What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-02-04 compared with 2020-08-06 · 91 added, 188 removed, 226 unchanged (55% of the section changed)

22 unchanged sentences

The Company has been closely monitoring the COVID-19 pandemic.

In April, the Company experienced the largest impacts on its operations, resulting from the actions taken by governments and private sector entities to limit the spread of COVID-19 that included restrictions on economic activity, including business closures, limitations on the operations of business activity, and significant prioritization of essential business functions.

However, relative to April, we saw increases in GMV and revenues in May and June as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income for the three months ended June 30, 2020.

However, the likelihood, magnitude and timing of business developments across our segments are difficult to predict given the current economic uncertainty, unknown timing and overall impact of the global pandemic.

In April 2020, the Company experienced the largest impacts on its operations thus far stemming from the initial actions taken by governments and the private sector to limit the spread of COVID-19.

The restrictions on economic activity were caused, in part, by business closures, limitations on the operations of business activity and significant prioritization of essential business functions.

Starting in May 2020, we have seen subsequent increases in Gross Merchandise Volume (GMV) and revenues as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income for the third and fourth quarters of fiscal 2020, and continued into the first quarter of fiscal 2021.

However, the likelihood, magnitude and timing of business developments across our segments are difficult to predict given the current economic uncertainty, unknown duration and overall impact of the global pandemic.

As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.

Throughout the COVID-19 pandemic, the Company has actively monitored its liquidity position and working capital needs.

In the first quarter of fiscal 2021, the Company determined that its liquidity position and working capital was more than sufficient to meet its projected needs and commenced share repurchases, acquiring 309,496 shares for $4.1 million during the three months ended December 31, 2020.

In the longer term, we continue to be highly focused on creating efficiencies and benefits for our sellers and our buyers by focusing on the platform services and support that will deliver optimal liquidity in the reverse supply chain and further enable our growth through an asset light, low-touch marketplace solution.

As e-commerce penetration continues to grow substantially for both consumers and B2B, our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy.

Evolving Response to COVID-19 Pandemic

Last quarter we announced several safety measures and temporary cost control measures to protect both our employees and our business during the COVID-19 global pandemic.

While we are still strictly abiding by all social distancing and safety measures in keeping the current health-expert recommendations, the hard work and performance of the Company has enabled us to review and loosen some of our cost control measures including:

• restoring full pay and providing back pay for all salary reductions for our current workforce;

• bringing a portion of furloughed employees back to full-time status, mainly in our sales department;

• resuming technology and marketing investments over the next quarter.

As e-commerce penetration continues to grow substantially for both consumers and business-to-business (B2B), we believe that our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy.

Our Marketplace Transactions

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This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces .

During the twelve months end ed June 30, 2020, the approximate number of registered buyers increased from 3,627,000 to 3,719,000, or 2.5%.

During the twelve months end ed December 31, 2020, the approximate number of registered buyers increased from 3,630,000 to 3,839,000, or 5.8%.

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

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

For the three and nine months ended June 30, 2020, our purchase transaction model accounted for 22.1% and 22.4% of our GMV, and 63.8% and 64.0% of our total revenues, respectively.

For the three and nine months ended June 30, 2019, our purchase transaction model accounted for 21.8% and 22.5% of our GMV, and 64.0% and 65.3% of our total revenues, respectively.

For the three months ended December 31, 2020 and 2019, our purchase transaction model accounted for 16.2% and 20.5% of our GMV, and 55.7% and 61.3% of our total revenues, respectively .

These amounts included sales of commercial merchandise sourced from vendor contracts with Amazon.com, Inc.

by our RSCG segment.

The commercial merchandise we purchased under these contracts represented 60.4% and 54.5% of consolidated Costs of goods sold for three and nine months ended June 30, 2020 and 41.6% and 43.9% of consolidated Costs of goods sold for three and nine months ended June 30, 2019.

For the three and nine months ended June 30, 2019, purchase model revenues also included revenue earned from the sale of property obtained under the Scrap Contract, which concluded on September 30, 2019, and accounted for 8.2% and 7.8% of our total revenue, respectively.

The commercial merchandise we purchased under these contracts with Amazon.com, Inc.

represented 60.0% and 48.3% of consolidated Costs of goods sold for three months ended December 31, 2020 and 2019, respectively.

Consignment model — fee revenue.

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

For the three and nine months ended June 30, 2020, our consignment model accounted for 77.9% and 77.6% of our GMV, and 30.2% and 29.9% of our total revenues, respectively.

For the three and nine months ended June 30, 2019, our consignment model accounted for 78.2% and 77.5% of our GMV, and 30.8% and 30.0% of our total revenues, respectively.

For the three months ended December 31, 2020 and 2019 , our consignment model accounted for 83.8% and 79.5% of our GMV, and 36.7% and 32.0% of our total revenues, respectively.

Other — fee revenue .

We also earn non-consignment fee revenue from Machinio's sales listing subscription service, as well as other services including returns management and refurbishment of assets, as well as asset valuation services.

For the three and nine months ended June 30, 2020, our other revenues accounted for 6.0% and 6.2% of our total revenues, respectively.

For the three and nine months ended June 30, 2019, our other revenues accounted for 5.2% and 4.7% of our total revenues, respectively

We also earn non-consignment fee revenue from Machinio's sales listing subscription and MachineryHost services, as well as other services including returns management, refurbishment of assets, and asset valuation services.

Industry trends.

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(2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets;

(3) the increase in outsourcing by corporate and government organizations of disposition activities for surplus and end-of-life assets as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain, which we expect to increase our seller base;

(4) an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical;

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

(4) the increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical;

(5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets;

and (6) the increased demand by sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.

and (6) the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.

Our Vendor Agreements

Our commercial agreements.

We have vendor contracts with Amazon.com, Inc.

We have multiple vendor contracts with Amazon.com, Inc.

under which we acquire and sell commercial merchandise.

The property we purchased under these contracts represented 60.4% and 41.6% of consolidated cost of goods sold for the three months ended June 30, 2020 and 2019, respectively, and 54.5%, and 43.9% of consolidated cost of goods sold for the nine months ended June 30, 2020 and 2019, respectively.

Scrap Contract.

Under the Scrap Contract, which concluded on September 30, 2019, we acquired, managed and sold all non-electronic scrap property of the DoD turned into the Defense Logistics Agency (DLA), and paid the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds.

Scrap property generally consisted of items determined by the DoD to have no use beyond their base material content, such as metals, alloys, and building materials.

We bore all of the costs for the sorting, merchandising and sale of the property.

The resale transactions for scrap property sourced under this contract followed the purchase model.

The resale of scrap property that we purchased under the Scrap Contract accounted for approximately 2.8% of our GMV and 8.2% of our total revenues for the three months ended June 30, 2019 and 2.7% of our GMV and 7.8% of our total revenues for the nine months ended June 30, 2019 The results of the Scrap Contract were included in our CAG segment.

The property we purchased under these contracts represented 60.0% and 48.3% of consolidated cost of goods sold for the three months ended December 31, 2020 and 2019, respectively.

These contracts are included within our RSCG segment.

Our agreements with our other sellers are generally terminable at will by either party.

Key Business Metrics

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In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database.

As of June 30, 2020 and 2019, we had approximate ly 3,719,000 and 3,627,000 registered buyers, respectively.

As of December 31, 2020 and 2019, we had approximate ly 3,839,000 and 3,630,000 registered buyers, respectively.

Total auction participants.

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In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts.

During the three months ended June 30, 2020 and 2019, approximatel y 420,000 and 528,000, r espectively, total auction participants participated in auctions on our marketplaces.

During the nine months ended June 30, 2020 and 2019, approximatel y 1,363,000 and 1,561,500, respectively, total auction participants participated in auctions on our marketplaces.

During the three months ended December 31, 2020 and 2019, approximatel y 517,000 and 453,000, r espectively, total auction participants participated in auctions on our marketplaces.

Completed transactions.

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Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces.

During the three months ended June 30, 2020 and 2019, we completed approxim ately 134,000 and 160,000 tr ansactions, respectively.

During the nine months ended June 30, 2020 and 2019, we completed approxim ately 420,000 and 458,000 tr ansactions, respectively.

During the three months ended December 31, 2020 and 2019, we completed approxim ately 152,000 and 136,000 tr ansactions, respectively.

Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA.

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

provision (benefit) for income taxes;

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

provision for income taxes;

and depreciation and amortization.

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

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

Our definition of Adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.

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As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year.

• As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision (benefit) for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.

• As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.

• The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values.

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In addition, EBITDA and Adjusted EBITDA:

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

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

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

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

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

We prepare Adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance.

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

Three Months Ended June 30, Nine Months Ended June 30,

2020 2019 2020 2019

Three Months Ended December 31,

(in thousands) (Unaudited)

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Interest and other income, net 1

(156) (368) (489) (976)

Provision for income taxes 297 458

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Stock compensation expense

1,516 1,362 3,785 5,456

Acquisition costs and impairment of long-lived assets 2

Business realignment expenses 2, 3

328 1,055 328 1,095

Fair value adjustments to acquisition earn-outs 2

— 900 200 2,300

Deferred revenue purchase accounting adjustment — 3

Adjusted EBITDA $ 8,813 $ (2,085)

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

2 Excludes the impact of forfeitures of stock awards by employees terminated by business realignment actions, which is included in the business realignment expenses line f or the three and nine months ended June 30, 2019 .

There were no such impacts for the three and nine months ended June 30, 2020.

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

2 Acquisition costs, impairment of long-lived assets, fair value adjustments to acquisition earn-outs, and business realignment expenses are components of Other operating expenses on the Statements of Operations.

3 Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 10 to the Consolidat ed Financial Statements, and the related impacts of business realignment actions subject to other accounting guidance.

Those related impacts were $317 thousand for the three and nine months ended June 30, 2019, primarily due to forfeitures of stock awards by terminated employees.

There were no related impacts for the three and nine months ended June 30, 2020.

There were no related impacts for the three months ended December 31, 2020 and 2019.

Critical Accounting Policies and Estimates

The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, 2020, and in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements.

As discussed in Note 2 — Summary of Significant Accounting Policies , we adopted ASC 842, Leases , as of October 1, 2019, using a modified retrospective approach where our Consolidated Balance Sheet as of September 30, 2019 was not changed.

Relative to the most recent annual report on Form 10-K, there have been no other material changes to the Company's accounting policies used in preparing these interim consolidated financial statements.

As of July 1, 2019, the Company performed its annual impairment testing using a fair-value based test for all reporting units, and determined the fair value for each of its reporting units with goodwill balances substantially exceeded their carrying values except for the Machinio reporting unit, which exceeded its carrying value by approximately 11%.

As of March 31, 2020, in response change in economic conditions resulting from the COVID-19 pandemic, the Company performed an interim impairment test using a fair-value based test for all reporting units with goodwill balances, and determined that the fair value for each of its reporting units with goodwill balances substantially exceeded their carrying values except for CAG and Machinio, which exceeded their carrying values by approximately 21% and 12%, respectively.

As of March 31, 2020, the Company determined the fair value of the CAG and Machinio reporting units using a discounted cash flow (DCF) analysis.

The DCF analysis relied on significant assumptions and judgments about the forecasts of future cash flows over the five-year projection period, including revenues, gross profit margins, operating expenses, income taxes, capital expenditures, working capital, and an estimate of the impact and duration of COVID-19 on those factors.

A long-term growth rate of 2.5% was applied thereafter.

These forecasts of future cash flows represent the Company's best estimate using information that is currently available.

However, given the uncertainty associated with the COVID-19 pandemic, including its extent and duration, actual results could differ significantly from those estimates.

The cash flows for CAG and Machinio were discounted at a weighted average cost of capital (WACC) of 17% and 26%, respectively, and reflected an increase in the equity risk premium caused by the emergence of the COVID-19 pandemic.

Given the uncertainty that COVID-19 has introduced into the equity markets, the Company performed a sensitivity analysis that noted that the CAG and Machinio WACCs would need to increase by over 180 and 260 basis points, respectively, to impact the recovery of goodwill.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its goodwill.

As there have been favorable developments in the factors that indicated a goodwill impairment test was necessary in the previous quarter, the Company did not identify any indicators of impairment that required an additional interim goodwill impairment test during the three months ended June 30, 2020.

The Company will continue to monitor these reporting units for changes that could impact the recoverability of goodwill, which will depend on changes to the extent and duration of the COVID-19 pandemic, and its impact on the equity markets.

Components of Revenue and Expenses

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Refer to the discussion in Note 2 — Summary of Significant Accounting Policies in our Annual Report on Form 10-K for discussion of the Company's Costs of goods sold and related accounting policies.

Seller distributions.

Under the Scrap Contract, which concluded on September 30, 2019, we acquired scrap property from the DLA for resale and paid the DLA seller distributions equal to 64.5% of the gross resale proceeds.

Technology and operations.

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General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth.

These expenses are generally more fixed in nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces.

These expenses are generally more fixed in

nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces.

Depreciation and amortization.

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Other operating expense includes the change in fair value of contingent consideration, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.

Interest and other (income) expense, net.

Interest (income) expense and other expense, net consists of interest income on short-term investments and the promissory note issued to JTC, the components of net periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.

Interest and other income, net.

Interest and other income, net consists of interest income on money market funds and the promissory note issued to JTC, the components of net periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.

Income taxes.

For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax (loss) income.

Our effective income tax rate before discrete items was (8.4%) for the nine months ended June 30, 2020.

The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the valuation allowance charge on current year losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.

For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income (loss).

Our effective income tax rate before discrete items was 6.2% for the three months ended December 31, 2020.

The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the utilization of net operating losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.

Results of Operations

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

Three Months Ended June 30, Nine Months Ended June 30,

(dollars in thousands) 2020 2019 $ Change % Change 2020 2019 $ Change % Change

Three Months Ended December 31,

(dollars in thousands) 2020 2019 $ Change % Change

Revenue $ 31,071 $ 30,349 $ 722 2.4 %

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Cost of goods sold (excludes depreciation and amortization) 22,573 24,176 (1,603) (6.6)

Seller distributions — 2,994 (2,994) (100.0) — 8,393 (8,393) (100.0)

Technology and operations 10,573 11,241 (668) (5.9)

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NM = not meaningful

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

Three Months Ended June 30, Nine Months Ended June 30,

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

Three Months Ended December 31,

(dollars in thousands) 2020 2019

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Gross profit margin 94.2 % 95.3 %

Corporate & Other:

GMV — — — 469

Total revenue — — — 478

Gross profit — — — 113

Gross profit margin — % — % — % 23.6 %

Consolidated:

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Gross profit margin 59.5 % 51.2 %

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

Three Months End ed December 31, 2020 Compared to the Three Months Ended December 31, 2019

Segment Results

Revenue from our GovDeals segment decreased 35.1%, or $3.3 million due to a 36.3%, or $33.0 million decrease in GMV primarily resulting from decreased activity due to limitations on government facility operations in response to the COVID-19 pandemic.

As a result of the decrease in revenues, gross profit decreased 34.1%, or $2.9 million.

Gross profit margin remained relatively consistent between the periods.

Revenue from our RSCG segment increased 7.3%, or $2.3 million, due to a 13.7%, or $5.4 million, increase in GMV driven primarily by growing volumes within existing seller accounts, partially offset by a decrease in the mix of transactions performed under the purchase model.

As a result of the increase in revenues and an increase in gross profit margin, gross profit increased 10.6%, or $1.1 million.

Gross profit margin remained relatively consistent between the periods.

Revenue and GMV from the CAG segment decreased 57.2%, or $8.5 million, and 27.8%, or $10.5 million, respectively.

T he co nclusion of the Scrap Contract in fiscal 2019 caused revenue and GMV to each decline by $4.6 million.

Excluding the impact of the completed Scrap Contract, revenue decreased by 37.8%, or $3.9 million, and GMV decreased by 17.6%, or $5.8 million .

The declines were primarily driven by lower activity due to limitations on commercial facility operations and global travel restrictions in response to the COVID-19 pandemic.

These restrictions had a larger impact on principal transactions than on transactions using our lower-touch consignment model.

Gross profit within the CAG segment decreased 24.1%, or $1.9 million, primarily due to a $1.6 million impact from the completion of the Scrap Contract and the reduction in revenues.

Gross profit margin increased to 92.5% from 52.1% due the larger impact of the COVID-19 pandemic on principal transactions, and the completion of the Scrap Contract, which had lower gross profit margins than the remaining business.

Revenue from our Machinio segment increased 22.4%, or $0.3 million, due to an increase in subscription activity, and due to revenue earned from deferred revenues no longer containing effects from purchase accounting.

Revenue from our GovDeals segment increased 35.0%, or $2.8 million, due to a 35.9%, or $28.4 million, increase in GMV from adding new sellers and an increase in recovery rates on assets sold.

As a result of the increase in revenues, gross profit increased 37.0%, or $2.8 million.

Corporate & Other.

The are no amounts of revenue, GMV, gross profit and gross profit margin due to the Company's exit from the IronDirect business in January 2019.

Consolidated Results

Revenue - Total consolidated revenue decreased $9.2 million, or 16.1%.

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

Cost of goods sold.

Cost of goods sold decreased $2.8 million, or 11.2%, primarily due to revenue declines in CAG, partially offset by the revenue increases in RSCG.

Seller distributions.

Seller distributions decreased $3.0 million, or 100.0%, due to the completion of the Scrap Contract.

Technology and operations expenses.

Technology and operations expenses decreased $2.6 million, or 21.7%.

The decrease included $1.1 million due to the completion of the Scrap Contract in fiscal 2019, $1.9 million in reductions in Corporate and CAG expenses (excluding the Scrap Contract) driven by benefits from restructuring and other organizational changes performed in fiscal 2019, and actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020.

However, the impact of the action taken to reduce our operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

These decreases were partially offset by a $0.3 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued growth in those segments.

Sales and marketing expenses.

Sales and marketing expenses decreased $1.4 million, or 15.5%, due to actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020.

However, the impact of these actions on our operating expense levels will lessen as business conditions continue to recover.

General and administrative expenses.

General and administrative expenses decreased $2.7 million, or 30.6%, and was impacted by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020, benefits from restructuring and other organizational changes performed in fiscal 2019, and the completion of the Scrap Contract in fiscal 2019.

The impact of the actions taken to reduce operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

Other operating expenses.

Other operating expense of $0.3 million for the three months ended June 30, 2020 represents business realignment expenses were incurred related to the elimination of certain positions in response to the COVID-19 pandemic.

Other operating expense of $2.0 million for the three months ended June 30, 2019 included $1.4 million of business realignment expenses, partially offset by $0.3 million of reversed stock-based compensation expense due to the related forfeitures, and a $0.9 million increase in the fair value the Machinio earn-out liability.

Interest and other income, net.

Interest and other income, net, decreased by $0.2 million due to a decline in the holdings of short-term investments and also in their interest rates.

Provision for income taxes .

Provision for income taxes decreased $0.3 million due to the impact of foreign, state, and local taxes and permanent tax adjustments.

Nine Months Ended June 30, 2020 Compared to the Nine Months Ended June 30, 2019

Segment Results

Revenue from our GovDeals segment decreased 11.3%, or $2.8 million, due to a 12.4%, or $30.4 million decrease in GMV primarily resulting from lower activity due to limitations on government facility operations in response to the COVID-19 pandemic, partially offset by adding new sellers prior to its onset.

As a result of the decrease in revenues, gross profit decreased 10.2%, or $2.3 million.

Gross profit margin remained relatively consistent between the periods.

Revenue from our RSCG segment increased 10.1%, or $3.2 million, due to an 29.7%, or $11.8 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with mid-sized and large retailers.

Revenues did not increase at the same rate as GMV due an increase in the mix of transactions conducted under the consignment model.

As a result of the increase in revenues, gross profit increased 41.9%, or $4.3 million.

Gross profit margin remained relatively consistent between the periods.

Revenue and GMV from the CAG segment decreased 51.5%, or $22.7 million, and 33.8%, or $40.5 million, respectively.

The conclusion of the Scrap Contract caused revenue and GMV to each decline by $13.0 million.

Excluding the impact of the c ompleted Scrap Contract, revenue decreased by 31.5%, or $9.8 million, and GMV decreased by 25.8%, or $27.6 million.

The declines were primarily driven by lower activity due to limitations on commercial facility operations and global travel restrictions in response to the COVID-19 pandemic.

These restrictions had a larger impact on principal transactions than on transactions using our lower-touch consignment model.

The declines were also influenced by a strong prior year performance in the Asia-Pacific region, and associated with softness in the industrial and bio-pharma verticals in North America.

Gross profit within the CAG segment decreased 34.2%, or $8.6 million, due to a $4.5 million impact from the completion of the Scrap Contract and the reduction in revenues.

Gross profit margin increased to 77.9% from 57.3% due the completion of the Scrap Contract, which had lower gross profit margins than the remaining business, and due the larger impact of the COVID-19 pandemic on principal transactions

Revenue from our Machinio segment increased 39.7%, or $1.5 million, due to an increase in subscription activity, and due to revenue earned from deferred revenues no longer containing effects from purchase accounting.

Gross profit margin increased 9.4% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold.

Revenue from the CAG segment decreased by 0.4% while GMV increased by 5.2%, or $1.5 million.

The increase in GMV was primarily driven by higher levels of consignment activity in North America within our heavy equipment and industrial verticals, as well as increases in principal transactions across the EMEA and Asia-Pacific regions.

Gross profit within the CAG segment increased 9.4%, or $0.5 million, due to an increase in recovery rates on principal transactions.

Revenue from our Machinio segment increased 14.3%, or $0.3 million, due to an increase in subscription activity.

As a result of the increase in revenues, gross profit increased 12.9%, or $0.2 million.

Corporate & Other.

The changes in revenue, GMV, gross profit and gross profit margin are due to the Company's exit from the IronDirect business in January 2019.

Consolidated Results

Revenue - Total consolidated revenue decreased $17.7 million, or 10.5%.

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

Revenue - Total consolidated revenue increased $6.2 million, or 12.6%.

Refer to the discussion of Segment Results above for discuss ion of the increase in revenue.

Cost of goods sold.

Cost of goods sold increased $1.8 million, or 2.4%, primarily due to revenue increases in RSCG, partially offset by revenue declines in CAG .

Seller distributions.

Seller distributions decreased $8.4 million, or 100.0%, due to the completion of the Scrap Contract.

Cost of goods sold decreased $1.6 million, or 6.6%, primarily due to lower cost of sales associated with the principal transactions, which benefited from higher recovery rates during the quarter, and an increase in the mix of consignment transactions.

Technology and operations expenses.

Technology and operations expenses decreased $0.7 million, or 5.9%.

The decrease included $3.9 million due to the completion of the Scrap Contract in fiscal 2019, $4.2 million in reductions in Corporate and CAG (excluding the Scrap Contract) driven by benefits from restructuring and other organizational changes performed in fiscal 2019, and actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020.

However, the impact of the action taken to reduce our operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

These decreases were partially offset by a $2.5 million increase in RSCG and GovDeals driven by increased customer support and operations expenses from the continued growth in those segments.

The decrease included $1.0 million in reductions in the CAG and GovDeals segments driven by actions taken to reduce operating expenses in response to the COVID-19 pandemic.

The impact of these actions on our operating expense levels will lessen as business conditions continue to recover.

These decreases were offset by a $0.3 million increase in operations expenses from the continued growth in the RSCG and Machinio segments.

Sales and marketing expenses.

Sales and marketing expenses increased $0.2 million, or 0.9%, due to an increase in marketing expenses to promote our new e-commerce technology platform and develop our consolidated marketplace, which was partially offset by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020.

However, the impact of these actions on our operating expense levels will lessen as business conditions continue to recover.

Sales and marketing expenses decreased $0.5 million, or 5.2%, due to actions taken to reduce operating expenses in response to the COVID-19 pandemic.

The impact of these actions on our operating expense levels will lessen as business conditions continue to recover.

These decreases were partially offset by an increase in marketing expenses to promote our consolidated marketplace and expand market share in key verticals.

General and administrative expenses.

General and administrative expenses decreased $4.9 million, or 18.7%, and was impacted by actions taken to reduce operating expenses in response to the COVID-19 pandemic in the quarter ended June 30, 2020, benefits from restructuring and other organizational changes performed in fiscal 2019, and the completion of the Scrap Contract in fiscal 2019.

General and administrative expenses decreased $0.7 million, or 9.2%, and was impacted by actions taken to reduce operating expenses in response to the COVID-19 pandemic.

The impact of the actions taken to reduce operating expenses in response to the COVID-19 pandemic will lessen as business conditions continue to recover.

Depreciation and amortization .

Depreciation and amortization expense increased $0.3 million, or 19.0%, due to an increase in amortization of capitalized software related to the continued development and enhancement of our e-commerce platform.

Other operating expenses .

Other operating expense of $0.5 million for the nine months ended June 30, 2020 represents $0.3 million of business realignment expenses that were incurred related to the elimination of certain positions in response to the COVID-19 pandemic, and a $0.2 million increase in fair value of the Machinio earn-out liability.

Other operating expense of $3.6 million for the nine months ended June 30, 2019 includes $1.5 million of business realignment expenses, partially offset by $0.3 million of reversed stock-based compensation expense due to related forfeitures, and a $2.3 million increase in the fair value of the Machinio earn-out liability.

Other operating expenses were not significant for the three months ended December 31, 2020.

Other operating expenses of $0.2 million for the three months ended December 31, 2019 represents the increase in the fair value of the Machinio earn-out liability, which was paid in full during the three months ended March 31, 2020.

Interest and other income, net.

Interest and other income, net, decreased by $0.5 million due to a decline in the holdings of short-term investments and also in their interest rates.

Interest and other income, net was consistent between the three months ended December 31, 2020 and 2019.

Provision for income taxes .

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Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations.

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

As of June 30, 2020, we had $72.7 million in cash and cash equivalents.

The COVID-19 pandemic caused the Company's GMV and revenues to decline in the short-term.

The temporary cost control measures put into place mitigated those declines, resulting in net income of $0.2 million for the quarter ended June 30, 2020.

From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions causing some buyer delays in being able to pick up purchased assets.

The effects of these items caused our cash balance to increase relative to the $41.8 million in cash as well as $10.0 million in short-term investments we held as of March 31, 2020.

While the Company expects to use working capital in the near-term as these temporary effects unwind, we believe that our existing cash and cash equivalents will be sufficient to meet our anticipated cash needs for at least the next twelve months.

In fiscal 2019, we deployed our new e-commerce technology platform.

We expect to continue to invest in enhancements to our marketplace capabilities and for the implementation of tools for data-driven product recommendations, omni-channel behavioral marketing and predictive analytics and integrated services for our retail supply chain segment.

During the second quarter of fiscal 2020 the Company paid the $5.0 million earn-out payment for the Machinio acquisition we made in July 2018 for which we paid $16.7 million in cash at closing.

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

As of December 31, 2020, we had $77.8 million in cash and cash equivalents.

The COVID-19 pandemic has caused the Company's GMV and revenues to fluctuate, and the Company implemented cost control measures to protect against those fluctuations.

We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities and tools for data-driven product recommendations, omni-channel behavioral marketing, predictive analytics, and the implementation of integrated services for our retail supply chain segment.

We did not record a provision for deferred U.S.

tax expense on the undistributed earnings of foreign subsidiaries because we intend to indefinitely reinvest the earnings of these foreign subsidiaries outside the United States.

The amount of such undistributed foreign earnings was $3.7 million as of June 30, 2020.

As of June 30, 2020 and September 30, 2019, $17.2 million and $21.0 million, respectively, of cash and cash equivalents was held outside of the U.S.

The amount of such undistributed foreign earnings was $5.1 million as of December 31, 2020.

As of December 31, 2020 and September 30, 2020, $19.2 million and $19.5 million, respectively, of cash and cash equivalents was held outside of the U.S.

We are authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors.

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The repurchase program may be discontinued or suspended at any time and will be funded using our available cash.

We did not repurchase shares under this program during the nine months ended June 30, 2020 or 2019.

As of June 30, 2020, we are authorized to repurchase up to an additional $10.1 million in shares under this program.

The Company repurchased 309,496 shares for $4.1 million under this program during the three months ended December 31, 2020 .

As of December 31, 2020 , the Company may repurchase an additional $2.0 million of shares under this program.

Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments.

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Changes in Cash Flows:

Nine Months Ended June 30, 2020 Compared to the Nine Months Ended June 30, 2019

Net cash provided by (used in) operating activities was $9.2 million and $(7.2) million for the nine months ended June 30, 2020 and 2019, respectively.

The $16.4 million increase in cash provided by operations between periods was attributable changes in payables to sellers, driven by timings of payments, and increases in transactions that have been paid for but not yet picked up due to delays caused the COVID-19 pandemic;

changes to accounts payable, accrued expenses and other liabilities driven by the management of working capital, such as temporary extensions of payment terms in response to the COVID-19 pandemic;

and $2.5 million of higher net income as adjusted for non-cash items, including the impact of temporary cost control measures.

These changes were partially offset by the $3.8 million portion of the Machinio earn-out payment associated with its increase in value post-acquisition, and the final payments of seller distributions associated with the completion of the Scrap Contract.

Three Months Ended December 31, 2020 Compared to the Three Months Ended December 31, 2019

Net cash provided by (used in) operating activities was $6.0 million and $(18.6) million for the three months ended December 31, 2020 and 2019, respectively.

The $24.6 million increase in cash provided by operations between periods was attributable changes in payables to sellers, driven by timings of payments, increases in transactions that have been paid for but not yet picked up due to delays caused the COVID-19 pandemic;

changes to accounts payable, accrued expenses and other liabilities driven by the management of working capital;

$10.9 million of higher net income as adjusted for non-cash items;

and partially offset by a $4.4 million increase in inventory driven by our RSCG and CAG segments.

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

However, the Company expects to use working capital in the near-term as the temporary responses to the COVID-19 pandemic implemented in the third quarter start to unwind.

Net cash provided by (used in) investing activities was $28.9 million for the nine months ended June 30, 2020, and $(14.7) million was used by investing activities for the nine months ended June 30, 2019.

The $43.6 million increase in cash provided by investing activities was driven by a $40.0 million increase in activity related to short-term investments which are used to manage the Company's excess cash balances, and $2.5 million principal payment on the promissory note issued to JTC.

As discussed in Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements, the Company concluded that it remains probable that the Company will collect the amounts related to the promissory note issued to JTC.

However, the Company will continue to monitor for changes that could impact the recoverability of the promissory note, which will depend on JTC's subsequent operating performance and ability to make the payments required by the new repayment schedule.

Net cash used in financing activities was $1.8 million for the nine months ended June 30, 2020.

The $1.9 million increase in cash used by financing activities consisted of $1.2 million the portion of the Machinio earn-out payment that represented its fair value at the date of acquisition, and $0.6 million taxes paid associated with net settlement of stock compensation awards.

Net settlement was not used in the prior year comparable period.

However, the Company expects to use working capital in the near-term as transaction volumes fluctuate and as the temporary responses to the COVID-19 pandemic implemented in the third quarter of fiscal 2020 continue to unwind.

Net cash (used in) provided by investing activities was $(0.8) million for the three months ended December 31, 2020, and $6.2 million for the three months ended December 31, 2019.

The $(7.0) million increase in cash used in investing activities was driven by the $(5.0) million net impact of non-recurring events during the three months ended December 31, 2019 including a $(25.0) million purchase of short-term investments offset by $30.0 million in maturities from short-term investments.

A further increase in the cash used in investing activities was a result of proceeds from the JTC promissory note being $2.6 million during the three months ended December 31, 2019 compared to $0.5 million during the three months ended December 31, 2020.

The Company continues to monitor for changes that could impact the recoverability of the promissory note, which will depend on JTC's subsequent operating performance and ability to make the payments required by the new repayment schedule.

Net cash used in financing activities was $4.0 million for the three months ended December 31, 2020.

The $3.5 million increase in cash used by financing activities was primarily driven by $4.1 million in common stock repurchases.

Capital expenditures.

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The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships.

We intend to fund those expenditures primarily from operating cash flows.

Our capital expenditures for the nine months ended June 30, 2020 were $3.6 million.

As of June 30, 2020, we had no significant outstanding commitments for capital expenditures.

We intend to fund those expenditures primarily from our existing cash balances and operating cash flows.

Our capital expenditures for the three months ended December 31, 2020 were $1.4 million.

As of December 31, 2020, we had no significant outstanding commitments for capital expenditures.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis