What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-12-12 compared with 2023-12-07 · 311 added, 301 removed, 1160 unchanged (35% of the section changed)

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This assessment is supported by testing and monitoring performed by our finance organization.

As permitted by SEC guidance with respect to newly acquired entities, management excluded Sierra, which was acquired on January 1, 2024, from its assessment of internal control over financial reporting.

The financial statements of Sierra Auction Management, Inc., constitute less than 2.0% of revenues and total assets (excluding goodwill and intangible assets which were integrated into the Company’s systems and control environment), in the consolidated financial statement amounts as of and for the year ended September 30, 2024.

We are in the process of evaluating Sierra's existing controls and procedures and integrating Sierra into our internal control over financial reporting.

See Note 4 - Sierra Acquisition , in the Notes to the Consolidated Financial Statements for further discussion on the Sierra acquisition and its impact on our consolidated financial statements.

Based on this assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with GAAP.

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A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met.

The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

The design of a control system must reflect the fact that there are resource constraints, and the benefits

of controls must be considered relative to their costs.

Other inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

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We have audited the internal control over financial reporting of Liquidity Services, Inc.

and subsidiaries (the “Company”) as of September 30, 2023, based on criteria established in Internal Control —

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2023, based on criteria established in Internal Control —

Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the fiscal year ended September 30, 2023, of the Company and our report dated December 7, 2023, expressed an unqualified opinion on those financial statements.

and subsidiaries (the "Company") as of September 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended September 30, 2024, of the Company and our report dated December 12, 2024, expressed an unqualified opinion on those financial statements.

As described in the Management Report on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Sierra Auction Management Inc., which was acquired on January, 1, 2024, and whose financial statements constitute less than 2.0% of revenues and total assets (excluding goodwill and intangible assets which were integrated into the Company’s systems and control environment), of the consolidated financial statement amounts as of and for the year ended September 30, 2024.

Accordingly, our audit did not include the internal control over financial reporting at Sierra Auction Management, Inc.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

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Other Information.

Not applicable.

On August 21.

2024 , Edward J.

Kolodzieski , a member of Liquidity’s Board of Directors , entered into a Rule 10b5-1 trading arrangement that provides for the sale of 30,000 shares of Liquidity Common Stock.

The trading arrangement is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act.

The duration of the trading arrangement is until the earlier of (1) August 22, 2025 , (2) the date on which all transactions under the trading arrangement are completed, or (3) at such time as the trading arrangement is otherwise terminated or expires according to its terms.

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

This authorization is in addition to the $7.6 million remaining under the September 8, 2023 authorization to repurchase up to $15.2 million in shares through December 31, 2025.

The 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.

Under the repurchase program, repurchases can be made from time to time using a variety of methods, including open market purchases, all in compliance with the rules of the United States Securities and Exchange Commission (the “SEC”) and other applicable legal and regulatory requirements.

The repurchase program does not obligate the Company to acquire any particular amount of common shares, and the repurchase program may be suspended or discontinued at any time at the Company’s discretion.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

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We intend to disclose future amendments to certain provisions of the Code of Conduct, and waivers of the Code of Conduct granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.

Insider Trading Policy

We have adopted an Insider Trading Policy to assist the Company's employees and directors in complying with insider trading laws and protect the Company from legal liability and promote its business interest in maintaining its reputation for integrity.

A copy of the policy is filed as Exhibit 19.1 to this Form 10-K.

Under this policy, employees, officers and directors of the Company, as well as other persons who may have access to material nonpublic information, are prohibited from engaging in certain transactions relating to Company securities held by them.

Executive Compensation.

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The following documents related to the financial statements are filed as part of this report:

Reports of Independent Registered Public Accounting Firms (PCAOB ID No.'s 34 and 42 , respectively)

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Balance Sheets as of September 30, 2024, and 2023

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Schedules for the three years ended September 30, 2024, 2023, and 2022:

II—Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required or are inapplicable and therefore have been omitted.

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We have audited the accompanying consolidated balance sheets of Liquidity Services, Inc.

and subsidiaries (the "Company") as of September 30, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2023, and the related notes and schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America.

Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 7, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

and subsidiaries (the "Company") as of September 30, 2024 and 2023, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended September 30, 2024, and the related notes and the schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2024, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated December 12, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue - Refer to Note 2 to the consolidated financial statements

Revenue - Refer to Note 2 to the financial statements

Critical Audit Matter Description

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The Company recognizes consignment and other fee revenues based on the sales commissions that are paid to the Company by the sellers for utilizing the Company's services.

Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided.

We identified a critical audit matter related to revenue transactions recorded, which required an increased extent of effort, including the need for us to involve professionals with expertise in information technology ("IT"), to identify, test, and evaluate the Company’s systems, applications and automated controls.

Consideration

is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided.

We identified a critical audit matter related to revenue transactions recorded, which required an increased extent of effort, including the need for us to involve professionals with expertise in information technology (“IT”), to identify, test, and evaluate the Company’s systems, applications, and automated controls.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the Company’s revenue transactions included the following, among others:

• With the assistance of our IT specialists, we:

o Identified the significant systems used to process revenue transactions and tested the general IT controls over each of these systems, including testing of user access controls, change management controls, and IT operations controls.

o Performed testing of system interface controls and automated controls relevant to revenue processes.

We tested internal controls within the relevant revenue processes, including those in place to reconcile the various systems to the Company’s general ledger.

o Performed testing of system interface controls and automated controls relevant to the revenue processes.

• We tested internal controls within the relevant revenue processes, including those in place to reconcile the various systems to the Company’s general ledger.

• We either developed an independent expectation of revenue and compared such expectation to the amounts recorded by the Company, or performed detailed transaction testing for a sample of revenue transactions, which included the following:

o Agreed the selected revenue transaction amounts recognized to underlying source documents.

o Tested the classification of each transaction as either purchase revenue, where the Company acts as a principal and records revenue based on the gross value of the asset sale, or commission and other fee revenue, where the Company acts as an agent and records only the fee earned net of the sale transaction value.

o Agreeing the selected revenue transactions recognized to underlying source documents

o Testing the classification of each transaction as either purchase revenue, where the Company acts as a principal and records revenue based on the gross value of the asset sale, or commission and other fee revenue, where the Company acts as an agent and records only the fee earned net of the sale transaction value.

/s/ Deloitte and Touche LLP

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December 12, 2024

We have served as the Company’s auditor since 2021.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Liquidity Services, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the consolidated statement of operations, comprehensive income, stockholders' equity and cash flows for the year ended September 30, 2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended September 30, 2021, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We served as the Company's auditor from 2001 to 2021.

Tysons, Virginia

December 9, 2021

We have served as the Company’s auditor since 2021.

Liquidity Services, Inc.

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Deferred tax assets

Liabilities and stockholders’

Liabilities and stockholders’ equity

Current liabilities:

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Commitments and contingencies (Note 16)

Stockholders’

Stockholders’ equity:

Common stock, $ 0.001 par value;

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Accumulated other comprehensive loss

Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Retained earnings (accumulated deficit)

Total stockholders’ equity

Total liabilities and stockholders’ equity

See accompanying notes to the consolidated financial statements.

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Income before provision for income taxes

Provision (benefit) for income taxes

Provision for income taxes

Basic income per common share

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Year Ended September 30,

Other comprehensive (loss) income:

Defined benefit pension plan—unrecognized amounts

Other comprehensive income (loss):

Defined benefit pension plan—unrecognized amounts

Foreign currency translation

Other comprehensive (loss) income

Other comprehensive income (loss)

Comprehensive income

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Balance at September 30, 2021

Exercise of common stock options and vesting of restricted stock

Tax settlements associated with stock compensation expense

Forfeiture of restricted stock awards

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

Taxes paid associated with net settlement of stock compensation awards

Common stock repurchases

Common stock surrendered in the exercise of stock options

Forfeiture of restricted stock awards

Stock compensation expense

Defined benefit pension plan—unrecognized amounts, net of taxes

Foreign currency translation and other

Defined benefit pension plan—unrecognized amounts, net of taxes

Foreign currency translation

Balance at September 30, 2022

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Stock compensation expense

Defined benefit pension plan—unrecognized amounts, net of taxes

Foreign currency translation

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Stock compensation expense

Defined benefit pension plan—unrecognized amounts, net of taxes

Foreign currency translation and other

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Purchases of property and equipment, including capitalized software

Proceeds from note receivable

Purchase of short-term investments

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Other investing activities, net

Net cash (used in) provided by investing activities

Net cash used in investing activities

Financing activities

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and commenced operations in early 2000.

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 government entities, including tax foreclosure sales and sheriff's sales.

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:

Reportable Segments

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

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

Further information and operating results of our reportable segments can be found in Note 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.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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;

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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.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Summary of Significant Accounting Policies

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The Company maintains an allowance for doubtful accounts to reserve for potentially uncollectible receivables.

Changes in allowances, which are included in Sales and marketing within the Consolidated Statements of Operations, are based on management’s judgment, which considers historical bad debt experience, a specific review of all significant outstanding invoices, customer-specific information and relevant conditions, and an assessment of general economic conditions.

As of September 30, 2023 , the Company's bad debt allowance was $ 1.4 million.

Changes in allowances, which are included in Sales and marketing

Liquidity Services, Inc.

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Notes to Consolidated Financial Statements (Continued)

within the Consolidated Statements of Operations, are based on management’s judgment, which considers historical bad debt experience, a specific review of all significant outstanding invoices, customer-specific information and relevant conditions, and an assessment of general economic conditions.

As of September 30, 2024 , the Company's bad debt allowance was $ 1.7 million.

Inventory consists of property obtained for resale, generally through the online auction process, and is stated at the lower of cost or net realizable value in the line-item Inventory, net on the Consolidated Balance Sheets.

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Charges for unsellable inventory, as well as for inventory written down to net realizable value, are included in Cost of goods sold in the period in which they have been determined to occur.

As of September 30, 2024 , the Company's Inventory, net on its Consolidated Balance Sheet reflects immaterial adjustments to net realizable value.

As of September 30, 2023 , the Company's Inventory, net on its Consolidated Balance Sheet reflects adjustments to net realizable value of $ 1.0 million.

Adjustments to net realizable value reflected in the Inventory, net balances as of September 30, 2022 , were immaterial .

Prepaid expenses and other current assets

Prepaid expenses and other current assets include the short-term portion of contract assets (described in "Contract Assets and Liabilities"), capitalized sales commissions paid (described in "Contract Costs"), as well as other miscellaneous prepaid expenses.

Other Assets - Promissory Note

On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC (Tanager).

In connection with the disposi tion, Tanager assumed certain liabilities related to the Jacobs Trading business.

Tanager issued a $ 12.3 million five-year interest-bearing promissory note to the Company.

On October 10, 2019, the Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and Guaranty Agreement (the Forbearance Agreement) with Tanager (now known as Jacobs Trading, LLC) and certain of its affiliates (collectively, JTC).

In exchange for additional collateral, security, and a higher interest rate, the Company granted JTC a new repayment schedule that requires quarterly payments to be made from August 2020 to August 2023.

Upon execution of the Forbearance Agreement, JTC repaid $ 2.5 million in principal, plus $ 0.4 million of accrued interest.

As of March 31, 2021, JTC had repaid $ 7.7 million of the $ 12.3 million owed to the Company and had an outstanding principal balance of $ 4.6 million.

On May 12, 2021, the Company entered into the First Amendment to the Forbearance Agreement with JTC, providing JTC with full satisfaction and discharge from its indebtedness upon receipt of a $ 3.5 million payment made on May 17, 2021.

As a result, the Company recorded a $ 1.1 million loss as component of Other operating expenses in its Consolidated Statements of Operations during the year ended September 30, 2021, representing the difference between the $ 4.6 million outstanding balance of principal and accrued interest and the $ 3.5 mi llion payment received.

There was no impact on the consolidated financial statements from the Forbearance Agreement as of and during the fiscal years ended September 30, 2022 and 2023.

Property and Equipment

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Not depreciated

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Company determines if an arrangement is a lease upon inception.

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The lease payments represent the combination of lease and nonlease components.

The discount rate used to determine the present value is the Company’s incremental borrowing rate for a duration that is consistent with the lease term, as the rates implicit in the Company’s leases are generally not determinable.

The Company’s incremental borrowing rate is estimated using publicly available information for companies with comparable financial profiles, adjusted for the impact of collateralization.

The lease term includes the impacts of options to extend or terminate the lease only if it is reasonably certain that the option will be exercised.

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Lease-related payments not included in the determination of the lease assets and liabilities, such as variable lease payments, are expensed as incurred.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Lease assets and liabilities are not recognized when the lease term is 12 months or less;

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Balances related to the Company's finance leases are included within Other assets (finance lease assets), Accrued expenses and other current liabilities (current portion of finance lease liabilities), and Other long-term liabilities (non-current portion of finance lease liabilities) on the Consolidated Balance Sheets.

Lease assets are assessed for impairment in accordance with the Company’s accounting policy for the impairment of long-lived assets.

Intangible Assets

Intangible assets consist of contract intangibles, brand and technology, and patent and trademarks.

Intangible assets consist 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.

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If the assets are impaired, the impairment recognized is measured by the amount by which the carrying amount exceeds the es timated fair value of the assets.

The Company did no t record impairment charges on material long-lived assets during the years ended September 30, 2023, 2022, and 2021 .

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

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Examples of such events or circumstances could include a significant change in business climate or the loss of a significant contract.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

In evaluating goodwill for impairment, the Company may first assess qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount.

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Revenue from the sale of inventory that the Company sells on a consignment basis, and other non-consignment fee revenue, which includes Machinio's subscription services, is recognized within Consignment and other fee revenues.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Company recognizes revenue when or as performance obligations are satisfied and control is transferred to the customer.

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however, a revenue contract for accounting purposes exists when the Company agrees to sell a specific asset or assets.

When acting as a principal (a “purchase”

arrangement), the Company purchases an asset or assets from a seller and then the Company seeks to sell the asset or assets to a buyer.

When acting as a principal (a “purchase” arrangement), the Company purchases an asset or assets from a seller and then the Company seeks to sell the asset or assets to a buyer.

The Company recognizes as Purchase revenues the gross proceeds from the sale, including buyer's premiums.

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rather, it is a purchase of inventory.

When the Company is acting as an agent (a “consignment”

arrangement), its performance obligation is to arrange for the seller to sell an asset or assets to the buyer directly.

When the Company is acting as an agent (a “consignment” arrangement), its performance obligation is to arrange for the seller to sell an asset or assets to the buyer directly.

The Company recognizes Consignment revenues, which are composed of buyer's premiums and/or sales commissions, based on the amounts that are paid to the Company by the buyers and sellers for utilizing the Company's services, which represent a percentage of the gross transaction proceeds.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

For the Company’s CAG segment, certain transactions may involve cooperation with third parties to satisfy the performance obligation of arranging for the sale of assets to a buyer, with proceeds shared among the parties.

When the Company controls whether to use third parties to fulfill its performance obligation, it is considered the principal and revenue is recognized based on the gross purchase or consignment proceeds, with amounts due to third parties recognized as an expense.

When the seller requests multiple parties to fulfill its performance obligation, the Company is considered the agent and revenue is recognized based on the net purchase or consignment proceeds to be retained by the Company.

When a seller requests multiple parties to fulfill its performance obligation, the Company recognizes revenue in the amount of the portion of purchase or consignment proceeds to be retained by the Company.

When the Company controls whether to use third parties to fulfill its performance obligation, it is considered the principal and revenue is recognized on a gross basis, with amounts due to third parties recognized as an expense.

In both purchase and consignment arrangements, the Company sometimes provides varying levels of services to the seller, such as returns management, refurbishment of assets, or valuation services.

These services are considered integrated with the broader performance obligation to sell the seller’s assets to a buyer.

Other services provided to sellers are not capable of being distinct, like providing access to the Company’s e-commerce marketplaces or promoting the asset or assets for sale, because they could not benefit the seller separately from the sale of their assets.

The consideration received from buyers and sellers includes (a) buyer’s premiums, (b) seller’s commissions, and (c) fees for services, including reimbursed expenses.

Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided.

These services are considered integrated with the broader performance obligation to sell the seller’s assets to a buyer.

The consideration received from buyers and sellers includes (a) buyer’s premiums, (b) seller’s commissions, and (c) fees for services, including reimbursed expenses.

Consideration is variable based on units, final auction prices, or other factors, until the buyer’s purchase of the asset or assets is complete, or the service has been provided.

Recognition of variable consideration that is based on the results of auctions or purchases by buyers is constrained until those transactions have been finalized.

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For certain transactions, payment is due upon invoice and the payment terms vary depending on the segments.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Company collects and remits sales taxes on merchandise that it purchases and sells and has elected the practical expedient to exclude such sales tax amounts from the transaction price.

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If the Company is acting as an agent for the combined obligation, shipping revenue and costs will be netted and recognized within Costs of goods sold.

The Company’s purchase and consignment performance obligations are satisfied at the point in time when control of the asset is transferred to the buyer or when the service is completed.

The Company determines when control has transferred by evaluating the following five indicators:

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Cost of Goods Sold

Cost of goods sold includes direct and incremental costs of purchasing inventory, transporting property for auction, shipping and handling costs, and credit card transaction fees.

Cost of goods sold includes direct and incremental costs of purchasing inventory, transporting property for auction, shipping and handling costs, and credit card and other transaction fees.

For transactions where the Company resells inventory that was purchased from sellers, the cost of goods sold includes the cost of that inventory, generally using specific identification.

There are no inventory costs associated with consignment sales.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Contract Assets and Liabilities

Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a seller.

The contract asset balance was $ 0.9 and $ 0.9 million as of September 30, 2023, and 2022, respectively, and is included in the line-item Prepaid expenses and other current assets on the Consolidated Balance Sheets.

The contract asset balance was $ 1.5 million and $ 0.9 million as of September 30, 2024 and 2023, respectively, and is included in the line-item Prepaid expenses and other current assets on the Consolidated Balance Sheets.

Contract liabilities reflect obligations to provide services for which the Company has already received consideration and generally arise from upfront payments received in connection with Machinio's subscription services.

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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.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

For consignment sales transactions, funds are typically collected from buyers and are held by the Company on the sellers' behalf.

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Our vendor contracts with respect to sourcing or consigning merchandise for our RSCG segment generally reflect the concentration dynamics inherent to the retail industry.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Company accounts for income taxes using an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and income tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which the taxes are expected to be paid or recovered.

4 unchanged sentences

Accounting Standards Codification (ASC) 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of technical merits.

The Company’s policy is to recognize interest and penalties in the period in which they occur in the income tax provision.

The Company and its subsidiaries file income tax returns in the U.S.

3 unchanged sentences

The awards issued can contain service conditions, performance conditions based upon Company financial results, and/or market conditions based upon changes in the Company's stock price.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Service- and performance-based stock awards are measured at fair value on their grant date.

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Compensation expense from the stock awards is included in the same lines on the Consolidated Statements of Operations as the cash compensation to the employees receiving the stock awards.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Excess tax benefits realized from stock awards are reported as cash flows from operating activities on the Consolidated Statements of Cash Flows.

3 unchanged sentences

Treasury Stock

Treasury stock is presented at cost, including any applicable excise taxes, commissions and fees, as a reduction of stockholders’

equity in the Consolidated Balance Sheets and Consolidated Statement of Stockholders' Equity.

Treasury stock is presented at cost, including any applicable excise taxes, commissions and fees, as a reduction of stockholders’ equity in the Consolidated Balance Sheets and Consolidated Statement of Stockholders' Equity.

Treasury stock held by us may be retired or reissued in the future.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Foreign Currency Translation

5 unchanged sentences

Accumulated Other Comprehensive Loss

The following table shows the changes in accumulated other comprehensive loss, net of taxes (in thousands):

The following table shows the chang es in accumulated other comprehensive loss, net of taxes (in thousands):

Foreign Currency Translation Adjustments

Net Change Pension and Other Postretirement Benefit Plans

Accumulated Other Comprehensive Loss

Accumulated Other Comprehensive (Loss) Income

Balance at September 30, 2021

Current-period other comprehensive income

Current-period other comprehensive income (loss)

Balance at September 30, 2022

5 unchanged sentences

Accounting Standards Adopted

In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes .

The Company adopted the new standard on a prospective basis effective October 1, 2021.

This accounting standard has not had a material impact on the Company's consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) .

The majority of the Company’s sales require payment in advance of the sale, but a limited number of buyers are approved to conduct sales on credit.

Accounts receivables related to those sales are generally short-term in nature and do not require the posting of collateral.

The Company estimates its allowances for expected credit loss based on historical collection trends, the age of outstanding receivables, existing economic conditions, and the specific facts and circumstances of individual customers.

If events or changes in circumstances indicate that specific receivable balances may be impaired, further consideration is given to the collectability of those balances and the allowance is adjusted accordingly.

Past-due account balances are written off when the Company’s internal collection efforts have been unsuccessful in collecting the amounts due.

The Company adopted the new standard effective October 1, 2023.

The adoption of ASU 2016-13 did not have a material impact on our consolidated financial 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, due to the fact that the Company was classified as a smaller reporting company defined by the SEC at the time the rule was effective for public business entities.

The guidance will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date.

The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable and money market funds.

We do not expect the adoption of this ASU will have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

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The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures .

This ASU will require organizations to disclose specific categories in their tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

The guidance will be effective for the Company beginning with its Annual Report on Form 10-K for the fiscal year ending September 30, 2026.

The guidance is required to be applied on a prospective basis;

however, retrospective application is permitted.

The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income (Topic 220):

Disaggregation of Income Statement Expenses .

This ASU will require organizations to disaggregate certain expense captions an entity presents on the face of the income statement into specific categories in disclosures within the footnotes to the financial statements.

This guidance will be effective for the Company beginning with its Annual Report on Form 10-K for the fiscal year ending September 30, 2028.

The guidance is required to be applied on a prospective basis;

however, retrospective application is permitted.

The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

Bid4Assets Acquisition

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(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.

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

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

The acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $ 42.7 million consisting of $ 14.7 million in cash (net of working capital adjustments totaling $ 0.3 million) and earn-out consideration with a preliminary fair value of $ 28.0 million.

Former shareholders of Bid4Assets were eligible to receive earn-out consideration of up to $ 37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

The Company's allocation of the purchase price to the assets acquired and liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, is as follows:

The Company's allocation of the purchase price to the assets acquired and liabilities assumed as of the Bid4Assets acquisition date of November 1, 2021, was as follows:

(in thousands)

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Total consideration transferred

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The excess of purchase consideration over the fair value of assets acquired and liabilities assumed was recorded as Goodwill.

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Total identifiable intangible assets

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Contract Intangibles

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Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the consolidated financial statements and its related notes for the years ended September 30, 2024, 2023, and 2022.

Earnings Per Share

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.

Total preliminary purchase consideration was approximately $ 13.7 million paid in cash.

As of September 30, 2024, the Company's purchase price allocation related to this acquisition is preliminary and subject to revision as additional information is obtained about the facts and circumstances that existed as of the acquisition date.

In connection with its acquisition of Sierra, the Company preliminarily recorded the fair value of acquired supplier relationships and trade name assets for $ 5.1 million and $ 0.3 million, respectively, and goodwill of $ 7.9 million.

The supplier relationships and trade name will be amortized on a straight-line basis over a useful life of six and three years , respectively .

The total goodwill arising from the acquisition is included in the GovDeals reportable segment and is deductible for tax purposes.

Sierra's financial results are reported within the GovDeals reportable segment.

Revenue, net income (loss), and pro forma information related to the Sierra acquisition was immaterial to the consolidated financial statements and its related notes for the year ended September 30, 2024.

Liquidity Services, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

Earnings Per Share

The Company calculates basic EPS by dividing net income by the weighted-average number of common shares outstanding during the reporting period, excluding unvested restricted stock awards.

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Total property and equipment, net

Depreciation and amortization expense related to property and equipment for the years ended September 30, 2023, 2022, and 2021 , was $ 7.4 million, $ 6.5 million, and $ 5.6 million, respectively.

Included in those amounts is amortization of internally developed software for internal use of $ 5.6 million, $ 4.7 mi llion, and $ 3.9 million, respectively.

The Company did no t record impairment charges on material property and equipment during the years ended September 30, 2023, 2022, and 2021 .

Liquidity Services, Inc.

1 unchanged sentence

Notes to Consolidated Financial Statements (Continued)

Depreciation and amortization expense related to property and equipment for the years ended September 30, 2024, 2023, and 2022 , was $ 8.1 million, $ 7.4 million, and $ 6.5 million, respectively.

Included in those amounts is amortization of internally developed software for internal use of $ 6.0 million, $ 5.6 million, and $ 4.7 million, respectiv ely.

The Company did no t record impairment charges on material property and equipment during the years ended September 30, 2024, 2023, and 2022 .

The Company has operating leases for its corporate offices, warehouses, vehicles and equipment.

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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.

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September 30,

Finance lease –

lease asset amortization

Finance lease –

interest on lease liabilities

Finance lease – lease asset amortization

Finance lease – interest on lease liabilities

Operating lease cost

Operating lease impairment expense

Short-term lease cost

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Total lease liabilities

(1) The weighted average remaining lease term is 2.8 years for operating leases and 2.9 years for finance leases.

(2) The weighted average discount rate is 6.2 % for operating leases and 5.6 % for finance leases.

(1) The weighted average remaining lease term is 3.3 years for operating leases and 2.4 years for finance leases as of September 30, 2024 , and 2.8 years for operating leases and 2.9 years for finance leases as of September 30, 2023.

(2) The weighted average discount rate is 6.1 % for operating leases and 5.6 % for finance leases as of September 30, 2024 , and 6.2 % for operating leases and 5.6 % for finance leases as of September 30, 2023 .

Supplemental disclosures of cash flow information related to leases are:

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Years Ended September 30,

5 unchanged sentences

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

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Lease liabilities increased during the year ended September 30, 2024, due to the commencement of a lease for new warehouse space in Brownsburg, Indiana during the period, as well as new leases relating to the Sierra acquisitions;

see Note 3 - Sierra Acquisition for further information.

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

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Balance at September 30, 2021

Bid4Assets acquisition

Translation adjustments

Balance at September 30, 2022

Bid4Assets acquisition

Translation adjustments

Balance at September 30, 2023

Sierra acquisition

Translation adjustments

Balance at September 30, 2024

The increase in the goodwill balance of approximately $ 7.9 million at the GovDeals reportable segment and reporting unit during the year ended September 30, 2024, is due to the Sierra acquisition;

see Note 4 - Sierra Acquisition for further information.

The increase in the goodwill balance of approximately $ 30.1 million at the GovDeals reportable segment and reporting unit during the year ended September 30, 2022, is due to the Bid4Assets acquisition;

see Note 3 - Bid4Assets Acquisition for further information.

Accumulated goodwill impairment losses as of September 30, 2024 and 2023 were $ 168.6 million.

Impairment Analysis

Goodwill is tested for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable.

As of July 1, 2023, the Company performed a quantitative fair-value-based test for each of our reporting units, determining that each of our reporting units with goodwill balances substantially exceeded their carrying values.

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

The Company did no t record impairment charges on its goodwill during the years ended September 30, 2023, 2022, and 2021.

Goodwill is test ed for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable.

As of July 1, 2024, the Company performed its annual impairment test qualitatively and concluded that it was more likely than not that the fair value of each reporting unit exceeded their carrying amounts.

The Company did no t record impairment charges on goodwill during the years ended September 30, 2024, 2023, and 2022.

The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended September 30, 2024 .

1 unchanged sentence

Intangible assets consist of the following:

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

September 30, 2024

1 unchanged sentence

(in thousands)

Contract intangibles

Patent and trademarks

Customer and supplier relationships

Other intangibles

Total intangible assets, net

The Company has reclassified certain assets within the footnote for presentation purposes only, as well as renamed certain accounts.

No changes have been made to the assets' respective underlying recorded amounts or useful lives, and there has been no effect on the current nor prior year financial results.

What was previously classified as “Contract intangibles” is now “Customer and supplier relationships”.

The Company has reclassified Brand intangibles from “Technology” and is now included within the “Trade names” intangible asset type.

Previously reported “Patents and trademarks” have been separated such that “Other intangibles” are now comprised of patents and related assets.

The gross carrying amount of total intangible assets increased by $ 5.4 million during the year ended September 30, 2024, due to the Sierra acquisition.

The acquired supplier relationships and trade name assets are included in the above line items of Customer and supplier relationships and Trade names, respectively.

See Note 4 - Sierra Acquisition for further information.

Future expected amortization of intangible assets at September 30, 2024, is as follows:

1 unchanged sentence

(in thousands)

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Amortization expense related to intangible assets for the years ended September 30, 2024, 2023, and 2022 was $ 4.0 million, $ 3.8 million, and $ 3.7 million, respectively.

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The Plan also allows the Company to make discretionary matching contributions.

During the fiscal year ended September 30, 2023, the Company stopped accepting investments in the Company’s stock fund under the Plan and all shares of the Company and other Plan interests held in the stock fund under the Plan were reinvested into non-Company investment vehicles.

On March 28, 2023, the Company filed a post-effective amendment on Form S-8 with the SEC to deregister all of the previously registered shares and other Plan interests that remained unissued and unsold under the Plan.

1 unchanged sentence

On October 2, 2023, the Company filed a Form 15 to suspend the duty of the Plan to file reports under Section 15(d) of the Securities Exchange Act of 1934, as amended.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

For the years ended September 30, 2024, 2023, and 2022 , the Company recorded expenses of $ 1.5 million, $ 1.4 million, and $ 1.0 million, respectively, related to its contributions to the Plan.

7 unchanged sentences

Significant components of the Company's deferred tax assets and liabilities are as follows:

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

September 30,

1 unchanged sentence

Deferred tax assets:

Net operating losses—Foreign

Net operating losses—U.S.

Net operating losses—Foreign

Net operating losses—U.S.

Accrued vacation and bonus

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deductible temporary differences.

The federal and state NOL carryforwards expire beginning in 2038 and 2024, respectively.

The federal NOL carryforward has an indefinite life and state NOL carryforwards expire beginning in 2026.

The Company's ability to use these various carryforwards to offset any taxable income generated in future taxable periods may be limited under Section 382 and other federal tax provisions.

The foreign tax credit carryforwards expire beginning in 2025.

At September 30, 2023 and 2022, the Company had deferred tax assets related to available foreign NOL carryforwards of $ 16.4 million and $ 12.4 million, respectively.

At September 30, 2024 and 2023, the Company had deferred tax assets related to available foreign NOL carryforwards of $ 17.6 .

million and $ 16.4 million, respectively.

All but $ 0.5 million of our foreign NOLs maintain an indefinite carry forward life.

6 unchanged sentences

As of September 30, 2024, the Company determined that there was sufficient positive evidence to conclude that it is more likely than not that all of its U.S.

deferred tax assets are realizable, except for $ 0.2 million of foreign tax credit carry forwards that expire beginning in 2024.

deferred tax assets are realizable, except for $ 0.2 million of foreign tax credit carry forwards that expire beginning in fiscal 2025.

The Tax Act and Jobs Act of 2017 (the Tax Act) subjects a U.S.

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The IRA includes provisions imposing a 1 % excise tax on share repurchases that occur after December 31, 2022, and introduces a 15 % corporate alternative minimum tax (CAMT) on adjusted financial statement income.

The CAMT will be effective for us beginning in fiscal year 2024.

We currently are not expecting the IRA to have a material adverse impact on our financial statements.

The CAMT became effective for us in fiscal year 2024 and has not had a material adverse impact on our financial statements.

Liquidity Services, Inc.

5 unchanged sentences

The total amount of NOLs, which are subject to limitations under Section 382, were $ 1.2 million.

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

(Sierra) for $ 13.7 million paid in cash.

The purchase of the equity securities of Sierra was treated as at purchase of assets of Sierra for tax purposes.

The Company has not recorded a provision for deferred U.S.

11 unchanged sentences

ASC 740 states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

During 2023, the Company did not identify any new uncertain tax positions and released $ 0.1 million of prior year uncertain tax positions related to foreign operations.

During 2024, the Company did not identify any new uncertain tax positions.

The Company recognizes interest and penalties in the period in which they occur in the income tax provision.

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federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the U.K.

The Company has no open income tax examinations in the U.S.

and the statute of limitations for years prior to 2020 is now closed;

In July 2024, the state of California opened an income tax examination for tax years 2020 and 2021.

The company does not expect any material adjustments to result from the examination.

The Company has no other open income tax examinations in the U.S.

and the statute of limitations for years prior to fiscal year 2021 is now closed;

however, certain tax attribute carryforwards that were generated prior to fiscal year 2021 may be adjusted upon examination by tax authorities if they are utilized.

2 unchanged sentences

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

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

During the year ended September 30, 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.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The applicable interest rate on any draws under the Line of Credit is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25 % to 1.75 %.

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The Company also pays a Line of Credit Fee (as defined in the Credit Agreement), on a quarterly basis, equal to 1.25 % on the daily amount available to be drawn for standby letters of credit.

Interest incurred on any draws under the Line of Credit, as well as the Unused Commitment Fee and Letter of Credit Fee, are included within Interest and other (income) expense, net in the Condensed Consolidated Statements of Operations.

Interest incurred on any draws under the Line of Credit, as well as the Unused Commitment Fee and Line of Credit Fee, are included within Interest and other income, net in the Condensed Consolidated Statements of Operations.

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

Repayments of any borrowings under the Line of Credit shall become available for redraw at any time by the Company.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA).

The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments.

The Credit Agreement contains affirmative and restrictive covenants including covenants placing limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments.

As of September 30, 2024, the Company was in full compliance with the terms and conditions of the Credit Agreement.

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

As of September 30, 2023 , the Company had no outstanding borrowings under the Credit Agreement.

During the year ended September 30, 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.

During the year ended September 30, 2024 , interest expense incurred by the Company under the Credit Agreement was immaterial to the consolidated financial statements.

1 unchanged sentence

Stock Compensation Incentive Plans

The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended, and a plan and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets.

As of September 30, 2023 , the Company has reserved a total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans.

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, the LTIP) and a plan and private placement issuances related to the Company’s acquisition of Machinio and Bid4Assets.

During the year ended September 30, 2024 , the Company's shareholders approved an amendment to the LTIP to increase the number of shares of common stock from 20,300,000 to 22,800,000 , reserved for future issuance of awards under the LTIP.

Vesting of RSUs and grants of RSAs count as 1.5x shares against the plan reserves.

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Total stock compensation expense:

The Company’s total liabilities for liability-classified stock compensation awards were $ 0 and $ 0.2 million as of September 30, 2023 and 2022, respectively.

The Company had no liabilities for liability-classified stock compensation awards as of September 30, 2024 and 2023, respectively.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

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

8 unchanged sentences

The table below presents stock option activity (aggregate intrinsic value in thousands):

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Stock Options

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The table below presents RSU & RSA activity (aggregate fair value in thousands):

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Grant Date Fair Value

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Of the outstanding RSUs & RSAs as of September 30, 2024 , 876,442 can vest by satisfying service conditions only, and 899,185 can vest by satisfying service and performance or market conditions.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

RSUs containing only service conditions vest ratably each year over periods of one to four years .

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RSUs and RSAs containing performance conditions and market conditions are discussed separately in the section below.

The table below presents SAR award activity (aggregate intrinsic value in thousands):

Exercise Price

Contractual Term (years)

Aggregate Intrinsic Value

Outstanding as of September 30, 2022

Outstanding as of September 30, 2023

Vested and expected to vest as of September 30, 2023

Exercisable as of September 30, 2023

The Company made cash payments of $ 0 million, $ 0.2 million and $ 0.2 million to settle SARs exercised during the years ended September 30, 2024, 2023, and 2022, respectively.

1 unchanged sentence

No new SARs were awarded during the year ended September 30, 2024.

The fair value of outstanding SARs containing only service conditions is estimated using the Black-Scholes option-pricing model.

The range of assumptions used to determine the fair value of outstanding SARs as of September 30, 2023, 2022, and 2021 were as follows:

Year Ended September 30,

Dividend yield

Expected volatility

Risk-free interest rate

Expected term

As of September 30, 2022, and 2021, the weighted-average fair value of SARs outstanding was $ 9.82 and $ 18.86 per award, respectively.

SARs containing performance conditions and market conditions are discussed separately in the section below.

Stock Awards Containing Performance and Market Conditions

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As of September 30, 2024, there was $ 2.9 million of unrecognized compensation costs related to stock options and RSUs & RSAs, containing performance conditions that are considered probable of being met, which is expected to be recognized over a weighted-average period of approximately 1 year.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Stock awards containing market conditions vest upon the achievement of specified increases in the Company’s share price.

Vesting is measured the first day of each fiscal quarter over the four-year terms of the award, starting with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing 20 -days average of the Company’s share price.

Stock awards containing market conditions vest upon the achievement of specified increases in the Company’s share price.

Stock compensation cost is expensed on a straight-line basis over the derived service period for each stock price target within the award.

1 unchanged sentence

For equity-classified awards, the Company does not reverse expense recognized if the stock price target(s) are not ultimately achieved, but expense is reversed when such situations occur for liability classified awards.

As of September 30, 2023 , there was $ 1.4 million of unrecognized compensation costs related to stock options, RSUs and SARs, containing market conditions, which is expected to be recognized over a weighted-average period of 1.6 years.

As of September 30, 2024 , there was $ 0.5 million of unrecognized compensation costs related to stock options and RSUs containing market conditions, which is expected to be recognized over a weighted-average period of 1 year.

The fair value of stock options, RSUs and SARs containing market conditions is estimated using Monte Carlo simulations.

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Dividend yield

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Expected volatility

57.2 % - 62.9 %

51.6 % - 54.6 %

Risk-free interest rate

1.1 % - 1.5 %

0.3 % - 0.9 %

Expected holding period (% of remaining term)

29.4 % - 100.0 %

31.7 % - 100.0 %

There were no awards containing market conditions for which to determine their fair value during the year ended September 30, 2024.

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The Company repurchased 1,567,277 shares for $ 25.4 million during the year ended September 30, 2022.

As of September 30, 2022, the Company had $ 6.6 million of remaining share repurchase authorization through June 30, 2024.

On December 6, 2022, March 13, 2023, and September 8, 2023, the Company's Board of Directors authorized new stock repurchase plans of up to $ 8.4 million, $ 8.0 million and $ 15.2 million, respectively.

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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.

Other Share Repurchases

Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due.

During the year ended September 30, 2023, and September 30, 2022 , participants surrendered 12,705 and 23,839 shares of common stock in the exercise of stock options, respectively.

During the years ended September 30, 2024 , 2023, and 2022, participants surrendered 17,564 , 12,705 and 23,839 shares of common stock in the exercise of stock options, respectively.

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

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Fair Value Measurement

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Cash and cash equivalents .

The Compan y had $ 51.4 million and $ 22.0 million of money market funds considered cash equivalents as of September 30, 2023, and 2022, respectively.

The Company had $ 67.2 million and $ 51.4 million of money market funds considered cash equivalents as of September 30, 2024 and 2023, respectively.

These assets were measured at fair value as of September 30, 2024, and 2023, and were classified as Level 1 assets within the fair value hierarchy.

There were no transfers between levels during the periods presented.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Short-term investments .

The Company had $ 2.3 million and $ 7.9 million of guaranteed investment certificates considered investments as of September 30, 2024 and 2023, respectively.

As these investments have maturity dates of 12 months or less from the balance sheet date, they have been classified as short-term in nature.

These assets were measured at fair value as of September 30, 2024, and 2023, and were classified as Level 1 assets within the fair value hierarchy.

There were no transfers between levels during the periods presented.

Contingent consideration.

During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $ 28.0 million on its Consolidated Balance Sheets as of the acquisition date.

During the year ended September 30, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded fair value of contingent consideration in the amount of $ 28.0 million on its Consolidated Balance Sheets as of the acquisition date.

The contingent consideration is based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

The liability for this consideration is included in Accrued expenses and other current liabilities within the Consolidated Balance Sheets.

The Company's initial estimate of the fair value of the earn-out consideration was informed by the Monte Carlo valuation method and considered potential outcomes based upon the terms and conditions of the merger agreement.

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Based on results as of March 31, 2022, Bid4Assets achieved a trailing twelve-month EBITDA threshold resulting in a $ 3.5 million payment made by the Company to the former shareholders of Bid4Assets.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

During the twelve months ended September 30, 2022, the fair value of the earn-out liability was reduced by $ 24.5 million, such that no amount of fair value was determined present as of September 30, 2022.

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When valuing its Level 3 liability, management's estimation of fair value is based on the best information available in the circumstances and may incorporate management's own assumptions around market demand which could involve a level of judgment, taking into consideration a combination of internal and external factors.

The Company’s financial assets and liabilities not measured at fair value are cash, short-term investments, accounts receivable, and accounts payable.

The Company’s financial assets and liabilities not measured at fair value are cash, short-term investments, accounts receivable, accounts payable, and payables to sellers.

The Company believes the carrying values of these instruments approximate fair value.

As of September 30, 2023, the Company had no non-financial instruments measured at fair value on a non-recurring basis.

As of September 30, 2024, 2023, and 2022 , the Company did no t have any material assets or liabilities measured at fair value on a non-recurring basis.

Liquidity Services, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements (Continued)

Defined Benefit Pension Plan

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The funded status is measured as the difference between the fair value of the Scheme's assets and the benefit obligation of the Scheme.

The net periodic benefit cost is recognized within Interest and other income , net in the C onsolidated Statements of Operations, and for the years ended September 30, 2023, 2022, and 2021, included the following components:

The net periodic pension cost (benefit) is recognized within Interest and other income , net in the C onsolidated Statements of Operations, and for the years ended September 30, 2024, 2023, and 2022, included the following components:

Year Ended September 30,

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Settlement loss recognized

Total net periodic benefit

Total net periodic pension cost (benefit)

Liquidity Services, Inc.

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Overfunded status of the Scheme

The pension asset of $ 2.5 million is rec orded in Other long-term assets in the Consolidated Balance Sheets.

The pensio n asset of $ 2.4 million is recorded in Other long-term assets in the Consolidated Balance Sheets.

Because the Scheme is closed to new participants, the accumulated benefit obligation is equal to the projected benefit obligation, which was $ 16.0 million and $ 13.8 million at September 30, 2024 and 2023, respectively.

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(in thousands)

Accumulated other comprehensive income (loss) at beginning of year

Accumulated other comprehensive (loss) income at beginning of year

Net actuarial loss

Foreign currency translation adjustments

Accumulated other comprehensive (loss) income at end of year

Accumulated other comprehensive (loss) at end of year

The plan complies with the funding provisions of the U.K.

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Rate of increases to deferred RPI linked benefits

Mortalit y—

101 % for males and 98 % for females of S3PMA mortality tables, projected in line with the 2021 Continuous Mortality Investigation projection model and a 1.3 % per annum long-term rate of impr ovement.

Mortalit y— 98 % for males and 96 % for females of S3PMA mortality tables, projected in line with the 2023 Continuous Mortality Investigation projection model and a 1.3 % per annum long-term rate of impr ovement.

Estimated Future Benefit Payments

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The investment policy and strategy of the plan assets, as established by the Trustees (the "Trustees") of the plan, strive to maximize the likelihood of achieving primary objectives of the investment policy established for the plan, which are:

Funding—to ensure that the Plan is fully funded using assumptions that contain a modest margin for prudence.

• Funding—to ensure that the Plan is fully funded using assumptions that contain a modest margin for prudence.

Where an actuarial valuation reveals a deficit, a recovery plan will be put in place which will take into account the financial covenant of the employer;

Stability—to have due regard to the likely level and volatility of required contributions when setting the Plan's investment strategy;

Security—to ensure that the solvency position of the Scheme is expected to improve.

• Stability—to have due regard to the likely level and volatility of required contributions when setting the Plan's investment strategy;

• Security—to ensure that the solvency position of the Scheme is expected to improve.

The Trustees will take into account the strength of employer's covenant when determining the expected improvement in the solvency position of the Plan.

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The Trustees review the investment policy on an ongoing basis, to determine whether a change in the policy or asset allocation targets is necessary.

The basis of the Trustees’

strategy is to divide the Scheme’s assets between a “growth”

portfolio, comprising assets such as multi-asset / diversified growth funds, and a “stabilizing”

portfolio, comprising assets such as government bonds (both fixed and inflation-linked) and corporate bonds.

The basis of the Trustees’ strategy is to divide the Scheme’s assets between a “growth” portfolio, comprising assets such as multi-asset / diversified growth funds, and a “stabilizing” portfolio, comprising assets such as government bonds (both fixed and inflation-linked) and corporate bonds.

The Trustees recognize the benefits of diversification across asset classes, as well as within them, in reducing the risk that results from investing in any one particular market.

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Former Employee Matters

In May 2021, the Company’s former Vice President, Human Resources filed a complaint against the Company in the United States District Court for the District of Maryland (the “District Court”), alleging wrongful termination on the basis of gender, race, and age.

The Company’s employment practices liability insurance carrier, CNA, accepted tender of these claims.

In December 2022, the District Court granted the Company’s motion to dismiss with respect to the age discrimination claim but denied the motion with respect to the race and gender claims.

Trial on the race and gender claims began on October 30, 2023.

The jury was unable to reach a unanimous verdict on either claim and the judge declared a mistrial on November 6, 2023.

To date, a retrial date has not been set.

The Company continues to assert substantial defenses and cannot estimate a range of potential liability, if any, at this time.

On December 28, 2022, the Company’s former Chief Marketing Officer (the “Former CMO”) filed a complaint (the “Original Complaint”) in the District Court, alleging wrongful termination on the basis of race and age and that the Company retaliated against him.

The Company’s employment practices liability insurance carrier, CNA, accepted tender of these claims.

In December 2022, the District Court dismissed the plaintiff’s age discrimination claim but the court allowed the race and gender claims to go to trial.

Trial on the race and gender claims began late October 2023.

The jury was unable to reach a unanimous verdict on either claim, and accordingly, the judge declared a mistrial in November 2023.

On August 1, 2024, plaintiff and the Company entered into a settlement agreement under which the Company agreed to pay the plaintiff $ 3.5 million in exchange for a full release and dismissal with prejudice of plaintiff’s claims.

The Company entered into the Agreement as a negotiated compromise and settlement of litigation, and not in any way as an admission of liability or fault by the Company.

CNA funded $ 3.0 million of the settlement pursuant to the terms of the Company’s insurance policy.

As a result of the settlement agreement, the Company recorded a $ 0.5 million litigation settlement expense net of insurance recovery during the year ended September 30, 2024, which is included in General and administrative expenses on the Condensed Consolidated Statements of Operations.

On December 28, 2022, the Company’s former Chief Marketing Officer (the “Former CMO”) filed a complaint (the “Original Complaint”) in the United States District Court for the District of Maryland (the “District Court”), alleging wrongful termination on the basis of race and age and that the Company retaliated against him.

On April 26, 2023, the Former CMO filed an amended complaint with the District Court, alleging the same claims made in the Original Complaint.

The Company filed a motion to dismiss certain of the Former CMO’s claims on September 1, 2023.

The District Court has not yet ruled on the motion.

The Company asserts substantial defenses and cannot estimate a range of potential liability, if any, at this time.

CNA has accepted tender of these claims as well.

The Company's motion to dismiss certain of the claims was denied on March 27, 2024.

The parties are currently involved in the discovery phase of the case.

The Company is asserting substantial defenses 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 these claims.

Segment Information

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Descriptions of our reportable segments are as follows: