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Item 7. Management’s Discussion and Analysis

2021-12-09 compared with 2020-12-08 · 217 added, 194 removed, 246 unchanged (63% of the section changed)

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

We operate a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 500 product categories.

Our marketplaces provide professional buyers access to a global, organized supply of new, surplus, and idle assets presented with digital images and other relevant product information.

Additionally, we enable our 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.

Our 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.

We organize the products on our 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, heavy equipment, fleet and transportation equipment and specialty equipment.

Our marketplaces are:

www.allsurplus.com, 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.

We have over 14,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies.

We have four reportable segments:

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

We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus.

We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services.

Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.

We believe our ability to create liquid marketplaces for surplus and idle assets generates a continuous flow of goods from our sellers.

This valuable and reliable flow of goods, in turn, attracts an increasing number of buyers to our marketplaces.

Increasing numbers of buyers to our marketplaces, in turn, attracts more sellers to our marketplaces which, in turn, reinforces a valuable and reliable flow of surplus assets.

During the past three fiscal years, we have conducted over 1,863,000 online transactions generating $2.1 billion in gross merchandise volume or GMV.

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

During the year ended September 30, 2021, the number of registered buyers grew from 3,772,000 to 4,031,000, or 6.9%.

We believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a self-sustaining cycle for our buyers and sellers.

We generated GMV of $886.7 million and revenue of $257.5 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from sellers, and value-added service charges.

Our GMV has grown at a compound annual growth rate of 11.5% since 2006.

Our Machinio segment, which operates a global search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors, grew revenue 32.5% during the year ended September 30, 2021.

Results from our operations are organized into four reportable segments:

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

See Note 17 to the Consolidated Financial Statements for further information on our reportable segments.

We believe our ability to create liquid marketplaces for surplus and idle 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 2020, the number of registered buyers grew from 3,580,000 to 3,772,000, or 5.4%.

During the past three years, we have conducted over 1,727,000 online transactions generating $1.9 billion in gross merchandise volume or GMV.

We believe the continuous flow of goods in our marketplaces attracts a growing buyer base which, in turn, attracts more sellers and transactions.

Our Machinio segment, which operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors, grew revenue 28.8% during fiscal year 2020.

See Note 16 - Segment Information to the Consolidated Financial Statements for more information regarding our segments.

On November 1, 2021, we acquired Bid4Assets, Inc.

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

Bid4Assets auctions distressed real estate for the federal government, sheriffs, county tax-collectors, financial institutions and real estate funds.

See Note 17 - Subsequent Events for more information regarding this transaction.

Impacts of the COVID-19 Pandemic

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

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

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, we have seen subsequent increases in 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.

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.

Since May 2020, we have seen subsequent increases in 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 throughout fiscal 2021.

However, COVID-19 and its variants continue to impact the global economy and the ability to conduct 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.

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

In the fourth quarter of fiscal 2020, the Company determined that its liquidity position and working capital was more than

sufficient to meet its projected needs and commenced share repurchases, acquiring 547.5 thousand shares for $4.0 million as of September 30, 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.

During each quarter of fiscal 2021 including during the three months ended September 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 11 - Equity Transactions , during the year ended September 30, 2021, the Company repurchased a total of 1,591,963 shares for $31.1 million.

See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to the COVID-19 pandemic.

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:

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;

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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.

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.

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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.

Prior to the wind-down of our operations under the Surplus Contract, we also earned non-consignment fee revenue

from services provided under that contract.

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

Other revenues accounted for 7.2%, 6.2% and 5.3% of our total revenue for the years ended September 30, 2021, 2020 and 2019, respectively.

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

DoD agreements.

Historically, we had two material vendor contracts with the DoD:

the Scrap Contract and the Surplus Contract.

Both contracts were included in the results of our CAG segment.

Scrap Contract .

DoD agreement.

Historically, we had a material vendor contract with the DoD referred to as the Scrap Contract.

This contract was included in the results of our CAG segment.

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 DLA, and paid the DLA a revenue-sharing payment equal to 64.5% of the gross resale proceeds.

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

Resale of scrap property that we purchased under the Scrap Contract accounted for 7.4% and 10.2% of our total revenues and 2.6% and 3.6% of our GMV in the years ended September 30, 2019 and 2018, respectively.

Surplus Contract .

Under the Surplus Contract, which concluded on June 30, 2018, we acquired, managed and sold usable surplus personal property of the DoD turned into the DLA.

We paid the DLA 4.35% of the DoD's original acquisition value for the surplus property, which consisted of items determined by the DoD to be no longer needed, and not claimed for reuse by any federal agency, such as electronics, industrial equipment, office supplies, scientific and medical equipment, aircraft parts, clothing and textiles.

We retained 100% of the profits from the resale of the property and bore all of the costs for the merchandising and sale of the property.

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

Resale of surplus property that we purchased under the Surplus Contract, as well as services we provided to the DoD under the Surplus Contract, accounted for 12.4% of our total revenues and 4.1% of our GMV in the year ended September 30, 2018.

Resale of scrap property that we purchased under the Scrap Contract accounted for 7.4% of our total revenues and 2.6% of our GMV in the year ended September 30, 2019.

Key Business Metrics

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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.

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 years ended September 30, 2020 , 2019, and 2018, 1,899,000, 2,085,000, and 2,079,000 total auction participants participated in auctions on our marketplaces, respectively.

Largely as a result of the wind-down of the Scrap Contract, there has been a decrease in auction participants during 2020 compared with 2019.

During the years ended September 30, 2021 , 2020, and 2019, 2,279,000, 1,899,000, and 2,085,000 participants participated in auctions on our marketplaces, respectively.

Largely as a result of the wind-down of the Scrap Contract, there was a decrease in auction participants during 2020 compared with 2019.

Completed transactions.

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During the years ended September 30, 2021 , 2020, an d 2019, we completed 703,000, 553,000 and 607,000 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 over the requisite vesting period.

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.

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;

• 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.

Year ended September 30,

2021 2020 2019

Net income (loss) $ 50,949 $ (3,774) $ (19,260)

Interest and other income, net (1)

(76) (577) (1,101)

Provision (benefit) for income taxes (23,370) 801 1,200

Depreciation and amortization 6,969 6,290 5,091

EBITDA 34,472 2,740 (14,070)

Stock compensation expense (2)

6,947 5,660 6,823

Acquisition costs and impairment of goodwill and long-lived assets (3)

Business realignment expenses (4)

Fair value adjustment to acquisition earn-out liability (3)

Deferred revenue purchase accounting adjustment — 3 818

Adjusted EBITDA $ 42,888 $ 9,013 $ (1,249)

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

(2) Excludes the impact of forfeitures of stock awards by employees terminated by business realignment actions.

That impact is included in the business realignment expense line.

(3) Acquisition costs and impairment of long-lived assets, and fair value adjustments to acquisition earn-out liability are included in Other operating expenses on the Statements of Operations.

(4) Business realignment expense includes the amounts accounted for as exit costs under ASC 420 as described in Note 14 to the Consolidated Financial Statements, and the related impacts of business realignment actions subject to other accounting guidance.

Those related impacts were $317 thousand for the year ended September 30, 2019, due to forfeitures of stock awards by terminated employees.

No related impacts were associated with the other periods presented.

Critical Accounting Policies and Estimates

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We consider the following accounting estimates to be critical:

business combinations (Notes 4 and 13), valuation of goodwill and other intangible assets (Notes 7 and 8), and income taxes (Note 11).

valuation of goodwill and other intangible assets (Notes 7 and 8), and income taxes (Note 10).

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

The following discussion is a supplement to the disclosures referenced.

Valuation of goodwill.

Goodwill is allocated to our reporting units.

The Company's reporting units are GovDeals, CAG, RSCG and Machinio.

Only the GovDeals, CAG and Machinio reporting units have goodwill balances.

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 represented the Company's best estimate using information that was available at the time.

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.

As of July 1, 2020, the Company performed its annual impairment testing using a fair-value based test for all reporting units with goodwill balances.

As there were favorable developments in the factors that indicated a goodwill impairment test was necessary as of March 31, 2020, the fair values of each of our reporting units with goodwill balances was higher as of July 1, 2020 than on March 31, 2020, and the fair values of each of those reporting units exceeded their carrying values by at least 20%.

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

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

Valuation allowance .

A valuation allowance is recorded against deferred tax assets for tax purposes if, based on the weight of all available evidence, in management's judgement it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

Due to years of pre-tax losses (a cumulative three-year pre-tax loss), the Company has recorded significant valuation allowances, primarily related to net operating losses for US Federal income tax purposes.

In its assessment as of September 30, 2021, the Company has cumulative income from the past three years in the US, including six consecutive fiscal quarters of income.

The Company also expects its US income in future years to realize its deferred tax assets, including realizing substantially all of its US net operating losses prior to their expiration dates.

The Company considered these factors the be the most relevant to its assessment when weighing all available evidence, and concluded that it is now more-likely-than-not that its US deferred tax assets would be realized.

As a result, the Company recorded a net $27.9 million reduction to its US valuation allowance, to bring the total US valuation allowance down to $0.5 million as of September 30, 2021.

In addition, the Company’s remaining $13.3 million of valuation allowances are on the deferred tax assets of in certain international jurisdictions, as negative evidence, including cumulative losses in recent years, continues to exist in those jurisdictions.

See additional discussion of the valuation allowance within Note 10 - Income Taxes .

Components of Revenue and Expenses

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Refer to Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements in Part IV, Item 15(a)(1) of this 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, 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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Income taxes.

During the years ended September 30, 2020, 2019, and 2018 had an effective income tax rate for continuing operations of (26.9)%, (6.6)% and 44.6%, respectively, which included federal, state and foreign income taxes.

During the years ended September 30, 2021, 2020, and 2019, the Company had an effective income tax rate of (84.74)%, (26.9)% and (6.6)%, respectively, which included federal, state and foreign income taxes.

Results of Operations

The following table presents segment revenue, gross profit, and gross profit margin for the periods indicated ($ in thousands):

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 ($ in thousands):

Year Ended September 30,

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Corporate & Other, including elimination adjustments:

GMV — 469 3,665

Total revenue (57) (51) 428

Gross profit (57) (51) 52

Gross profit margin NM 12.2 % (18.0) %

Gross profit margin NM NM 12.2 %

Consolidated:

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Segment Results

Revenue from our GovDeals segment increased 51.1%, or $16.8 million, due to a 53.0%, or $172.7 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 fiscal year ended September 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 53.1%, or $16.3 million, and gross profit margin increased from 93.6% to 94.9%.

Revenue from our RSCG segment increased 16.3%, or $22.3 million due to a 26.3%, or $47.8 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with large and 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 29.8%, or $14.8 million.

Gross profit margin increased from 36.4% to 40.7% 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 increased by 34.5%, or $10.2 million due to a 41.2%, or $46.4 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 29.1%, or $6.6 million.

Gross profit margin decreased from 77.0% to 74.0%.

Revenue from our Machinio segment increased 32.5%, or $2.3 million, due to an increase in subscription activity.

As a result of the increase in revenues, gross profit increased 32.0%, or $2.2 million.

Consolidated Results

The following table sets forth, for the periods indicated, our operating results (dollars in thousands):

Year Ended September 30,

2021 2020 $ Change % Change

Revenue $ 146,151 $ 127,580 $ 18,571 14.6 %

Fee revenue 111,380 78,360 33,020 42.1 %

Total revenue 257,531 205,940 51,591 25.1 %

Costs and expenses from operations:

Cost of goods sold (excludes depreciation and amortization) 107,678 96,016 11,662 12.1 %

Technology and operations 47,673 42,158 5,515 13.1 %

Sales and marketing 37,635 35,629 2,006 5.6 %

General and administrative 28,938 29,166 (228) (0.8) %

Depreciation and amortization 6,969 6,290 679 10.8 %

Acquisition costs and impairment of goodwill and long-lived assets 1,464 5 1,459 NM

Other operating expenses 6 573 (567) (99.0) %

Total costs and expenses 230,363 209,837 20,526 9.8 %

Income (loss) from operations 27,168 (3,897) 31,065 NM

Interest and other income, net (411) (924) 513 (55.5) %

Income (loss) before income taxes 27,579 (2,973) 30,552 NM

(Benefit) provision for income taxes (23,370) 801 (24,171) NM

Net income (loss) $ 50,949 $ (3,774) $ 54,723 NM

NM = not meaningful

Total consolidated revenue increased $51.6 million, or 25.1%.

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

Cost of goods sold (excludes depreciation and amortization).

Cost of goods sold increased $11.7 million, or 12.1%, 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 $5.5 million, or 13.1%, to support the increased transaction volumes in the RSCG and CAG segments.

Sales and marketing expenses.

Sales and marketing expenses increased $2.0 million, or 5.6%, 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 year ended September 30, 2021 and 2020.

Depreciation and amortization .

Depreciation and amortization expense increased $0.7 million, or 10.8%, due to an increase in amortization of capitalized software related to the continued development and enhancement of our marketplace platform and tools.

Interest and other income, net.

Interest and other income, net increased $0.5 million, due the effect of changes in foreign exchange rates.

Provision (benefit) for income taxes .

Provision for income taxes decreased $24.2 million to a benefit of $23.4 million from an expense of $0.8 million due to a release of $27.9 million of valuation allowance netted against $3.3 million deferred tax expense and $1.2 million state and foreign income taxes.

The Company's effective income tax rate was (84.7%) for the twelve months ended September 30, 2021.

The 2021 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the release of the valuation allowance on deferred tax assets and the impact of foreign, state, and local taxes and permanent tax adjustments.

Year Ended September 30, 2020 Compared to Year Ended September 30, 2019

Segment Results

Revenue from our GovDeals segment decreased 0.4%, or $0.1 million, due to a 0.4%, or $1.5 million, decrease in GMV primarily resulting from decreased activity due to limitations on government facility operations in response to the COVID-19 pandemic.

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Total costs and expenses 209,837 246,033 (36,196) (14.7)

Loss from operations (3,897) (19,508) 15,611 (80.0)

Income (loss) from operations (3,897) (19,508) 15,611 (80.0)

Interest and other income, net (924) (1,448) 524 (36.2)

Loss before provision for income taxes (2,973) (18,060) 15,087 (83.5)

Provision (benefit) for income taxes 801 1,200 (399) (33.3)

Loss before income taxes (2,973) (18,060) 15,087 (83.5)

Provision for income taxes 801 1,200 (399) NM

Net loss $ (3,774) $ (19,260) $ 15,486 (80.4) %

NM = not meaningful

Total Revenue.

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

Provision (benefit) for income taxes .

Provision for income taxes .

Income taxes decreased $0.4 million, to an expense of $0.8 million for the year ended September 30, 2020, from an expense of $1.2 million for the year ended September 30, 2019 due to lower state tax expense and the release of $0.2 million of unrecognized tax benefits related to foreign operations.

The Company’s effective income tax rate was (26.9)%.

for the twelve months ended September 30, 2020.

The 2020 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the valuation allowance on deferred tax assets, state taxes, and the impact of permanent tax adjustments.

Net loss for the year ended September 30, 2020, decreased $15.5 million, to $3.8 million, compared to a loss of $19.3 million for the year ended September 30, 2019, due to the reasons described above.

Year Ended September 30, 2019 Compared to Year Ended September 30, 2018

Segment Results

Revenue from our GovDeals segment increased 9.0%, or $2.7 million, due to a 7.1%, or $21.8 million, increase in GMV resulting from additional sales volume from existing sellers and an increase in the number of new sellers.

As a result of the increase in revenues, gross profit within this segment increased 8.6%, or $2.4 million.

Gross profit margin was consistent between the periods.

Revenue from our RSCG segment increased 24.9%, or $25.4 million due to a 19.1%, or $25.1 million, increase in GMV, an increase in the mix of transactions conducted under the purchase model, and an increase in the non-consignment fee services provided.

Gross profit within the RSCG segment increased 36.2%, or $12.0 million, due to the impacts of the increased

revenues, as well as improved margins on certain retail programs.

Gross profit margin increased from 32.4% to 35.3% due the improved margins on certain retail programs, and the increase in non-consignment fee services provided.

Revenue and GMV from the CAG segment decreased 31.6%, or $27.8 million, and 16.2%, or $30.2 million, respectively.

The conclusion of the Scrap and Surplus Contracts caused revenue and GMV to decline by $33.8 million and $31.5 million, respectively.

Excluding the impact of the completed Scrap and Surplus Contracts, revenue increased by $6.1 million, or 16.3%, driven by a $1.3 million, or 1.0% increase in GMV, and an increase in the mix of transactions conducted under the purchase model.

Gross profit within the CAG segment decreased 33.1%, or $16.2 million, due to a $14.2 million impact from the conclusion of the Scrap and Surplus Contracts, and the impact of the increase in mix of transactions conducted under the purchase model.

Gross profit margin declined from 55.5% to 54.2% due the increase in the mix of transactions conducted under the purchase model, partially offset by the conclusion of the Scrap and Surplus Contracts, which had lower gross profit margins than the remaining business.

Machinio's revenues for the period represent $3.5 million related to new subscriptions and subscription renewals during fiscal 2019, and $2.1 million related to revenues recognized for subscriptions that started prior to fiscal 2019.

Because Machinio was acquired on July 10, 2018, the prior period results only include revenues recognized subsequent to that date.

Corporate & Other .

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

Consolidated Results

The following table sets forth, for the periods indicated, our operating results (dollars in thousands):

Year Ended September 30,

2019 2018 $ Change % Change

Revenue $ 147,889 $ 149,677 $ (1,788) (1.2) %

Fee revenue 78,636 74,837 3,799 5.1

Total revenue 226,525 224,514 2,011 0.9

Costs and expenses from operations:

Cost of goods sold (excludes depreciation and amortization) 102,414 100,087 2,327 2.3

Seller distributions 10,831 14,715 (3,884) (26.4)

Technology and operations 51,594 60,786 (9,192) (15.1)

Sales and marketing 36,703 33,703 3,000 8.9

General and administrative 34,249 30,493 3,756 12.3

Depreciation and amortization 5,091 4,599 492 10.7

Acquisition costs and impairment of goodwill and long-lived assets 102 467 (365) (78.2)

Other operating expenses 5,049 1,392 3,657 262.7

Total costs and expenses 246,033 246,242 (209) (0.1)

Loss from operations (19,508) (21,728) 2,220 (10.2)

Interest and other income, net (1,448) (785) (663) 84.5

Loss before provision for income taxes (18,060) (20,943) 2,883 (13.8)

Provision (benefit) for income taxes 1,200 (9,328) 10,528 NM

Net loss $ (19,260) $ (11,615) $ (7,645) 65.8 %

NM = not meaningful

Total Revenue .

Total consolidated revenue increased $2.0 million, or 0.9%.

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

Cost of goods sold.

Cost of goods sold increased $2.3 million, or 2.3%.

This included decreases of $15.8 million due to the conclusion of the Surplus Contract and $4.0 million due to the Company's decision to exit the IronDirect business in January

These decreases were primarily offset by increases of $13.4 million in RSCG and $7.9 million in CAG (excluding the Surplus Contract), driven by increases in revenues and the mix of transactions conducted under the purchase model.

Seller distributions.

Seller distributions decreased $3.9 million, or 26.4%, due to lower sales under the Scrap Contract, which concluded on September 30, 2019.

Technology and operations expenses.

Technology and operations expenses decreased $9.2 million, or 15.1%.

The decrease included $6.9 million due to the conclusion of the Scrap and Surplus contracts, $4.6 reductions in Corporate and CAG (excluding the Scrap and Surplus Contract) driven by benefits from restructuring and other organizational changes, and $0.5 million from the Company's decision to exit the IronDirect business in January 2019.

These decreases were partially offset by a $3.0 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 increased $3.0 million, or 8.9%, due to a $1.6 million increase in sales expenses driven by the increases in revenues, and a $1.4 million increase in marketing expenses driven by increased promotional activities related to our new e-commerce technology platform and development of our consolidated marketplace.

General and administrative expenses.

General and administrative expenses increased $3.8 million, or 12.3%, and were impacted by increases in compensation expenses, as well as external costs associated with new accounting standard adoptions .

Depreciation and amortization expenses.

Depreciation and amortization expenses increased $0.5 million, or 10.7%, primarily due to a full year amortization expense recognized during 2019 on intangible assets acquired as part of Machinio acquisition on July 10, 2018.

Acquisition costs and impairment of goodwill and long-lived assets .

Acquisition costs and impairment of goodwill and long-lived assets were $0.1 million, for the year ended September 30, 2019, compared to $0.5 million for the year ended September 30, 2018.

The acquisition costs incurred during the years ended September 30, 2019 and 2018 related to the acquisition of Machinio.

There were no impairments recorded during either year.

Other operating expense.

Other operating expense of $5.0 million represents $1.6 million of business restructuring costs related to organizational changes, the conclusion of the Scrap Contract, and other cost saving actions, and $3.5 million related to the increase in fair value of the Machinio earn-out liability.

Other operating expense of $1.4 million during the year ended September 30, 2018 represents $1.9 million related to business restructuring costs, partially offset by $0.6 million of other miscellaneous income.

Interest and other income, net.

Interest and other income, net, increased $0.7 million, primarily due to increased holdings of short-term investments.

Provision (benefit) for income taxes .

Income taxes increased $10.5 million, to an expense of $1.2 million for the year ended September 30, 2019, from a benefit of $9.3 million for the year ended September 30, 2018 due to benefits derived from the Tax Act enacted in fiscal year 2018, a valuation allowance charge and the impact of foreign, state, and local taxes and permanent tax adjustments.

The Company’s effective income tax rate was (26.9)% for the twelve months ended September 30, 2020.

The 2019 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the valuation allowance change and the impact of permanent tax adjustments.

Net loss for the year ended September 30, 2019, increased $7.6 million, to $19.3 million, compared to a loss of $11.6 million for the year ended September 30, 2018, due to the reasons described above.

The fiscal 2020 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the valuation allowance on deferred tax assets, state taxes, and the impact of permanent tax adjustments.

Liquidity and Capital Resources

Our operational cash needs primarily relate to working capital, including capital used for inventory purchases, which we have funded through cash generated from operations.

From time to time, we may use our capital resources for other activities, such as share repurchases or acquisitions.

Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate and equipment used in our operations, 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 September 30, 2021, we had $106.3 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 in the third and fourth quarters of fiscal 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.

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, 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.

Most of our sales are recorded subsequent t o 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.

As a result of our actions taken in response to these headwinds, the Company’s cash and cash equivalents balance is $106.3 million as of September 30, 2021 , which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial statements.

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, expanded analytics, and buyer/seller payment optimization.

As incentive for Company and employee performance as based on certain management objectives, the Company may pay a cash bonus to its employees at management's discretion.

Further, as described in Note 9 - 401(k) Benefit Plan , our 401(k) Plan also allows the Company to make discretionary matching contributions.

We do not expect these matters to have a material impact on our liquidity.

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

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As of September 30, 2021, and September 30, 2020, $22.4 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.

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.

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

The Company repurchased 547.5 thousand shares for $4.0 million under this program during the twelve months ended September 30, 2020.

As of September 30, 2020, the Company may repurchase an additional $6.1 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.

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 957,079 shares for $16.1 million under this program during the six months ended March 31, 2021.

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 repurchased 634,884 shares for $15.0 million under this program during the year ended September 30, 2021 .

As of September 30, 2021, we had no share repurchase authorization remaining.

On December 6, 2021, the Company's Board of Directors authorized the repurchase of up to $20.0 million of the Company's outstanding shares of common stock through December 31, 2023.

On November 1, 2021, the Company entered into a definitive agreement to purchase all of the issued and outstanding shares of stock of Bid4Assets, Inc.

(Bid4Assets), a pioneer in internet-based public auctions of real property.

Upon closing, the Company paid $15 million in cash, including the assumption of a minimum working capital amount of $0.3 million.

Shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $37.5 million in cash, payable based on Bid4Assets' achievement of certain EBITDA targets measured as of each trailing twelve-month period and determined at the end of each calendar quarter, for the period from October 1, 2021 until the quarter ended December 31, 2022.

See Note 17 - Subsequent Events for more information regarding this transaction.

Changes in Cash Flows:

2021 Compared to 2020

Net cash provided by operating activities was $65.4 million and $16.5 million for the year ended September 30, 2021 and 2020, respectively.

The $48.9 million increase in cash provided by operations between periods was attributable to $33.2 million of higher net income as adjusted for non-cash items;

changes in payables to sellers, driven by increasing transaction volumes;

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

and partially offset by a $7.0 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 (used in) investing activities was $(1.0) million for the year ended September 30, 2021, and $28.6 million for the year ended September 30, 2020.

The $(29.7) million decrease in cash provided by investing activities was driven by a $30.0 million net impact of maturities of Short-term investments as the Company transitioned to using cash equivalent money market funds in its treasury strategy.

This activity was partially offset by a $1.5 million increase in proceeds of principal payments from the JTC promissory note during the year ended September 30, 2021 due to receipt of $3.5 million from 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 $(34.7) million for the year ended September 30, 2021, and $(5.7) million for the year ended September 30, 2020.

The $29.0 million increase in cash used by financing activities primarily driven by $27.2 million to repurchase common stock and a $3.3 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.

Changes in Cash Flows:

2020 Compared to 2019

Net cash provided by (used in) operating activities was $16.5 million and $(6.2) million for the year ended September 30, 2020 and 2019, respectively.

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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.

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.

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 activity in payables to seller normalizes, and as the Company makes its annual bonus payments in the first quarter of fiscal 2021.

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The $44.4 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 $2.8 million of principal payments on the promissory note issued to JTC.

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

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

JTC made all of its scheduled payments during the year ended September 30, 2020.

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The $6.2 million increase in cash used by financing activities consisted of $4.0 million to repurchase common stock, $1.2 million as the portion of the Machinio earn-out payment that represented its fair value at the date of acquisition, and a $0.6 million increase in taxes paid associated with net settlement of stock compensation awards.

Changes in Cash Flows:

2019 Compared to 2018

Net cash used in operating activities was $6.2 million for the year ended September 30, 2019, and net cash provided by operating activities was $0.6 million for the year ended September 30, 2018.

The $6.9 million increase in cash used in operations between periods was primarily attributable to increase in net loss as well as changes in working capital from collections of receivables, sales of inventory and payables to sellers.

Our working capital accounts are subject to natural variations depending on the timing of cash receipts and payments, however, there have been no significant changes to the working capital requirements for the Company, other than the Machinio earn-out that was paid in fiscal 2020.

Net cash used in investing activities was $15.7 million for the year ended September 30, 2019, and $37.1 million for the year ended September 30, 2018.

The decrease was driven by the $16.7 million related to the acquisition of Machinio in fiscal 2018, and a $10.0 million decrease in short-term investments purchased.

These decreases were partially offset by $3.0 million related to the JTC Note, as we received the 2019 annual payment in October 2019, after our fiscal year end.

There was also a $1.8 million increase in capital expenditures, primarily related to our new e-commerce technology platform.

Net cash provided by financing activities was $0.5 million for the year ended September 30, 2019, and net cash provided by financing activities was $0.4 million for the year ended September 30, 2018.

The change was primarily driven from an increase in proceeds from stock option exercises.

Capital Expenditures

Our capital expenditures consist primarily of capitalized software, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements.

Capital expenditures.

Our capital expenditures consist primarily of capitalized software, warehouse equipment, 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.

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

Our capital expenditures for the year ended September 30, 2021 were $5.4 million.

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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.

Although we are currently not a party to any definitive agreement with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, we may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing.

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

The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders.

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There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.

Contractual and Commercial Commitments

The table below represents our significant commercial commitments as of September 30, 2020.

Operating and finance leases represent commitments to rent office and warehouse space, as well as equipment used in our operations.

Other contractual cash obligations represent information technology commitments related to licensing fees, hardware maintenance and other, and are not reflected on our balance sheets.

Total Less than

1 year 1 to 3

Years 5+ years

(in thousands)

Operating leases $ 12,723 $ 4,421 $ 5,581 $ 2,513 $ 208

Finance leases 328 56 111 111 50

Other contractual cash obligations 3,391 2,385 1,006 — —

Total contractual cash obligations $ 16,442 $ 6,862 $ 6,698 $ 2,624 $ 258

Off-Balance Sheet Arrangements

We do not have any transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

Inflation generally affects us by increasing our cost of labor and equipment.

We do not believe that inflation had any material effect on our results of operations during the years ended September 30, 2020, 2019 and 2018.

New Accounting Pronouncements

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

What changed 10-K

Item 7. Management’s Discussion and Analysis