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Item 7. Management’s Discussion and Analysis

2024-12-12 compared with 2023-12-07 · 155 added, 134 removed, 337 unchanged (46% of the section changed)

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Our actual results could vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.

Liquidity Services, Inc.

(Liquidity Services, the Company) is a leading global commerce company providing trusted online marketplace platforms that power the circular economy.

Liquidity Services is a leading global commerce company providing trusted online marketplace platforms that power the circular economy.

We create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic value of surplus.

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During the past three fiscal years, we have conducted over 2.9 million online transactions generating $3.7 billion in gross merchandise volume or GMV.

GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time.

GMV is the total sales value of all transactions for which we earned compensation upon their completion through our marketplaces or other channels during a given period of time.

During the year ended September 30, 2024, the number of registered buyers grew from 5.1 million to 5.5 million.

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We generated GMV of $1.4 billion and revenue of $363.3 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from sellers, and value-added service charges during the year ended September 30, 2024.

Our GMV has grown at a compound annual growth rate of 13.9% since 2018.

Over the prior 5 years, our GMV has grown at a compound annual growth rate of 16.4%.

On January 1, 2024, the Company acquired Sierra Auction Management, Inc.

(Sierra), an Arizona corporation based in Phoenix, AZ.

Sierra is a full-service auction company specializing in the sale of vehicles, equipment and surplus assets for government agencies, commercial businesses, and charities.

See Note 4 – Sierra Acquisition for more information regarding this transaction.

On November 1, 2021, our GovDeals segment acquired Bid4Assets, Inc.

(Bid4Assets), a Maryland corporation based in Silver Spring, MD.

Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales.

The results of Bid4Assets' operations are included within our GovDeals reportable segment.

Bid4Assets is a leading online marketplace focused on conducting foreclosed real estate auctions.

See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.

Operating Segments

The Company has four reportable segments under which we conduct business:

GovDeals, Capital Assets Group (CAG), Retail Supply Chain Group (RSCG), and Machinio.

Reportable Segments

The Company has four operating and reportable segments under which we conduct business:

GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio.

Further information and operating results of our reportable segments can be found in Note 17 - Segment Information .

The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals and Bid4Assets marketplaces (see Note 3 - Bid4Assets Acquisition ).

see Note 3 - Bid4Assets Acquisition and Note 4 - Sierra Acquisition , respectively.

The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess, returned, and overstocked consumer goods.

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This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination of velocity, volume, and value.

The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus assets.

This segment primarily conducts its business-to-business sales on its Liquidation.com marketplace and through Direct Sales, and direct-to-consumer sales on its AllSurplus Deals and Secondipity marketplaces and other third-party sales channels.

The CAG reportable segment enables commercial businesses to sell surplus assets on our AllSurplus marketplace.

The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics.

CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing.

CAG benefits from a global base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use across the world.

This segment primarily uses the AllSurplus and GovDeals marketplaces.

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

Machinio also offers the Machinio System service that provides equipment sellers with a suite of online marketing tools that includes website hosting, email marketing, and inventory management, to support and enable equipment sellers’

online business.

The Machinio reportable segment operates a global search engine platform for listing equipment for sale in the construction, machine tool, processing, transportation, printing, agriculture and laboratory/medical sectors.

Machinio also offers the Machinio System service that provides equipment sellers with a suite of software tools that includes website hosting, email marketing, and inventory management, to support and enable equipment sellers’ online business.

Macroeconomic Conditions

Supply chain challenges and shifting consumer sentiment .

Constraints in the production of new vehicles and heavy equipment, particularly as it relates to new fleet sales, are continuing to impact the supply of used vehicles available for sale on our marketplaces, while used car market price indices are simultaneously experiencing heightened volatility.

In addition, general consumer behavior appears to be more cautious, focused more on essential goods and travel with limited discretionary high-value purchases.

These conditions are impacting our financial performance and may continue to do so while these conditions persist, or if similar challenges emerge in other key asset categories.

Effects of Inflation .

Rising inflation in both the U.S.

Supply chain challenges and consumer sentiment .

The supply of used vehicles available for sale on our marketplaces may be impacted by proposed tariffs in the U.S., as well as the slowing adoption of electric vehicles as a replacement to internal combustion vehicle fleets.

Further, used car market price indices continue to experience heightened volatility.

In addition, general consumer behavior can be turbulent, and changes in consumer sentiment can cause fluctuation in the mix, volumes, and demand for the products we receive.

Change in these conditions or other challenges that may emerge in other key asset categories can impact our financial performance.

Effects of inflation and heightened interest rates .

Inflation in both the U.S.

and internationally has weighed on the global economy, increasing prices for energy, shipping, and labor, among other areas of the macroeconomic environment.

These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation.

These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation, which has impacted buyer qualification and transaction timelines.

Currently, the Company is unable to predict the likelihood, magnitude, and timing of inflationary risk to our business, if any.

As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, whose impacts may vary across each of our individual asset classes.

International armed conflicts .

The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing, as well as the recent conflict in and adjacent to Israel.

As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, the impacts of which may vary across each of our individual asset classes.

International armed and geopolitical conflicts .

The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing, as well as the ongoing conflict in and adjacent to Israel.

The Russia-Ukraine conflict specifically resulted in numerous countries, including the United States, imposing significant new sanctions and export controls against Russia, Russian banks, and certain Russian individuals.

These armed conflicts have further heightened global supply chain disruptions and impacted the international trade markets.

For the year ended September 30, 2023, the Company's total revenues directly associated with Russia, Ukraine, and Israel were not material to our consolidated financial results.

We will continue monitoring these armed conflicts around the world and any potential future impacts on our business.

These sanctions and export controls and international responses to the ongoing conflict in and adjacent to Israel, have further heightened global supply chain disruptions and impacted the international trade markets.

For the years ended September 30, 2024 and 2023, the Company's total revenues directly associated with Russia, Ukraine, and Israel were not material to our consolidated financial results.

We will continue monitoring these armed and geopolitical conflicts around the world and any potential future impacts on our business.

See Part I, Item 1A, Risk Factors , for an additional discussion of risks related to global economic conditions including those discussed above.

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

an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which could impact our long term growth;

the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events;

• an increase in buyer demand for surplus merchandise as consumers aspire to make more environmentally conscious decisions, while also seeking greater value through purchasing less expensive goods, both of which could impact our long-term growth;

• the increase in demand from sellers and buyers to transact in an online solution ensuring assets are sold for fair market value;

• 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.

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The proceeds paid by buyers also include transaction fees, referred to as buyer premiums.

Consignment model—fee revenue.

Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces, and we charge them a commission fee based on the gross or net proceeds received from such sales.

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In addition to seller commissions, we also collect buyer premiums.

Other —

We also earn non-consignment fee revenue from Machinio's subscription services, as well as other services including asset valuation, product handling, and storage fees.

Other — fee revenue.

We also earn non-consignment fee revenue from Machinio's subscription services, auction listing service fees for foreclosed real estate at our GovDeals segment (payable regardless of whether or not an auction is completed), as well as other services including asset valuation, product handling, and storage fees.

Non-consignment fee revenue is recorded within the Consignment and other fee revenues line-item on the Consolidated Statements of Operations.

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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.

GMV is the total sales value of all transactions for which we earned compensation upon their completion through our marketplaces or 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.

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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.

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We consider the following accounting estimates to be critical:

valuation of goodwill (Note 7), and income taxes (Note 10).

business combinations (Note 4), and income taxes (Note 11).

Refer to these individually referenced notes and Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details on these accounting estimates.

The following discussion is a supplement to the disclosures referenced.

Valuation of goodwill .

Goodwill is allocated to our reporting units.

The Company has determined our reporting units to consist of GovDeals, CAG, RSCG, and Machinio.

Only the GovDeals, CAG, and Machinio reporting units maintain a goodwill balance.

As of July 1, 2023, the Company performed its annual goodwill impairment test using a quantitative fair-value based test for all reporting units maintaining a goodwill balance.

The fair value test was performed utilizing the discounted cash flow method under the Income approach and the guideline company method under the Market approach, the results of which were weighted 75:25, respectively, in the ending determined fair value.

We determined the fair value of each of our reporting units with goodwill balances substantially exceeded their carrying value.

Intangible assets .

The fair valuation of intangible assets acquired in a business combination consists of customer and supplier relationships, technology, trade names, and other intangibles (comprised of patents and related assets).

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 Sierra acquisition was $5.4 million.

This balance consisted of the following identified intangible assets, each with their own significant assumptions used, as follows:

• Customer and Supplier Relationships - We valued the customer and supplier relationships 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.

• 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.

Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company.

Pursuant to our preliminary purchase price allocation, goodwill arising from the acquisition of Sierra was determined to be $7.9 million;

see Note 4 - Sierra Acquisition , for further information.

Components of Revenue and Expenses

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Other operating expenses, net.

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

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

Interest and other income, net .

Interest and other income, net consists of interest income on interest-bearing checking accounts, money market funds, the prior promissory note issued to JTC, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.

Interest and other income, net consists of interest income on interest-bearing checking accounts, money market funds, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net periodic pension cost (benefit) other than the service component and impacts of foreign currency fluctuations.

Income taxes.

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Segment Results

Total revenues from our GovDeals reportable segment increased $2.7 million, or 4.5%, due to a $5.8 million, or 0.8%, increase in GMV driven by increased marketplace activity for its surplus property categories, including the number of sellers and assets sold;

however, supply chain challenges reduced the volume of used vehicles available to be sold during the first quarter of the current fiscal year and market prices for used vehicles remain volatile.

Revenue grew at a greater rate than GMV due to marketplace pricing increases and a decline in the mix of lower take-rate foreclosed real estate properties available for auction.

In periods where GovDeals real estate sales increase, GovDeals revenue as a percent of GMV would be expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories.

Total revenues from our GovDeals reportable segment increased $14.5 million, or 23.5%, due to a $110.2 million, or 15.2%, increase in GMV driven by increased personal property sales, particularly in the vehicle and heavy equipment categories, and continued growth in our seller base.

Revenue grew at a higher rate than GMV due to the expansion of service offerings to new, higher-volume sellers, including through the acquisition of Sierra.

Segment direct profit increased by $12.9 million, or 22.0%, consistent with the increase in revenues.

Segment direct profit as a percentage of total revenue remained consistent between the periods.

Revenue from our RSCG reportable segment increased $34.1 million, or 20.5%, due to a $49.3 million, or 20.9%, rise in GMV due to access to recurring product flows from new and expanded client programs and network of warehouses, including expansion of our AllSurplus Deals direct-to-consumer storefront locations, a stronger holiday return and liquidations season, and favorable recovery rates at the points in the year where less inventory was available to buyers in the broader spot market.

Segment direct profit increased by $4.4 million, or 6.8%, due to increased volumes.

Segment direct profit as a percentage of total revenue decreased from 38.4% to 34.0%, due to changes in the product mix available as certain client programs made a higher volume of lower value products available for sale in the current year, in addition to $1.0 million in inventory provisions.

Revenue from the CAG reportable segment decreased by $4.1 million, or 9.6%.

GMV increased by $2.5 million, or 1.3%, driven by increased consignment sales in our industrial and heavy equipment categories.

Revenue declined despite the increase in GMV due to a lower mix of large spot purchase transactions with international clients.

The increase in transactions conducted under the consignment model contributed to Segment direct profit increasing by $3.1 million, or 10.6%.

Segment direct profit as a percentage of total revenue increased 15.3%, which may fluctuate due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, due to a higher mix of consignment transactions conducted during the current year.

Challenged global supply chains are experiencing heightened disruptions due to international tensions and other factors, which could limit the volume of assets made available for sale in any period.

Segment direct profit as a percentage of revenue declined slightly due to the previously noted expansion in service offerings.

Revenue from our RSCG reportable segment increased by $32.8 million, or 16.4%, due to a $35.1 million, or 12.3%, increase in GMV due to expansion in our purchase programs and sell-in place consignment solutions.

Segment direct profit decreased by $1.2 million, or 1.8%, and Segment direct profit as a percentage of total revenue decreased from 34.0% to 28.7%, due to increased volumes from expanded purchase programs, driven by general merchandise categories that are lower-touch and did not have a significant impact on RSCG’s operating expenses, and a lower blended take-rate on our consignment sales.

These increased purchase volumes and their effect of lowering Segment direct profit as a percentage of total revenue are expected to continue into fiscal 2025.

Revenue from the CAG reportable segment decreased by $0.8 million, or 2.1%, while GMV increased by $18.3 million, or 9.6%.

The increase in GMV was driven by consignment sales in our industrial and heavy equipment categories, while Revenue declined slightly due to lower availability of large spot purchase transactions with international clients as well as an increase in consignment sales.

Despite inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

As a result of the decline in revenues, Segment direct profit decreased by $0.9 million, or 2.9%.

Global supply chains may experience heightened disruptions due to international tensions and other factors, which could limit the volume of assets made available for sale in any period.

Revenue from our Machinio reportable segment increased 16.9%, or $2.3 million, due to price increases and continued growth in subscribers.

As a result of the increase in revenues, Segment direct profit increased 17.2%, or $2.3 million.

Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

Segment direct profit as a percentage of total revenue remained relatively consistent between the period.

Consolidated Results

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Depreciation and amortization

Fair value adjustment of acquisition earn-outs

Other operating expenses, net

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Cost of goods sold (excludes depreciation and amortization).

Cost of goods sold increased $22.9 million, or 19.2%, which changed at a higher rate than Revenue primarily due to our RSCG segment where changes in the product mix available as certain client programs made a higher volume of lower value products available for sale in the current year.

Cost of goods sold increased $35.8 million, or 25.2%, which changed at a higher rate than Revenue primarily due to increased volumes from expanded purchase programs at our RSCG segment, driven by lower-touch general merchandise categories.

Technology and operations expenses.

Technology and operations expenses increased $1.6 million, or 2.8%, primarily due to higher technology labor costs supporting our continued marketplace modernization efforts, greater operations labor associated with the timing of transactions at our CAG segment, and a $1.0 million increase in other variable compensation.

Technology and operations expenses increased $4.3 million, or 7.5%, primarily in support of the increased transaction volumes across our segments, including operating costs associated with expanded full-service consignment solutions in our GovDeals segment through our acquisition of Sierra, and a $0.5 million increase in stock compensation.

Sales and marketing expenses.

Sales and marketing expenses increased $6.2 million, or 14.4%, due to the impact of our market share expansion and client diversification efforts, as well as a $1.3 million increase in stock compensation expense and other variable compensation, a $1.2 million increase in bad debt expense, and the impact of other inflationary cost increases.

Sales and marketing expenses increased $5.4 million, or 11.0%, due to our market share expansion and client diversification efforts, and a $0.6 million increase in stock compensation.

Furthermore, the year ended September 30, 2023, included a $0.9 million non-recurring benefit from a concluded client program.

General and administrative expenses.

General and administrative expenses were consistent between the years ended September 30, 2023, and 2022.

General and administrative expenses increased by $3.9 million, or 13.8%, due to a $1.8 million increase in stock compensation primarily from variable stock awards tied to financial performance targets, $0.5 million in litigation settlement expense incurred during the year ended September 30, 2024 (see Note 16 - Legal Proceedings for further information), and other costs in support of our growth.

Depreciation and amortization .

Depreciation and amortization expense increased $0.9 million, or 9.0%, primarily due to a full year impact of the increase in amortization of intangible assets following our acquisition of Bid4Assets on November 1, 2021.

Fair value adjustment of acquisition earn-outs .

Fair value adjustment of acquisition earn-outs decreased by $24.5 million due to the cumulative non-cash gain arising from the reduction in the fair value of the Bid4Assets earn-out liability during the prior year ended September 30, 2022.

Through and as of the final measurement period ended December 31, 2022, $3.5 million in earn-out payments were made, with no additional earn-out fair value remaining.

See Note 13 - Fair Value Measurement for further information.

Depreciation and amortization expense increased $0.9 million, or 7.7%, in connection with our acquisition of Sierra;

see Note 4 - Sierra Acquisition.

Interest and other income, net.

Interest and other income, net increased $2.7 million, due to the effect of rising interest rates on our cash equivalent and short-term investment holdings.

Provision (benefit) for income taxes .

Provision (benefit) for income taxes increased $0.7 million to an expense of $8.0 million from an expense of $7.3 million due to the increase in state and deferred income taxes resulting from higher income in the current year compared to prior year, exclusive of the $24.5 million non-cash gain from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability.

The Company's effective tax was 27.7% for the twelve months ended September 30, 2023.

Interest and other income, net increased $0.9 million, or 32.4%, due to higher balances held in cash equivalent and short-term investments and the effect of rising interest rates.

Provision for income taxes .

Provision for income taxes decreased $0.7 million to an expense of $7.3 million from an expense of $8.0 million due to the decrease in state and deferred income taxes resulting from lower income in the current year compared to prior year.

The Company's effective tax rate was 26.7% for the twelve months ended September 30, 2024.

The 2024 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent adjustments.

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Segment Results

Total revenues from our GovDeals reportable segment increased 19.7%, or $9.8 million, due to a 44.4%, or $221.6 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate.

In addition, increased recovery rates on assets sold were driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets.

However, this has been partially offset by lower volumes of used vehicles made available for sale, as new vehicle production disruptions impact government agency vehicle fleet retirement timelines.

As GovDeals real estate sales increase through the integration with Bid4Assets, GovDeals revenue as a percent of GMV is expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories.

For that reason, revenue as a percentage of GMV decreased to 8.2% from 9.9% last year.

however, supply chain challenges reduced the volume of used vehicles available to be sold during the first quarter of the current fiscal year and market prices for used vehicles remain volatile.

Revenue grew at a greater rate than GMV due to marketplace pricing increases and a decline in the mix of lower take-rate foreclosed real estate properties available for auction.

Segment direct profit increased by $2.4 million, or 4.3%, consistent with the increase in revenues.

Segment direct profit as a percentage of total revenue remained consistent between the periods.

Segment direct profit increased by $4.4 million, or 6.8%, due to increased volumes.

Revenue from the CAG reportable segment decreased by $4.1 million, or 9.6%.

GMV increased by $2.5 million, or 1.3%, driven by increased consignment sales in our industrial and heavy equipment categories.

Revenue declined despite the increase in GMV due to a lower mix of large spot purchase transactions with international clients.

The increase in transactions conducted under the consignment model contributed to Segment direct profit increasing by $3.1 million, or 10.6%.

Challenged global supply chains are experiencing heightened disruptions due to international tensions and other factors, which could limit the volume of assets made available for sale in any period.

Revenue from our Machinio reportable segment increased 14.4%, or $1.7 million, due to price increases and continued growth in subscribers.

As a result of the increase in revenues, Segment direct profit increased 14.3%, or $1.6 million.

Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

Revenue from our RSCG reportable segment increased 4.6%, or $7.3 million due to a 3.0%, or $6.9 million, increase in GMV as it continues to diversify its client programs, sales channels, and its network of warehouses.

Segment direct profit decreased by 1.3%, or $0.9 million, impacted by certain client returns management programs which provided fewer higher value products than in prior years, including for some of our low touch services.

As a result, segment direct profit as a percentage of total revenue decreased by 2.3%.

Revenue from the CAG reportable segment increased by 7.4%, or $2.9 million due to a 18.9%, or $30.1 million, increase in GMV driven by increasing opportunities to obtain and sell inventory under our purchase model, and strong consignment sales in the energy and heavy equipment categories, partially offset by strong prior year consignment sales in the industrial category.

Revenues did not increase at the same rate as GMV due to increases in the mix of transactions conducted with partner organizations.

Segment direct profit decreased 0.7%, or $0.2 million.

Segment direct profit as a percentage of total revenue decreased 5.6% due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, including increased international purchase transaction activity, some of which had lower than average margins due to incremental costs from COVID-19 related delays in conducting cross-border transactions.

Further, challenged global supply chains experienced heightened disruptions from the Russian invasion of Ukraine and its impacts on international trade and energy markets, COVID-19 and other disruptions, which limited the volume of assets made available for sale.

Revenue from our Machinio reportable segment increased 26.4%, or $2.5 million, due to an increase in subscription activity through a greater number of subscribers and increased pricing.

As a result of the increase in revenues, segment direct profit increased 27.6%, or $2.5 million.

Consolidated Results

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Interest and other income, net

Income before income taxes

Provision (benefit) for income taxes

Income before provision for income taxes

Provision for income taxes

NM = not meaningful

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Total consolidated revenue increased $34.4 million, or 12.3%.

Refer to the discussion of Segment Results above for discussion of the decrease in revenue.

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 $11.7 million, or 10.9%, which changed at a higher rate than Revenue primarily due to an increase in purchase transactions at CAG and RSCG, which also contained a more favorable mix of higher value returned products in the prior year.

Technology and operations expenses .

Technology and operations expenses increased $7.8 million, or 16.5%, as we increased our technology and operations functions to continue our growth, including RSCG's expansion of its network of warehouses, and launching AllSurplus Deals as a new marketplace offering consumers deals for curbside pick-up.

Sales and marketing expenses .

Sales and marketing expenses increased $5.6 million, or 14.9%, as we increased our sales and marketing functions to continue our growth, including promotional efforts to expand our market share in key verticals, and to promote new business initiatives including our AllSurplus Deals consumer marketplace.

General and administrative expenses .

General and administrative expenses decreased $0.7 million, or 2.3%, primarily due to changes in expected attainment of certain variable compensation targets, and partially offset by increased corporate support costs to support the anticipated growth resulting from the increases in our technology, operations, sales and marketing functions.

General and administrative expenses were consistent between the years ended September 30, 2023, and 2022.

Depreciation and amortization .

Depreciation and amortization expense increased $3.4 million, or 48.1%, primarily due to the increase in intangible assets following our acquisition of Bid4Assets on November 1, 2021.

Fair value adjustment of acquisition earn-outs .

Fair value adjustment of acquisition earn-outs reflects a $24.5 million non-cash gain due to a reduction in the fair value of the Bid4Assets earn-out liability during the year ended September 30, 2022.

Through and as of the final measurement period ended December 31, 2022, $3.5 million in earn-out payments were made, with no additional earn-out fair value remaining.

See Note 13 - Fair Value Measurement for further information.

Interest and other income, net .

Interest and other income, net increased $0.2 million, due to the effect of rising interest rates on our cash, cash equivalent and short-term investment holdings.

Provision (benefit) for income taxes .

Provision (benefit) for income taxes increased $30.7 million to an expense of $7.3 million from a benefit of $23.4 million due to the release of $27.9 million of our valuation allowance on U.S.

deferred tax assets during the fiscal year ended September 30, 2021, and $2.8 million state and foreign income taxes.

Interest and other income, net increased $2.7 million, due to the effect of rising interest rates on our cash equivalent and short-term investment holdings.

Provision for income taxes .

Provision for income taxes increased $0.7 million to an expense of $8.0 million from an expense of $7.3 million due to the increase in state and deferred income taxes resulting from higher income in the current year compared to prior year, exclusive of the $24.5 million non-cash gain from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability.

The Company's effective tax was 27.7% for the twelve months ended September 30, 2023.

The 2022 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent adjustments, the most significant of which was the exclusion of the $24.5 million non-cash from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability.

The 2023 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent adjustments.

Non-GAAP Financial Measures

Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA.

Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income (loss) plus Interest and other expense (income), net excluding the non-service components of net periodic pension (benefit);

Provision (benefit) for income taxes;

Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income plus Interest and other (income) expense, net excluding the non-service components of net periodic pension cost (benefit);

Provision for income taxes;

and Depreciation and amortization.

Interest and other expense (income), net, can include non-operating gains and losses, such as from foreign currency fluctuations.

Interest and other (income) expense, 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.

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We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.

The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs.

• The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value based upon information known or knowable as of the acquisition date, with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs.

We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.

• We believe adjusting for litigation settlement expenses that are not expected to reoccur 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 isolating other non-cash charges, such as impairment costs or other 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.

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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;

(a) do not represent net income or cash flows from operating activities as defined by GAAP;

(b) are not necessarily indicative of cash available to fund our cash flow needs;

and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities, or our other financial information as determined under GAAP.

and (c) should not be considered as alternatives to net income, income from operations, cash provided by (used in) operating activities, or our other financial information as determined under GAAP.

We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core operating performance.

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Interest and other (income) expense, net (1)

Provision (benefit) for income taxes

Provision for income taxes

Depreciation and amortization

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Stock compensation expense

Acquisition costs and impairment of goodwill and long-lived and other non-current assets (2)

Acquisition-related costs and litigation settlement expense (2)

Business realignment expenses (3)

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Non-GAAP Adjusted EBITDA

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

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

(3) Business realignment expense includes the amounts accounted for as exit costs under ASC 420, Exit or Disposal Cost Obligations, and the related impacts of business realignment actions subject to other accounting guidance.

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

2 Acquisition-related costs are included in Other operating expenses (income), net on the Consolidated Statements of Operations.

Litigation settlement expense reflects significant legal settlements not expected to reoccur and are included in General and administrative expenses on the Consolidated Statements of Operations.

For further information see Note 16 - Legal Proceedings, discussing the litigation settlement that occurred during the fiscal year ended September 30, 2024.

3 Business realignment expenses, included as a component of Other operating expenses (income), net on the Consolidated Statements of Operations, includes the amounts accounted for as exit costs under ASC 420, Exit or Disposal Cost Obligations, and the related impacts of business realignment actions subject to other accounting guidance.

Liquidity and Capital Resources

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From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases, and acquisitions.

As of September 30, 2023, we had $110.3 million in cash and cash equivalents, which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial statements.

As of September 30, 2024, we had $153.2 million in Cash and cash equivalents and $2.3 million in Short-term investments, which we believe is sufficient to meet the Company’s anticipated cash needs for at least one year from the date of these financial statements.

Capital Expenditures

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As of September 30, 2024, 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 expand our network of warehouses.

We may seek to enter agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing.

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During the year ended September 30, 2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First Amendment).

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

During the six months ended March 31, 2024, the Credit Agreement was amended to extend the maturity date by an additional 12 months to March 31, 2026 (the Second Amendment).

No other changes, including regarding the borrowing terms or capacities, were made to the Credit Agreement as a result of the First Amendment or the Second Amendment.

The Company may draw upon the Credit Agreement for general corporate purposes.

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Interest is payable monthly.

During the year ended September 30, 2023, the Company did not make any draws under the Credit Agreement.

As of September 30, 2023, the Company had no outstanding indebtedness under the Credit Agreement and our borrowing availability was $25.0 million.

During the year ended September 30, 2024, the Company did not make any draws under the Line of Credit and issued $7.5 million of standby letters of credit.

As of September 30, 2024, the Company had no outstanding borrowings under the Line of Credit and had $7.5 million of standby letters of credit outstanding.

The amount of standby letters of credit are reserved against the Line of Credit and are not available for borrowing, resulting in $17.5 million of remaining borrowing capacity under the Line of Credit as of September 30, 2024.

The obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic subsidiaries and secured on a first priority basis by a security interest (subject to permitted liens) in substantially all assets owned by us, and each of our other domestic subsidiaries, subject to limited exceptions.

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tax expense on the $9.8 million of undistributed foreign earnings as of September 30, 2024.

As of September 30, 2023, and September 30, 2022, $19.1 million and $20.3 million, respectively, of cash and cash equivalents was held outside of the U.S.

As of September 30, 2024 and 2023, $25.7 million and $19.1 million, respectively, of cash and cash equivalents was held outside of the U.S.

Other Uses of Capital Resources

Sierra Acquisition .

On January 1, 2024, the Company acquired all the issued and outstanding equity securities associated with Sierra Auction Management, Inc.

(Sierra), a full-service auction company specializing in the sale of vehicles, equipment and surplus assets for government agencies, commercial businesses, and charities in the southwestern U.S.

See Note 4 - Sierra Acquisition for more information regarding this transaction.

Bid4Assets, Inc.

Acquisition .

On November 1, 2021, our GovDeals segment purchased all of the issued and outstanding shares of stock of Bid4Assets.

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

The Company repurchased 564,887 shares for $9.4 million during the year ended September 30, 2024.

As of September 30, 2024, the Company had $7.6 million of remaining authorization to repurchase shares through December 31, 2025.

On December 9, 2024, the Company's Board of Directors authorized the repurchase of up to an additional $10.0 million of the Company's outstanding shares of common stock through December 31, 2026.

Off-Balance Sheet Arrangements .

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Net cash provided by operating activities was $70.2 million and $47.0 million for the years ended September 30, 2024 and 2023, respectively.

The $23.2 million increase in cash provided by operating activities between periods was attributable to an $11.3 million increase in cash inflows associated with Accounts Payable and a $5.4 million increase in cash inflows associated with Inventory primarily due to increased purchases of inventory under standard payment terms related to the expansion of purchase programs at our RSCG segment, and a $9.3 million increase in cash inflows associated with Payables to sellers primarily attributable to increased consignment sales volumes at our GovDeals and RSCG segments as well as timing differences in the payment of GovDeals and RSCG seller settlements relative to the period end date.

The settlements to the sellers for these sales will occur in the first quarter of fiscal 2025.

Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers.

As RSCG's purchase volumes increase in fiscal 2025, operating cash flow fluctuations from Accounts payable and Inventory may increase.

As GovDeals real estate sales with settlement services increase, operating cash flow fluctuations from Accounts payable and Payables to sellers may become more variable.

The amount of cash received and settled will be substantially higher than our take-rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods.

We are also expecting to begin increasing our payments for US federal income taxes in fiscal 2025 as our remaining net operating loss carryforwards are used.

There have been no other significant changes to the working capital requirements for the Company.

Net cash used in investing activities was $16.1 million and $11.4 million for the years ended September 30, 2024 and 2023, respectively.

The $4.7 million increase in cash used in investing activities was primarily driven by $13.2 million in cash paid, net of cash acquired, for the Sierra acquisition;

see Note 4 - Sierra Acquisition for further information.

This was partially offset by a $6.2 million increase from the maturation of short-term investments.

Net cash used in financing activities was $11.2 million and $22.1 million for the years ended September 30, 2024 and 2023, respectively.

The $10.9 million decrease in cash used in financing activities was primarily driven by an $11.8 million decrease in share repurchases, offset slightly by $1.0 million in higher taxes paid associated with the net settlement of stock compensation awards.

Changes in Cash Flows:

2023 Compared to 2022

Net cash provided by operating activities was $47.0 million and $44.8 million for the years ended September 30, 2023, and 2022, respectively.

The $2.2 million increase in cash provided by operating activities between periods was attributable to $8.4 million of higher Net income as adjusted for non-cash items;

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The $9.8 million decrease in cash used by financing activities was primarily driven by $4.2 million of lower common stock repurchases in the current year, a $1.5 million decrease in taxes paid associated with net settlement of stock compensation awards, and the non-recurring earn-out payment of $3.5 million made during the year ended September 30, 2022, in connection with the Bid4Assets acquisition.

Changes in Cash Flows:

2022 Compared to 2021

Net cash provided by operating activities was $44.8 million and $65.4 million for the years ended September 30, 2022, and 2021, respectively.

The $20.6 million decrease in cash provided by operating activities between periods was attributable to cash flows associated with a higher Accounts receivables balance of $5.4 million driven by the completion of a significant international industrial partner purchase transaction during the year ended September 30, 2022, as well as Accounts payable and Payables to sellers which together had a net decrease of $11.5 million due to reduced rates of change in the underlying transaction volumes during the current period.

As GovDeals real estate sales with settlement services increase through the integration with Bid4Assets, operating cash flow fluctuations from accounts payable and payables to sellers are expected to become more variable.

The amount of cash received and settled will be substantially higher than our take rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods.

There have been no other significant changes to the working capital requirements for the Company.

Net cash used in investing activities was $21.1 million for the year ended September 30, 2022, and $1.0 million for the year ended September 30, 2021.

The $20.1 million increase in cash used in investing activities was driven by $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021, net of cash acquired (see Note 3 - Bid4Assets Acquisition for further information), a non-recurring collection of note receivable principal payments during the year ended September 30, 2021, totaling $4.3 million in connection with the JTC promissory note (see Note 2 - Summary of Significant Accounting Policies for further information), a $2.7 million increase in new property and equipment purchases from expansion of our network of warehouses, and $1.8 million in purchases of short-term investments.

Net cash used in financing activities was $31.9 million for the year ended September 30, 2022, and $34.7 million for the year ended September 30, 2021.

The $2.7 million decrease in cash used by financing activities was primarily driven by $5.7 million of lower common stock repurchases in the current year and a $1.1 million decrease in taxes paid associated with net settlement of stock compensation awards.

These were offset by an earn-out payment of $3.5 million in connect with the Bid4Assets acquisition.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis