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 power the circular economy which benefits businesses, society, and the environment through the safe and effective resale and redeployment of surplus assets; reducing waste, carbon emissions and transportation costs; and by creating markets for items that would otherwise be landfilled. Our marketplaces enable buyers and sellers to transact in an efficient, automated environment offering over 600 product categories and provide professional buyers access to a global, organized supply of new, surplus, and scrap assets presented with digital images and other relevant product information. Our marketplaces enable corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation, and sale of surplus assets. The Company's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service 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. The Company’s marketplaces are: www.liquidation.com, www.govdeals.com, www.secondipity.com, and www.go-dove.com. We also operate a global search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has over 15,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies. 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 has continued throughout fiscal 2021. However, our international business continues to experience impacts to cross-border commerce due to ongoing travel restrictions in various countries. At this time, 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. 21 Throughout the COVID-19 pandemic, the Company has actively monitored its liquidity position and working capital needs. During each quarter of fiscal 2021 including during the three months ended June 30, 2021, the Company determined that its liquidity position and working capital were more than sufficient to meet its projected needs. As discussed in Note 8 - Shareholder's Equity , during this time the Company repurchased 647,583 shares for $12.0 million and 957,079 shares for $16.1 million under our share repurchase program during the three and six months ended March 31, 2021 , respectively. While we made no repurchases under our May 3, 2021 Stock Repurchase Plan during the three months ended June 30, 2021, 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. 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 June 30, 2021, the approximate number of registered buyers increased from 3,719,000 to 3,970,000, or 6.7%. 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 and nine months ended June 30, 2021, our purchase transaction model accounted for 14.8% and 16.3% of our GMV, and 54.3% and 56.0% of our total revenues, respectively. For the three and nine months ended June 30, 2020, our purchase transaction model accounted for 22.1% and 22.4% of our GMV, and 63.8% and 64.0% 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 63.5% and 61.7% of consolidated Costs of goods sold for the three and nine months ended June 30, 2021, respectively, and 60.4% and 54.5% of consolidated Cost of goods sold for the three and nine months ended June 30, 2020, respectively. 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 and nine months ended June 30, 2021, our consignment model accounted for 85.2% and 83.7% of our GMV, and 37.4% and 36.2% of our total revenues, respectively. For the three and nine months ended June 30, 2020, our consignment model accounted for 77.9% and 77.6% of our GMV, and 30.2% and 29.9% of our total revenues, respectively 22 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. Other revenues accounted for 8.2% and 7.8% of our total revenues for the three and nine months ended June 30, 2021, respectively, and 6.0% and 6.2% of our total revenues for the three and nine months ended June 30, 2020, respectively. Industry trends. While we continue to review and assess the COVID-19 pandemic's impact on our customers, our suppliers, and our business, we believe there are several industry trends positively impacting the long-term growth of our Company 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. Our Vendor Agreements Our commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which the Company acquires and sells commercial merchandise. The property purchased under these contracts with Amazon.com, Inc. represented 63.5% and 60.4% of consolidated Cost of goods sold for the three months ended June 30, 2021 and 2020, respectively, and 61.7% and 54.5% of consolidated Cost of goods sold for the nine months ended June 30, 2021 and 2020, 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 June 30, 2021 and 2020, we had approximately 3,970,000 and 3,719,000 registered buyers, respectively. 23 Total auction participants. For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended June 30, 2021 and 2020, appr oximately 617,000 and 420,000, respectively, total auction participants participated in auctions on our marketplaces. During the nine months ended June 30, 2021 and 2020, approximately 1,695,000 and 1,363,000, respectively, total auction participants participated in auctions on our marketplaces. Completed transactions. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended June 30, 2021 and 2020, we completed approximately 185,000 and 134,000 transactions, respectively. During the nine months ended June 30, 2021 and 2020, we completed approximately 511,000 and 420,000 transactions, respectively. Non-GAAP Financial Measures Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to net income (loss) plus interest and other income, net excluding the non-service components of net periodic pension (benefit); provision for income taxes; and depreciation and amortization. Interest and other income, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment. We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons: • Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year. • As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year. • The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year. • The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year. • We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business. • We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance. • We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow. • We also believe that analysts and investors use Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry. 24 Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: • as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations; • for planning purposes, including the preparation of our internal annual operating budget; • to allocate resources to enhance the financial performance of our business; • to evaluate the effectiveness of our operational strategies; and • to evaluate our capacity to fund capital expenditures and expand our business. Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP. We prepare Non-GAAP Adjusted EBITDA by adjusting Non-GAAP EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items. The table below reconciles net income (loss) to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented. Three Months Ended June 30, Nine Months Ended June 30, 2021 2020 2021 2020 (in thousands) (Unaudited) Net income (loss) $ 8,419 $ 213 $ 18,193 $ (9,221) Interest and other income, net 1 (157) (156) (191) (489) Provision for income taxes 429 209 1,133 710 Depreciation and amortization 1,705 1,567 5,246 4,716 Non-GAAP EBITDA $ 10,396 $ 1,833 $ 24,381 $ (4,284) Stock compensation expense 1,803 1,516 5,793 3,785 Acquisition costs and impairment of long-lived and other assets 2 1,136 — 1,338 5 Business realignment expenses 2, 3 — 328 5 328 Fair value adjustments to acquisition earn-outs 2 — — — 200 Deferred revenue purchase accounting adjustment — — — 3 Non-GAAP Adjusted EBITDA $ 13,335 $ 3,677 $ 31,517 $ 37 1 Represents Interest and other income, net, per the Statement of Operations, excluding the non-service components of net periodic pension (benefit). 2 Acquisition costs, impairment of long-lived assets and other assets, fair value adjustments to acquisition earn-outs, and business realignment expenses are components of Other operating expenses on the Statements of Operations. For the three and nine months ended June 30, 2021, this amount included a $1.1 million impairment expense from the settlement of a note receivable associated with a previous divestiture (see Note 2 to the Consolidated Financial Statements). 3 Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 11 to the 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 and nine months ended June 30, 2021 and 2020. Critical Accounting Policies and Estimates The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, 2020, and in Note 2 — Summary of Significant Accounting Policies to the consolidated financial statements. 25 As of June 30, 2021 , the Company has a valuation allowance of $28 million against its net deferred tax assets in the United States. The Company intends to continue to maintain its valuation allowance on these net deferred tax assets until there is sufficient positive evidence to support a partial or full reversal. Should the Company’s improved operating results continue, sufficient positive evidence may accumulate in a future period that changes our valuation allowance conclusions, resulting in a partial or full reversal. In a period where significant valuation allowances are reversed, the Company will reflect a material tax benefit in its provision (benefit) for income taxes that could cause its effective tax rate to be negative. 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 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 impairment of long-lived and other assets, 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 5.9% for the nine months ended June 30, 2021. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the utilization of net operating losses and the impact of foreign, state, and local income taxes and permanent tax adjustments. 26 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) 2021 2020 $ Change % Change 2021 2020 $ Change % Change Revenue $ 37,862 $ 30,442 $ 7,420 24.4 % $ 104,902 $ 95,994 $ 8,908 9.3 % Fee revenue 31,804 17,280 14,524 84.1 82,302 54,056 28,246 52.3 Total revenue 69,666 47,722 21,944 46.0 187,204 150,050 37,154 24.8 Costs and expenses from operations: Cost of goods sold (excludes depreciation and amortization) 28,543 22,494 6,049 26.9 77,501 73,289 4,212 5.7 Technology and operations 12,307 9,515 2,792 29.3 34,952 32,342 2,610 8.1 Sales and marketing 9,661 7,412 2,249 30.3 27,679 27,126 553 2.0 General and administrative 7,676 6,217 1,459 23.5 21,578 21,321 257 1.2 Depreciation and amortization 1,705 1,567 138 8.8 5,246 4,716 530 11.2 Other operating expenses 1,180 319 861 269.9 1,390 500 890 178.0 Total costs and expenses 61,072 47,524 13,548 28.5 168,346 159,294 9,052 5.7 Income (loss) from operations 8,594 198 8,396 4,240.4 18,858 (9,244) 28,102 NM Interest and other income, net (254) (224) (30) (13.4) (468) (733) 265 36.2 Income (loss) before provision for income taxes 8,848 422 8,426 1,996.7 19,326 (8,511) 27,837 NM Provision for income taxes 429 209 220 105.3 1,133 710 423 59.6 Net income (loss) $ 8,419 $ 213 $ 8,206 3,852.6% $ 18,193 $ (9,221) $ 27,414 NM NM = not meaningful 27 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 June 30, Nine Months Ended June 30, (dollars in thousands) 2021 2020 2021 2020 GovDeals: GMV $ 146,058 $ 57,906 $ 364,601 $ 214,255 Total revenue $ 14,658 $ 6,021 $ 36,448 $ 21,858 Gross profit $ 13,965 $ 5,637 $ 34,544 $ 20,361 Gross profit margin 95.3 % 93.6 % 94.8 % 93.2 % RSCG: GMV $ 61,231 $ 44,991 $ 171,557 $ 129,181 Total revenue $ 44,095 $ 33,553 $ 118,083 $ 101,507 Gross profit $ 17,755 $ 12,022 $ 48,315 $ 34,721 Gross profit margin 40.3 % 35.8 % 40.9 % 34.2 % CAG: GMV $ 37,379 $ 27,191 $ 106,222 $ 79,546 Total revenue $ 8,467 $ 6,372 $ 25,872 $ 21,353 Gross profit $ 7,099 $ 5,892 $ 20,445 $ 16,628 Gross profit margin 83.8 % 92.5 % 79.0 % 77.9 % Machinio: GMV $ — $ — $ — $ — Total revenue $ 2,446 $ 1,776 $ 6,801 $ 5,332 Gross profit $ 2,304 $ 1,677 $ 6,399 $ 5,051 Gross profit margin 94.2 % 94.4 % 94.1 % 94.7 % Consolidated: GMV $ 244,668 $ 130,088 $ 642,380 $ 422,982 Total revenue $ 69,666 $ 47,722 $ 187,204 $ 150,050 Gross profit $ 41,123 $ 25,228 $ 109,703 $ 76,761 Gross profit margin 59.0 % 52.9 % 58.6 % 51.2 % Three Months Ended June 30, 2021 Compared to the Three Months Ended June 30, 2020 Segment Results GovDeals. Revenue from our GovDeals segment increased 143.4%, or $8.6 million, due to a 152.2%, or $88.2 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate, and an increase in recovery rates on assets sold, driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. The three months ended June 30, 2020 also contained the negative impact of the economic restrictions put in place at the onset of the COVID-19 pandemic. As a result of the increase in revenues, gross profit increased 147.7%, or $8.3 million. Gross profit margin remained relatively consistent between the periods. RSCG. Revenue from our RSCG segment increased 31.4%, or $10.5 million, due to a 36.1%, or $16.2 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with mid-sized and large retailers looking to capitalize on the secular growth in online retail. Revenues grew at a slightly lower rate than GMV due to an increase in the mix of transactions conducted under the consignment model. This mix however, served to increase gross profit by 47.7%, or $5.7 million. Gross profit margin increased 4.5% due to this change in the mix of transactions conducted under the consignment model as well as improved recovery rates on assets sold. 28 CAG. Revenue from the CAG segment increased by 32.9%, or $2.1 million , due to a 37.5%, or $10.2 million, increase in GMV from continued growth of our industrial and heavy equipment categories, increases in principal transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally . Revenues did not increase at the same rate as GMV due to increases in transactions using partner organizations. As a result of the increase in revenues, gross profit increased 20.5%, or $1.2 million. Gross profit margin decreased 8.7% due to an increase in the mix of transactions conducted under the purchase model, responding to the reducing levels of COVID-19 related restrictions on cross-border transactions. Machinio. Revenue from our Machinio segment increased 37.7%, or $0.7 million, due to an increase in subscription activity. As a result of the increase in revenues, gross profit increased 37.4%, or $0.6 million. Consolidated Results Revenue - Total consolidated revenue increased $21.9 million, or 46.0%. Refer to the discussion of Segment Results above for discuss ion of the increase in revenue. Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $6.0 million, or 26.9%, which changed at a lower rate than Revenue primarily due to an increase in the mix of transactions conducted under the consignment model. Technology and operations expenses. Technology and operations expenses increased $2.8 million, or 29.3%, to support the increased transaction volumes in the RSCG and CAG segments. Sales and marketing expenses. Sales and marketing expenses increased $2.2 million, or 30.3%, as a result of our continued efforts to promote our consolidated marketplace and expand market share in key verticals. General and administrative expenses. General and administrative expenses increased $1.5 million, or 23.5%, as the temporary actions taken in the prior year to reduce operating expenses in response to the COVID-19 pandemic are no longer in place. Depreciation and amortization . Depreciation and amortization expense was consistent between the three months ended June 30, 2021 and 2020. Other operating expenses . Other operating expenses of $1.2 million for the three months ended June 30, 2021 primarily related to the $1.1 million loss following the full satisfaction and discharge of JTC's indebtedness to the Company. Refer to the discussion in Note 2 — Summary of Significant Accounting Policies . Interest and other income, net. Interest and other income, net was consistent between the three months ended June 30, 2021 and 2020. Provision for income taxes . Provision for income taxes increased $0.2 million due to the impact of foreign, state, and local taxes and permanent tax adjustments, as well as the increase in our Income from operations. Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020 Segment Results GovDeals. Revenue from our GovDeals segment increased 66.7%, or $14.6 million, due to a 70.2%, or $150.3 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate. The gain also reflects an increase in recovery rates on assets sold, driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. The nine months ended June 30, 2020 also contained the negative impact of the economic restrictions put in place at the onset of the COVID-19 pandemic. As a result of the increase in revenues, gross profit increased 69.7%, or $14.2 million. Gross profit margin remained relatively consistent between the periods. 29 RSCG. Revenue from our RSCG segment increased 16.3%, or $16.6 million, due to a 32.8%, or $42.4 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with mid-sized and large retailers looking to capitalize on the secular growth in online retail. Revenues did not increase at the same rate as GMV due to an increase in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 39.2%, or $13.6 million. Gross profit margin increased 6.7% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold. CAG. Revenue from the CAG segment increased by 21.2%, or $4.5 million due to a 33.5%, or $26.7 million increase in GMV due to continued growth of our industrial and heavy equipment categories, increases in principal transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally . Revenues did not increase at the same rate as GMV due to increases in transactions using partner organizations and in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, gross profit increased 23.0% or $3.8 million. Gross profit margin remained relatively consistent between the periods. Machinio. Revenue from our Machinio segment increased 27.6%, or $1.5 million, due to an increase in subscription activity. As a result of the increase in revenues, gross profit increased 26.7%, or $1.3 million. Consolidated Results Revenue. Total consolidated revenue increased $37.2 million, or 24.8%. Refer to the discussion of Segment Results above for discuss ion of the increase in revenue. Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $4.2 million, or 5.7%, which changed at a lower rate than Revenue primarily due to lower cost of sales associated with principal transactions, which benefited from higher recovery rates during the period, and an increase in the mix of transactions conducted under the consignment model. Technology and operations expenses. Technology and operations expenses increased $2.6 million, or 8.1%, to support the increased transaction volumes in the RSCG and CAG segments. Sales and marketing expenses. Sales and marketing expenses increased $0.6 million, or 2.0%, primarily due to increase in marketing expenses to promote our consolidated marketplace and expand market share in key verticals. General and administrative expenses. General and administrative expenses were consistent between the nine months ended June 30, 2021 and 2020. Depreciation and amortization . Depreciation and amortization expense increased $0.5 million, or 11.2%, due to an increase in amortization of capitalized software related to the continued development and enhancement of our e-commerce platform and tools. Other operating expenses . Other operating expenses increased $0.9 million, or 178.0%, primarily related to the $1.1 million loss following the full satisfaction and discharge of JTC's indebtedness to the Company. Refer to the discussion in Note 2 — Summary of Significant Accounting Policies . Interest and other income, net. Interest and other income, net increased $0.3 million due the effect of changes in foreign exchange rates. Provision for income taxes . Provision for income taxes increased $0.4 million due to the impact of foreign, state, and local taxes and permanent tax adjustments, as well as the increase in our Income from operations. 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 June 30, 2021, we had $112.7 million in Cash and cash equivalents. 30 Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received. The COVID-19 pandemic has caused the Company's GMV and revenues to fluctuate, and the Company initially implemented cost control measures to protect against the uncertainties created by the severe economic restrictions in its initial phases. From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions, which continue to be a factor in certain countries, causing some buyer delays in their ability to pick up purchased assets. 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 RSCG 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 $7.0 million as of June 30, 2021. As of June 30, 2021 and September 30, 2020, $21.8 million and $19.5 million, respectively, of Cash and cash equivalents was held outside of the U.S. We have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash. As of the fiscal year ended September 30, 2020, we had $6.1 million of remaining share repurchase authorization. On March 8, 2021, our Board of Directors authorized an additional $10 million of share repurchases of the Company's outstanding shares of common stock through March 31, 2023. We repurchased 647,583 shares for $12.0 million and 957,079 shares for $16.1 million under this program during the three and six months ended March 31, 2021 , respectively. As of March 31, 2021 , we had no remaining authorization to repurchase shares under this program. On May 3, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the “May 3, 2021 Stock Repurchase Plan”) of up to $15 million of our outstanding shares of common stock through June 30, 2023. We made no repurchases under the May 3, 2021 Stock Repurchase Plan during the three months ended June 30, 2021. Changes in Cash Flows: Nine Months Ended June 30, 2021 Compared to the Nine Months Ended June 30, 2020 Net cash provided by operating activities was $54.3 million and $9.2 million for the nine months ended June 30, 2021 and 2020, respectively. The $45.1 million increase in cash provided by operations between periods was attributable to $31.2 million of higher Net income as adjusted for non-cash items; changes in payables to sellers, driven by increasing transactions volumes; changes to accounts payable, accrued expenses and other liabilities driven by the management of working capital; and partially offset by a $6.6 million increase in inventory driven by the continued growth in our RSCG and CAG segments. Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. However, there have been no significant changes to the working capital requirements for the Company. Net cash provided by investing activities was $0.9 million for the nine months ended June 30, 2021, and $28.9 million for the nine months ended June 30, 2020. The $(28.0) million decrease in cash provided by investing activities was driven by a $(30.0) million net impact of maturities of Short-term investments during the nine months ended June 30, 2020 as the Company transitioned to using cash equivalent money market funds in its treasury strategy. This activity was partially offset by a $1.8 million increase in proceeds from the JTC promissory note during the nine months ended June 30, 2021 due to receipt of $3.5 million during the three months ended June 30, 2021 as a result of the Company entering into the First Amendment to the Forbearance Agreement with JTC as discussed in Note 2 - Summary of Significant Accounting Policies . Net cash (used in) financing activities was $(19.4) million for the nine months ended June 30, 2021, and $(1.8) million for the nine months ended June 30, 2020. The $(17.6) million increase in cash used in financing activities was primarily driven by $16.1 million in common stock repurchases and a $3.0 million increase in taxes paid associated with net settlement of stock compensation awards, primarily from the vesting of awards with market conditions due to the achievement of increases in the Company's share price. 31 Capital expenditures. Our capital expenditures consist primarily of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the nine months ended June 30, 2021 were $3.5 million. As of June 30, 2021, we had no significant outstanding commitments for capital expenditures. Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. Off-Balance Sheet Arrangements We do not have any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.