LIQUIDITY SERVICES INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations FORWARD-LOOKING STATEMENTS This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events. The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this document. Overview The Company operates a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 600 product categories. The Company’s marketplaces provide professional buyers access to a global, organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information. Additionally, the Company enables its corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. The Company's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service tools for its sellers. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, fleet and transportation equipment and specialty equipment. Currently, the Company’s marketplaces are: www.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, and www.go-dove.com. We also operate a global search engine for used machinery and equipment at www.machinio.com. The Company has over 14,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies. Impacts of the COVID-19 Pandemic The Company has been closely monitoring the COVID-19 pandemic. In April 2020, the Company experienced the largest impacts on its operations thus far stemming from the initial actions taken by governments and the private sector to limit the spread of COVID-19. The restrictions on economic activity were caused, in part, by business closures, limitations on the operations of business activity and significant prioritization of essential business functions. Starting in 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. 21 In the longer term, we continue to be highly focused on creating efficiencies and benefits for our sellers and our buyers by focusing on the platform services and support that will deliver optimal liquidity in the reverse supply chain and further enable our growth through an asset light, low-touch marketplace solution. As e-commerce penetration continues to grow substantially for both consumers and business-to-business (B2B), we believe that our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy. Our Marketplace Transactions We believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This flow of goods in turn attracts an increasing number of professional buyers to our marketplaces . During the twelve months end ed December 31, 2020, the approximate number of registered buyers increased from 3,630,000 to 3,839,000, or 5.8%. Our revenue. Substantially all of our revenue is earned through the following transaction models: Purchase model. Under our purchase transaction model, we recognize revenue within the Revenue line item on the Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the principal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. The proceeds paid by buyers also include transaction fees, referred to as buyer premiums. For the three 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 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. Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized within the Fee revenue line item on the Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to seller commissions, we also collect buyer premiums. For the three 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 and MachineryHost services, as well as other services including returns management, refurbishment of assets, and asset valuation services. Industry trends. While we are experiencing challenges presented by the COVID-19 pandemic, we believe there are several industry trends positively impacting the long-term growth of our business including: (1) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (3) the increase in outsourcing the disposition of surplus and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain; (4) the increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical; (5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets; and (6) the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events. 22 Our Vendor Agreements Our commercial agreements. 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 60.0% 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 Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources and our capacity to fund capital expenditures and expand our business. These key business metrics include: Gross merchandise volume (GMV) . GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time. We review GMV because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have made and continue to make, including in the areas of buyer and seller support, value-added services, product development, sales and marketing, and operations. Total registered buyers . We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list. Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of December 31, 2020 and 2019, we had approximate ly 3,839,000 and 3,630,000 registered buyers, respectively. Total auction participants. For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended 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. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended 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 income, net excluding the non-service components of net periodic pension (benefit); provision for income taxes; and depreciation and amortization. Interest and other income, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of 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. 23 We believe EBITDA and Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons: • Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year. • As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year. • The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year. • The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the statements of operations, and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year. • We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business. • We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance. • We believe EBITDA and Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow. • We also believe that analysts and investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry. Our management uses EBITDA and Adjusted EBITDA: • as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations; • for planning purposes, including the preparation of our internal annual operating budget; • to allocate resources to enhance the financial performance of our business; • to evaluate the effectiveness of our operational strategies; and • to evaluate our capacity to fund capital expenditures and expand our business. EBITDA and Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA and Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP. We prepare Adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items. 24 The table below reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods presented. Three Months Ended December 31, 2020 2019 (in thousands) (Unaudited) Net income (loss) $ 4,514 $ (5,196) Interest and other income, net 1 (103) (166) Provision for income taxes 297 458 Depreciation and amortization 1,871 1,572 EBITDA 6,579 (3,332) Stock compensation expense 2,229 1,039 Acquisition costs and impairment of long-lived assets 2 — 5 Business realignment expenses 2, 3 5 — Fair value adjustments to acquisition earn-outs 2 — 200 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). 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. 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. Components of Revenue and Expenses Revenue. Refer to the discussion in the Our revenue section above, and to Note 2 — Summary of Significant Accounting Policies in our Annual Report on Form 10-K for discussion of the Company's related accounting policies. Cost of goods sold. Refer to the discussion in Note 2 — Summary of Significant Accounting Policies in our Annual Report on Form 10-K for discussion of the Company's Costs of goods sold and related accounting policies. Technology and operations. Technology expenses consist primarily of the cost of technical staff who develop, deploy, and maintain our marketplaces and corporate infrastructure. These personnel also develop and upgrade the software systems that support our operations, such as sales processing. Technology expenses also includes certain costs associated with our e-commerce platform. Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our e-commerce platform, as well as other software development activities. Operations expenses consist primarily of operating costs, including buyer relations, shipping logistics and distribution center operating costs. Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional activities. These activities include all sales and marketing-related activity, including but not limited to trade shows and online marketing campaigns such as paid search advertising. General and administrative. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in 25 nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces. Depreciation and amortization. Depreciation and amortization expenses consist of depreciation of property and equipment, amortization of internally developed software, and amortization of intangible assets. Other operating expenses (income). 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, 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 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 December 31, (dollars in thousands) 2020 2019 $ Change % Change Revenue $ 31,071 $ 30,349 $ 722 2.4 % Fee revenue 24,680 19,155 5,525 28.8 Total revenue 55,751 49,504 6,247 12.6 Costs and expenses from operations: Cost of goods sold (excludes depreciation and amortization) 22,573 24,176 (1,603) (6.6) Technology and operations 10,573 11,241 (668) (5.9) Sales and marketing 9,108 9,605 (497) (5.2) General and administrative 6,996 7,707 (711) (9.2) Depreciation and amortization 1,871 1,572 299 19.0 Other operating expenses 4 193 (189) (97.9) Total costs and expenses 51,125 54,494 (3,369) (6.2) Income (loss) from operations 4,626 (4,990) 9,616 NM Interest and other income, net (185) (252) 67 26.6 Income (loss) before provision for income taxes 4,811 (4,738) 9,549 NM Provision for income taxes 297 458 (161) (35.2) Net income (loss) $ 4,514 $ (5,196) $ 9,710 NM NM = not meaningful 26 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 GovDeals: GMV $ 107,604 $ 79,191 Total revenue 10,818 8,015 Gross profit 10,203 7,446 Gross profit margin 94.3 % 92.9 % RSCG: GMV 51,717 39,870 Total revenue 34,906 31,697 Gross profit 14,627 10,305 Gross profit margin 41.9 % 32.5 % CAG: GMV 31,080 29,533 Total revenue 7,913 7,942 Gross profit 6,358 5,814 Gross profit margin 80.3 % 73.2 % Machinio: GMV — — Total revenue 2,114 1,850 Gross profit 1,991 1,763 Gross profit margin 94.2 % 95.3 % Consolidated: GMV 190,401 148,594 Total revenue 55,751 49,504 Gross profit 33,179 25,328 Gross profit margin 59.5 % 51.2 % Three Months End ed December 31, 2020 Compared to the Three Months Ended December 31, 2019 Segment Results GovDeals. 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. Gross profit margin remained relatively consistent between the periods. RSCG. 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 increased 9.4% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold. 27 CAG. 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. Machinio. 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. Consolidated Results 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 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 $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 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 $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 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 was consistent between the three months ended December 31, 2020 and 2019. Provision for income taxes . Provision for income taxes decreased $0.2 million due to the impact of foreign, state, and local taxes and permanent tax adjustments. Liquidity and Capital Resources 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, 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. 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 their ability to pick up purchased assets. 28 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 $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. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash. 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. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received. Changes in Cash Flows: 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 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. Our capital expenditures consist primarily of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the 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. 29 Off-Balance Sheet Arrangements We do not have any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.