
	Gross profit		$	13,295		$	10,203
	Gross profit margin		95.1		%	94.3		%

RSCG:
	GMV		$	53,369		$	51,717
	Total revenue		$	38,684		$	34,906
	Gross profit		$	14,257		$	14,627
	Gross profit margin		36.9		%	41.9		%

CAG:
	GMV		$	49,862		$	31,080
	Total revenue		$	11,207		$	7,913
	Gross profit		$	8,719		$	6,358
	Gross profit margin		77.8		%	80.3		%

Machinio:
	GMV		$	—		$	—
	Total revenue		$	2,832		$	2,114
	Gross profit		$	2,674		$	1,991
	Gross profit margin		94.4		%	94.2		%







Consolidated:
	GMV		$	260,166		$	190,401
	Total revenue		$	66,707		$	55,751
	Gross profit		$	38,945		$	33,178
	Gross profit margin		58.4		%	59.5		%

Three Months Ended ~~June 30,~~December 31, 2021, Compared to the Three Months Ended ~~June 30,~~December 31, 2020

Segment Results

GovDeals. Revenue from our GovDeals reportable segment increased ~~143.4%~~29.3%, or ~~$8.6~~$3.2 million, due to a ~~152.2%~~45.8%, or ~~$88.2~~$49.3 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real ~~estate, and an increase in~~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. ~~The three months ended June 30, 2020 also contained~~As GovDeals real estate sales increase through the ~~negative impact~~integration with Bid4Assets, GovDeals revenue as a percent of ~~the economic restrictions put in place~~GMV is expected to decline, as these higher value real estate sales are generally conducted at ~~the onset~~a lower take-rate than our traditional GovDeals asset categories. For that reason, revenue as a percentage of ~~the COVID-19 pandemic.~~GMV decreased to 8.9% from 10.1% last year. As a result of the increase in revenues, gross profit increased ~~147.7%~~30.3%, or ~~$8.3~~$3.1 million. Gross profit margin remained relatively consistent between the periods.

RSCG. Revenue from our RSCG reportable segment increased ~~31.4%~~10.8%, or ~~$10.5~~$3.8 million, due to a ~~36.1%~~3.2%, or ~~$16.2~~$1.7 million, increase in GMV ~~driven~~as it continues to diversify its seller product flows by ~~growing volumes within existing seller accounts and~~ launching new programs with large and mid-sized ~~and large~~ retailers, ~~looking to capitalize on~~expanding its distribution network into the ~~secular growth in online retail. Revenues grew at~~northeast, launching AllSurplus Deals as a ~~slightly lower rate than GMV due to~~new marketplace offering consumers deals for curbside pickup, and an increase in the mix of transactions conducted under the ~~consignment~~purchase model. ~~This mix however, served to increase gross~~The prior year included higher volumes magnified by selected seller capacity constraints. Gross profit decreased by ~~47.7%~~2.5%, or ~~$5.7 million. Gross profit margin~~$0.4 million, as increased ~~4.5% due to this~~volumes were offset by an unfavorable change in the mix of ~~transactions conducted under~~inventory handled by the ~~consignment model as well as improved recovery rates on assets sold.~~RSCG segment during the quarter, which also caused gross profit margin to decrease by 5.0%.

CAG. Revenue from the CAG reportable segment increased by ~~32.9%~~41.6%, or $~~2.1~~3.3 million, due to a ~~37.5%~~60.4%, or $~~10.2~~18.8 million, increase in GMV ~~from~~ ~~continued growth of~~driven by increasing opportunities to obtain and sell inventory under our ~~industrial~~purchase model, and strong consignment sales in the energy and heavy equipment ~~categories, increases in principal transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally~~categories.. Revenues did not increase at the same rate as GMV due to increases in the mix of transactions using partner organizations. AAss a result of the increase in revenues, gross profit increased ~~20.5%~~37.1%, or ~~$1.2~~$2.4 million. Gross profit margin ~~decreased 8.7%~~increased 2.5% due to ~~an increase~~inherent variations in the mix of ~~transactions conducted under~~assets sourced and sold by the ~~purchase model, responding to the reducing levels of COVID-19 related restrictions on cross-border transactions.~~CAG segment in any given period.

Machinio. Revenue from our Machinio reportable segment increased ~~37.7%~~34.0%, or $0.7 million, due to an increase in subscription activity. As a result of the increase in revenues, gross profit increased ~~37.4%~~34.3%, or ~~$0.6~~$0.7 million.

Consolidated Results

Revenue - Total consolidated revenue increased ~~$21.9~~$11.0 million, or ~~46.0%~~19.7%. 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 ~~$6.0~~$5.2 million, or ~~26.9%~~23.0%, which changed at a ~~lower~~higher rate than Revenue primarily due to an increase in ~~the mix of~~principal transactions ~~conducted under the consignment model.~~at our RSCG and CAG reportable segments.

Technology and operations expenses. Technology and operations expenses increased ~~$2.8~~$3.3 million, or ~~29.3%~~31.6%, as we are investing in technology and operations to ~~support~~continue our growth, including RSCG's expansion of its distribution network into the ~~increased transaction volumes in the RSCG~~northeast, and ~~CAG segments.~~launching AllSurplus Deals as a new marketplace offering consumers deals for curbside pickup.

Sales and marketing expenses. Sales and marketing expenses increased ~~$2.2~~$0.9 million, or ~~30.3%~~10.3%, as ~~a result of~~we are investing in our ~~continued~~sales and marketing functions to continue our growth, including promotional efforts around our marketplaces to ~~promote~~expand our ~~consolidated marketplace and expand~~ market share in key ~~verticals.~~verticals, and to promote new business initiatives including our new AllSurplus Deals consumer marketplace.

General and administrative expenses. General and administrative expenses increased ~~$1.5~~$1.2 million, or ~~23.5%~~17.6%, asprimarily due to increased corporate support costs to support the ~~temporary actions taken~~anticipated growth resulting from the investments in ~~the prior year to reduce operating expenses in response to the COVID-19 pandemic are no longer in place.~~our technology, operations, sales and marketing functions.

Depreciation and amortization. Depreciation and amortization expense increased $0.4 million, or 23.0%, primarily due to the increase in intangible assets following our acquisition of Bid4Assets on November 1, 2021.

Other operating (income) expenses. Other operating (income) expenses was consistent between the three months ended ~~June 30,~~December 31, 2021 and 2020.

~~Other operating expenses. Other operating expenses of $1.2 million for the three months ended June 30, 2021 primarily related to the~~ ~~$1.1 million loss following the~~ ~~full satisfaction and discharge of JTC's indebtedness to the Company. Refer to the discussion in Note 2 —~~ ~~Summary of Significant Accounting Policies~~.

Interest and other income, net. Interest and other income, net was consistent between the three months ended ~~June 30,~~December 31, 2021 and 2020.

Provision for income taxes. Provision for income taxes increased ~~$0.2~~$0.7 million primarily due to the ~~impact of foreign, state, and local taxes and permanent tax adjustments, as well as the~~ increase in ~~our Income from operations.~~

~~Nine Months Ended June 30, 2021 Compared to~~effective tax rate following the ~~Nine Months Ended June 30, 2020~~

~~Segment Results~~

~~GovDeals.~~ Revenue from our GovDeals segment increased 66.7%, or $14.6 million, due to a 70.2%, or $150.3 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate. The gain also reflects an increase in recovery rates on assets sold, driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. The nine months ended June 30, 2020 also contained the negative impact of the economic restrictions put in place at the onset of the COVID-19 pandemic. As a result of the increase in revenues, gross profit increased 69.7%, or $14.2 million. Gross profit margin remained relatively consistent between the periods.

~~RSCG.~~ Revenue from our RSCG segment increased 16.3%, or $16.6 million, due to a 32.8%, or $42.4 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with mid-sized and large retailers looking to capitalize on the secular growth in online retail. Revenues did not increase at the same rate as GMV due to an increase in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 39.2%, or $13.6 million. Gross profit margin increased 6.7% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold.

~~CAG.~~ ~~Revenue from the CAG segment increased by 21.2%, or $4.5 million due to a 33.5%, or $26.7 million increase in GMV due to~~ ~~continued growth~~release of our ~~industrial and heavy equipment categories, increases~~valuation allowance on US deferred tax assets in ~~principal transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally~~. Revenues did not increase at the same rate as GMV due to increases in transactions using partner organizations and in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 23.0% or $3.8 million. ~~Gross profit margin remained relatively consistent between the periods.~~

~~Machinio.~~ ~~Revenue from our Machinio segment increased 27.6%, or $1.5 million, due to an increase in subscription activity. As a result of the increase in revenues, gross profit increased 26.7%, or $1.3 million.~~

~~Consolidated Results~~

~~Revenue.Total consolidated revenue increased $37.2 million, or 24.8%. 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 $4.2 million, or 5.7%, which changed at a lower rate than Revenue primarily due to lower cost of sales associated with principal transactions, which benefited from higher recovery rates during the period, and an increase in the mix of transactions conducted under the consignment model.

~~Technology and operations expenses.~~ ~~Technology and operations expenses increased $2.6 million, or 8.1%, to support the increased transaction volumes in the RSCG and CAG segments.~~

~~Sales and marketing expenses.~~ ~~Sales and marketing expenses increased $0.6 million, or 2.0%, primarily due to increase in marketing expenses to promote our consolidated marketplace and expand market share in key verticals.~~

~~General and administrative expenses.~~ ~~General and administrative expenses were consistent between the nine months ended June 30, 2021~~ ~~and 2020.~~

~~Depreciation and amortization. Depreciation and amortization expense increased $0.5 million, or 11.2%,~~ ~~due to an increase in amortization of capitalized software related to the continued development and enhancement of our e-commerce platform and tools.~~

~~Other operating expenses. Other operating expenses increased $0.9 million, or 178.0%, primarily related to the~~ ~~$1.1 million loss following the~~ ~~full satisfaction and discharge of JTC's indebtedness to the Company. Refer to the discussion in Note 2 —~~ ~~Summary of Significant Accounting Policies~~.

~~Interest and other income, net.~~ ~~Interest and other income, net increased $0.3 million due the effect of changes in foreign exchange rates.~~

~~Provision for income taxes. Provision for income taxes increased $0.4 million due to the impact of foreign, state, and local taxes and permanent tax adjustments, as well as the increase in our Income from operations.~~Q4-FY21.

Liquidity and Capital Resources

Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate and equipment used in our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases and acquisitions. As of ~~June 30,~~December 31, 2021, we had ~~$112.7~~$91.3 million in ~~Cash~~cash and cash equivalents.

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.

The COVID-19 pandemic has caused the Company's GMV and revenues to fluctuate, and the Company initially implemented cost control measures to protect against the uncertainties created by the severe economic restrictions in its initial phases. From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions, which continue to be a factor in certain countries, causing some buyer delays in their ability to pick up purchased assets. As a result of our actions taken, the Company’s cash and cash equivalents balance is $91.3 million as of December 31, 2021, which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial statements.

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

On November 1, 2021, the ~~implementation~~Company purchased all of ~~integrated services~~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 ~~RSCG segment.~~real estate vertical.

The preliminary acquisition date fair value of the consideration transferred to the Shareholders of Bid4Assets was approximately $41.6 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 approximately $26.9 million. As part of the acquisition of Bid4Assets, Shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $37.5 million in cash. The earn-out consideration was preliminarily fair valued at $26.9 million as of December 31, 2021, of which $14.5 million is included in Accrued expenses and other current liabilities and $12.4 million is included in Other long-term liabilities within the Condensed Consolidated Balance Sheets. See Note 3 - Bid4Assets Acquisition for further information.

We did not record a provision for deferred U.S. tax expense on the undistributed earnings of foreign subsidiaries because we intend to indefinitely reinvest the earnings of these foreign subsidiaries outside the United States. The amount of such undistributed foreign earnings was ~~$7.0~~$7.3 million as of ~~June 30,~~December 31, 2021. As of ~~June 30,~~December 31, 2021 and September 30, ~~2020, $21.8~~2021, $25.5 million and ~~$19.5~~$22.4 million, respectively, of Cash and cash equivalents was held outside of the U.S.

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.

~~As of the fiscal year ended September 30, 2020, we~~The Company had ~~$6.1 million of~~no remaining share repurchase ~~authorization.~~authorization as of September 30, 2021. On ~~March 8, 2021, our Board of Directors authorized an additional $10 million of share repurchases of the Company's outstanding shares of common stock through March 31, 2023. We repurchased~~ ~~647,583~~ ~~shares for~~ ~~$12.0 million~~ ~~and~~ ~~957,079~~ ~~shares for~~ ~~$16.1 million~~ ~~under this program during the three and six months ended~~ ~~March 31, 2021, respectively. As of~~ ~~March 31, 2021, we had no remaining authorization to repurchase shares under this program.~~

~~On May 3,~~December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the ~~“May 3, 2021~~"December 6 Stock Repurchase ~~Plan”~~Plan") of up to ~~$15~~$20 million of ~~our~~the Company's outstanding shares of common stock through ~~June 30,~~December 31, 2023. ~~We made no repurchases under the May 3, 2021 Stock Repurchase Plan during~~During the three months ended ~~June 30, 2021.~~December 31, 2021, the Company repurchased a total of 147,185 shares for $3.0 million under this program. As of December 31, 2021, the company may repurchase an additional $17.0 million of shares under this program.

Changes in Cash Flows: ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2021 Compared to the ~~Nine~~Three Months Ended ~~June 30,~~December 31, 2020

Net cash provided by operating activities was ~~$54.3~~$1.9 million and ~~$9.2~~$6.0 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2021 and 2020, respectively. The ~~$45.1~~$4.2 million ~~increase~~decrease in cash provided by operations between periods was attributable to ~~$31.2~~a $2.3 million decrease in accounts receivable; a $12.1 million decrease to accounts payable, $3.2 million decrease to accrued expenses and a $0.6 million decrease in other liabilities all as driven by the management of working capital. These decreases were offset by $0.3 million of higher Net income as adjusted for non-cash items; ~~changes~~a $10.1 million increase in payables to sellers, driven by increasing transactions volumes; ~~changes to accounts payable, accrued expenses~~ and ~~other liabilities driven by the management of working capital; and partially offset by~~ a ~~$6.6~~$3.5 million ~~increase~~decrease in inventory ~~driven by the continued growth in our RSCG and CAG segments.~~purchases. 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. However, there have been no significant changes to the working capital requirements for the Company.

Net cash ~~provided~~used by investing activities was ~~$0.9~~$13.0 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2021, and ~~$28.9~~$0.8 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2020. The ~~$(28.0)~~$12.2 million decrease in cash provided by investing activities was primarily driven by ~~a $(30.0)~~$11.1 million cash paid at closing to acquire Bid4Assets on November 1, 2021, net ~~impact~~ of ~~maturities of Short-term investments during the nine months ended June 30, 2020 as the Company transitioned to using~~ cash equivalent money market funds in its treasury strategy. This activity was partially offset by a $1.8 million increase in proceeds from the JTC promissory note during the nine months ended June 30, 2021 due to receipt of ~~$3.5 million during the~~ ~~three months ended June 30, 2021 as a result of the Company entering into the First Amendment to the Forbearance Agreement with JTC as discussed in~~acquired. See Note 23 - ~~Summary of Significant Accounting Policies~~Bid4Assets Acquisition. for further information.

Net cash ~~(used in)~~used by financing activities was ~~$(19.4)~~$3.8 million for the ~~nine~~three months ended ~~June 30,~~December 31, 2021, and ~~$(1.8)~~$4.0 million for the ~~nine~~three months ended ~~June 30, 2020. The $(17.6) million increase in cash used in financing activities was primarily driven by $16.1 million in common stock repurchases and~~December 31, 2020, a ~~$3.0 million increase in taxes paid associated with net settlement of stock compensation awards, primarily from~~slight decrease across the ~~vesting of awards with market conditions due to the achievement of increases in the Company's share price.~~periods.

Capital expenditures. Our capital expenditures consist primarily of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the ~~nine~~three months ended ~~June 30,~~December 31, 2021 were ~~$3.5~~$2.0 million. As of ~~June 30,~~December 31, 2021, we had no significant outstanding commitments for capital expenditures.

Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers.

Off-Balance Sheet Arrangements

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

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

Interest rate sensitivity. As of ~~June 30,~~December 31, 2021, we do not have any debt, and we are not holding any short-term investments, but we do hold $40.0 million of cash and cash equivalents in money market funds. Changes in yields on the money market funds are not expected to have a significant impact to our consolidated results of operations. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity and maximize income consistent with minimizing risk of material loss.

Exchange rate sensitivity. Because of the number of countries and currencies we operate in, movements in currency exchange rates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars. Outside the United States, we predominantly generate revenues and expenses in the local currency. When we translate the results and net assets of these operations into U.S. dollars for reporting purposes, movements in exchange rates will affect reported results and net assets. Volatile market conditions arising from the COVID-19 pandemic may result in significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

During the three months ended June 30, 2021, 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.

As of ~~June 30,~~December 31, 2021, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2021, no change occurred in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal ~~Proceedings.~~Proceedings

Information regarding the Company's legal proceedings may be found in Note 12 of the accompanying Notes to the Unaudited Condensed Consolidated Financial Statements.

Item 1A. Risk ~~Factors.~~Factors

In addition to the other information set forth in this report, you should carefully consider the factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

Unregistered Sales of Equity Securities

~~None during~~In connection with the purchase of Bid4Assets on November 1, 2021, the Company agreed at closing to issue up to a total of 125,000 restricted stock units in a private placement to Mr. Jesse Loomis, current Chief Executive Officer of Bid4Assets, exempt from registration under Rule 506(b) of Regulation D promulgated under the Securities Act of 1933, as amended, (i) 55,000 of which are time-based and vest over a four year period, ~~covered by this report.~~and (ii) 70,000 of which are performance-based and vest upon Bid4Asset’s achievement of certain performance targets, subject in each case to Mr. Loomis’ continued employment with the Company. In addition to Mr. Loomis’ continued employment, certain shareholders agreed not to directly or indirectly solicit or otherwise interfere with Bid4Assets’ employees for five years after closing.

Use of Proceeds

Not applicable.

Issuer Purchases of Equity Securities

~~There was no share repurchase activity~~The following table presents information about our repurchases of common stock during the three months ended ~~June 30, 2021.~~December 31, 2021 (in thousands, except share and per share amounts):


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as a Part of a Publicly Announced Program	Approximate Dollar Value of Shares that May Yet be Purchased Under the Programs
October 1, 2021 to October 31, 2021	—	$	—	—	$	—
November 1, 2021 to November 30, 2021	—	$	—	—	$	—
December 1, 2021 to December 31, 20211	151,863	$	20.17	147,185	$	17,037
Total	151,863			147,185

1 Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due. During the three months ended December 31, 2021, participants surrendered 4,678 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.

As of ~~June 30,~~December 31, 2021, the Company had ~~$15~~$17.0 million of remaining authorization to repurchase shares under the ~~May 3,~~December 6, 2021 Stock Repurchase Plan.

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. No shares of common stock were surrendered by participants in the exercise of stock options during the three months ended June 30, 2021.

Item 5. Other ~~Information.~~Information

None

Item 6. ~~Exhibits.~~Exhibits


Exhibit No.						Description
2.1						Stock Purchase Agreement, dated July 10, 2018, by and among 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 10-Q, filed with SEC on August 2, 2018.
2.2						Agreement and Plan of Merger, effective as of November 1, 2021, by and among the Company, Liquidity Services RE Ventures, 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 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.
3.2						Amended and Restated Bylaws dated August 2, 2016, incorporated herein by reference to Exhibit 3.2 to the Company's Quarterly Report on 10-Q, filed with SEC on August 4, 2016.
31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1						Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101						The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended ~~June 30,~~December 31, 2021, formatted in Extensible Business Reporting Language (XBRL): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income, ~~(Loss),~~ (iv) Condensed Consolidated Statement of Stockholders' Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Unaudited Consolidated Financial Statements.
104						Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

3435

SIGNATURES

Pursuant to the requirements 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.


	LIQUIDITY SERVICES, INC.
		(Registrant)


~~August 5, 2021~~February 3, 2022	By:	/s/ William P. Angrick, III
		William P. Angrick, III
		Chairman of the Board of Directors
		and Chief Executive Officer


~~August 5, 2021~~February 3, 2022	By:	/s/ Jorge A. Celaya
		Jorge A. Celaya
		Chief Financial Officer

3536


(in thousands)	Liability Balance at September 30, 2019		Adoption of ASC 842		Business Realignment Expenses		Cash Payments		Liability Balance at September 30, 2020		Business Realignment Expenses		Cash Payments		Liability Balance at June 30, 2021
Employee severance and benefit costs:
GovDeals	$	0	$	0	$	29	$	(25)	$	4	$	0	$	(4)	$	0
RCSG	0		0		84		(64)		20		0		(20)		0
CAG	414		0		120		(481)		53		5		(58)		0
Corporate & Other	238		0		172		(410)		0		0		0		0
Total employee severance and benefit costs	$	652	$	0	$	405	$	(980)	$	77	$	5	$	(82)	$	0
Occupancy and other costs:
CAG	169		(169)		0		0		0		0		0		0
Corporate & Other	0		0		0		0		0		0		0		0
Total occupancy and other costs	$	169	$	(169)	$	0	$	0	$	0	$	0	$	0	$	0
Total business realignment	$	821	$	(169)	$	405	$	(980)	$	77	$	5	$	(82)	$	0