What changed in this filing

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Item 1. Financial Statements

2022-05-05 compared with 2022-02-03 · 172 added, 102 removed, 552 unchanged (33% of the section changed)

4 unchanged sentences

(Dollars in Thousands, Except Par Value)

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

Current assets:

28 unchanged sentences

120,000,000 shares authorized;

35,533,071 shares issued and outstanding at December 31, 2021;

35,563,988 shares issued and outstanding at March 31, 2022;

35,457,095 shares issued and outstanding at September 30, 2021

1 unchanged sentence

Treasury stock, at cost;

2,373,946 shares at December 31, 2021 and 2,222,083 shares at September 30, 2021

3,385,827 shares at March 31, 2022 and 2,222,083 shares at September 30, 2021

( 56,726 ) ( 36,628 )

8 unchanged sentences

(Dollars in Thousands, Except Per Share Data)

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Revenue $ 37,384 $ 35,968 $ 73,602 $ 67,040

7 unchanged sentences

Depreciation and amortization 2,603 1,670 4,906 3,541

Other operating (income) expenses ( 32 ) 4

Fair value adjustments of acquisition earn-outs ( 8,500 ) — ( 8,500 ) —

Other operating expenses (income) 23 206 ( 10 ) 210

Total costs and expenses 55,292 56,148 117,517 107,273

13 unchanged sentences

(Dollars in Thousands)

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Net income $ 11,970 $ 5,260 $ 15,572 $ 9,775

24 unchanged sentences

Balance at December 31, 2021 35,533,071 $ 36 $ 253,536 ( 2,373,946 ) $ ( 39,691 ) $ ( 9,142 ) $ ( 67,660 ) $ 137,079

Net income — — — — — — 11,970 11,970

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 320,943 — — — — — — —

Taxes paid associated with net settlement of stock compensation awards ( 47,124 ) — ( 958 ) — — — — ( 958 )

Forfeitures of restricted stock awards ( 242,902 ) — — — — — — —

Common stock repurchased — — — ( 1,011,881 ) ( 17,035 ) — — ( 17,035 )

Common stock surrendered in the exercise of stock options — — — — — — — —

Stock compensation expense — — 2,102 — — — — 2,102

Foreign currency translation — — — — — ( 169 ) — ( 169 )

Balance at March 31, 2022 35,563,988 $ 36 $ 254,680 ( 3,385,827 ) $ ( 56,726 ) $ ( 9,311 ) $ ( 55,690 ) $ 132,989

See accompanying notes to the unaudited condensed consolidated financial statements.

3 unchanged sentences

(Dollars In Thousands)

Three Months Ended December 31,

Six Months Ended March 31,

Operating activities

8 unchanged sentences

Gain on termination of lease ( 240 ) —

Impairment of long-lived and other assets 31 203

Change in fair value of earn-out liability ( 8,500 ) —

Changes in operating assets and liabilities:

19 unchanged sentences

Payments of the principal portion of finance lease liabilities ( 51 ) ( 17 )

Payment of debt issuance costs ( 91 ) —

Taxes paid associated with net settlement of stock compensation awards ( 1,809 ) ( 3,202 )

7 unchanged sentences

Supplemental disclosure of cash flow information

Cash (received) paid for income taxes, net $ ( 28 ) $ 208

Cash paid for income taxes, net $ 350 $ 508

Earnout liability for acquisition activity $ 19,500 $ —

30 unchanged sentences

The information disclosed in the notes to the condensed consolidated financial statements for these periods is unaudited.

Operating results for the three months ended December 31, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, 2022 or for any future period.

Operating results for the three and six months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the year ending September 30, 2022, or for any future period.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts in the condensed consolidated financial statements and accompanying notes.

For the three months ended December 31, 2021, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations.

For the three and six months ended March 31, 2022, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations.

As there remains uncertainty associated with the COVID-19 pandemic, the Company will continue to update its assumptions as conditions change.

2 unchanged sentences

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

The contract asset balance was $ 0.7 million as of December 31, 2021 and $ 0.6 million as of September 30, 2021 and is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

The contract asset balance was $ 0.8 million as of March 31, 2022, and $ 0.6 million as of September 30, 2021, and is included in the line item Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

Liquidity Services, Inc.

2 unchanged sentences

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

The contract liability balance was $ 4.7 million as of December 31, 2021 and $ 4.6 million as of September 30, 2021 and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets.

Of the September 30, 2021 contract liability balance, $ 2.1 million wa s earned as Fee revenue during the three months ended December 31, 2021.

The contract liability balance was $ 5.1 million as of March 31, 2022, and $ 4.6 million as of September 30, 2021, and is included in the line item Deferred revenue on the Condensed Consolidated Balance Sheets.

Of the September 30, 2021, contract liability balance, $ 3.4 million was earned as Fee revenue during the six months ended March 31, 2022.

Performance obligations for Machinio's subscription services are satisfied over time as the Company provides the services over the term of the subscription.

At December 31, 2021, the Company has a remaining performance obligation of $ 4.7 million for these subscription services, and the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.

As of March 31, 2022, the Company has a remaining performance obligation of $ 5.1 million for these subscription services, and the Company expects to recognize the substantial majority of that amount as Fee revenue over the next 12 months.

Contract Costs

1 unchanged sentence

Contract costs are amortized over the expected life of the customer contract.

The contract cost balance w as $ 1.7 million a s of December 31, 2021 and $ 1.6 million as of September 30, 2021 and is included in the line items Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Amortization expense was $ 0.2 million and $ 0.1 million during the three months ended December 31, 2021 and 2020, respectively.

The contract cost balance w as $ 1.8 million a s of March 31, 2022, and $ 1.6 million as of September 30, 2021, and is included in the line items Prepaid expenses and other current assets and Other assets on the Condensed Consolidated Balance Sheets.

Amortization expense was $ 0.3 million and $ 0.5 million during the three and six months ended March 31, 2022, and $ 0.2 million and $ 0.3 million during the three and six months ended March 31, 2021.

Other Assets - Promissory Note

7 unchanged sentences

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

As a result, the Company recorded a $ 1.1 million loss as component of Other operating expenses in its Condensed Consolidated Statement of Operations during the three months ended June 30, 2021, representing the difference between the $ 4.6 million outstanding balance of principal and accrued interest and the $ 3.5 million payment received.

There was no impact on the unaudited financial statements from this transaction as of and for the three months ended December 31, 2021 and December 31, 2020.

As a result, the Company recorded a $ 1.1 million loss as a component of Other operating expenses in its Condensed Consolidated Statement of Operations during the three months ended June 30, 2021, representing the difference between the $ 4.6 million outstanding balance of principal and accrued interest and the $ 3.5 million payment received.

There was no impact on the unaudited financial statements from this transaction as of and for the three and six months ended March 31, 2022, and March 31, 2021 .

Risk Associated with Certain Concentrations

4 unchanged sentences

The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks and cash equivalent money market funds in accounts which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable.

The Company deposits its cash and acquires cash equivalent money market funds with financial institutions that the Company considers to be of high credit quality.

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks within interest bearing and earnings allowance checking accounts which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable.

The Company deposits its cash in interest bearing checking accounts with financial institutions that the Company considers to be of high credit quality.

Liquidity Services, Inc.

4 unchanged sentences

The property purchased under these contracts with Amazon.com, Inc.

represented 60.5 % and 60.0 % of consolidated Cost of goods sold for the three months ended December 31, 2021 and 2020, respectively.

represented 51.7 % and 61.2 % of consolidated Cost of goods sold for the three months ended March 31, 2022, and 2021, respectively, and 56.0 % and 60.6 % of consolidated Cost of goods sold for the six months ended March 31, 2022, and 2021, respectively.

These contracts are included within the RSCG reportable segment.

1 unchanged sentence

Accounting Standards Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740):

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

Simplifying the Accounting for Income Taxes .

2 unchanged sentences

Accounting Standards Not Yet Adopted

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

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

ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit.

1 unchanged sentence

The guidance will be effective for the Company beginning on October 1, 2023, and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date.

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

While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.

3 unchanged sentences

Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales.

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

As of December 31, 2021, the Company's purchase price allocation related to this acquisition is preliminary and subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date.

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

As of March 31, 2022 , the Company's purchase price allocation related to this acquisition is preliminary and subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date.

The revisions may have a significant impact on our condensed consolidated financial statements.

The allocation of the purchase price will be finalized once all the information that was known and knowable as of the acquisition date is obtained and analyzed, but not to exceed one year from the acquisition date.

The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, the valuation of intangible assets acquired and earn-out liability, and the residual goodwill.

The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, and the residual goodwill.

The preliminary amounts assigned to intangible assets by type for this acquisition were based upon our valuation model and historical experiences with entities with similar business characteristics.

The preliminary acquisition date fair value of the consideratio n transferred to the shareholders of Bid4Assets was approximately $ 41.6 million consisting of $ 14.7 million in cash (net of working capital adjustments totaling $ 0.3 million) and earn-out consideration with a preliminary fair value of $ 26.9 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 trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022.

During the three months ended March 31, 2022 , we recorded a measurement period adjustment of $ 1.1 million for the earn-out consideration fair value with a corresponding increase to goodwill, based on facts and circumstances in existence as of the effective date of the acquisition related to the discount rates associated with the expected earn-out payments.

This resulted in a change to the total consideration transferred and goodwill balance seen below as compared to our previously reported preliminary purchase accounting results as of December 31, 2021.

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

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

Liquidity Services, Inc.

17 unchanged sentences

Based on management's preliminary valuation of the fair value of tangible and intangible assets acquired and liabilities assumed, goodwill of approximately $ 30.0 million was recorded.

The total goodwill arising from the acquisition is included in the GovDeals reportable segment and is not deductible for tax purposes.

The total goodwill arising from the acquisition is included in the GovDeals reportable segment and reporting unit and is not deductible for tax purposes.

The known intangible assets acquired were determined to consist of, and preliminarily fair valued at, the following:

21 unchanged sentences

Contingent Consideration

During the three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary contingent consideration in the amount of $ 26.9 million on its Condensed Consolidated Balance Sheets.

During the six months ended March 31, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary contingent consideration in the amount of $ 28.0 million on its Condensed Consolidated Balance Sheets.

See further discussion of this matter within Note 11 - Fair Value Measurement .

Other Information

Revenue, net income (loss), and pro forma information related to the Bid4Assets acquisition was immaterial to the condensed consolidated financial statements and its related notes for the three months ended December 31, 2021 and 2020, as applicable.

Earnings per Share

3 unchanged sentences

The computation of basic and diluted net income per share is as follows:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Net income $ 11,970 $ 5,260 $ 15,572 $ 9,775

17 unchanged sentences

The components of lease expense are:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

(in thousands) 2022 2021 2022 2021

2 unchanged sentences

Operating lease cost 1,434 1,249 2,912 2,655

Operating lease impairment expense — 172 0 172

Short-term lease cost 64 47 117 121

Variable lease cost (1)

169 455 553 818

Sublease income ( 30 ) ( 30 ) ( 67 ) ( 106 )

3 unchanged sentences

Maturities of lease liabilities are:

December 31, 2021

March 31, 2022

(in thousands) Operating Leases Finance Leases

13 unchanged sentences

Supplemental disclosures of cash flow information related to leases are:

Three Months Ended December 31,

Six Months Ended March 31,

(in thousands) 2022 2021

18 unchanged sentences

Translation adjustments ( 141 ) — — ( 141 )

Balance at December 31, 2021

Balance at March 31, 2022

$ 21,442 $ 53,691 $ 14,558 $ 89,691

The increase in the goodwill balance of $ 28.8 million at the GovDeals reportable segment during the three months ended December 31, 2021 is due to the Bid4Assets acquisition.

The increase in the goodwill balance of approximately $ 30.0 million at the GovDeals reportable segment and reporting unit during the six months ended March 31, 2022, is due to the Bid4Assets acquisition.

See Note 3 - Bid4Assets Acquisition for further information.

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

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

The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended December 31, 2021.

As discussed in Note 11 – Fair Value Measurements , the fair value of the Bid4Assets earn-out liability declined by $ 8.5 million during the three months ended March 31, 2022, due to timing changes impacting the level of auction events and transactions that are expected to occur during the earn-out period ending December 31, 2022.

These timing changes have not reflected substantive changes to the long-term outlook for real estate sales within the GovDeals segment and were not considered a triggering event for testing goodwill or long-lived assets for impairment as of March 31, 2022.

The Company has also continued to evaluate the impact of the COVID-19 pandemic and other ongoing macroeconomic disruptions on the recoverability of its goodwill.

The Company did not identify any indicators of impairment that required an interim goodwill impairment test during the six months ended March 31, 2022.

Intangible Assets

Intangible assets consist of the following:

December 31, 2021 September 30, 2021

March 31, 2022 September 30, 2021

(in thousands) Useful

11 unchanged sentences

Total intangible assets $ 24,668 $ ( 6,459 ) $ 18,209 $ 8,160 $ ( 4,707 ) $ 3,453

The gross carrying amount of total intangible assets increased by $ 16.5 million during the three months ended December 31, 2021 due to the Bid4Assets acquisition.

The gross carrying amount of total intangible assets increased by $ 16.5 million during the six months ended March 31, 2022 due to the Bid4Assets acquisition.

The acquired developed software and trade name are included in the above line items of Technology and Patent and trademarks, respectively.

See Note 3 - Bid4Assets Acquisition for further information.

Future expected amortization of intangible assets at December 31, 2021, is as follows:

Future expected amortization of intangible assets at March 31, 2022, is as follows:

(in thousands) Expected Amortization Expense

3 unchanged sentences

Total $ 18,209

Intangible asset amortization expense was $ 0.8 million and $ 0.3 million for the three months ended December 31, 2021 and 2020, respectively.

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

The Company has not identified indicators of impairment requiring an interim impairment test on material long-lived assets during the three months ended December 31, 2021.

Intangible asset amortization expense was $ 1.0 million and $ 0.3 million for the three months ended March 31, 2022 and 2021, respectively, and $ 1.8 million and $ 0.7 million for the six months ended March 31, 2022 and 2021, respectively.

Liquidity Services, Inc.

1 unchanged sentence

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The Company has continued to evaluate the impact of the COVID-19 pandemic, ongoing macroeconomic disruptions, and the subsequent financial performance of Bid4Assets, on the recoverability of its long-lived assets.

The Company did not identify any indicators of impairment requiring an interim impairment test on material long-lived assets during the three and six months ended March 31, 2022.

The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate.

The Company recorded pre-tax income in the first three months of fiscal year 2022 and its corresponding effective tax rate is 21.3 % compared to 6.2 % for the first three months of fiscal year 2021.

The change in the effective tax rate for the three months ended December 31, 2021 as compared to the same period in the prior year was primarily due to state and foreign taxes, and the utilization of net operating losses.

Tax expense in the three months ended December 31, 2021 is due to state and foreign taxes paid and the utilization of net operating losses.

The Company recorded pre-tax income in the first six months of fiscal year 2022 and its corresponding effective tax rate is 11.7 % compared to 6.7 % for the first six months of fiscal year 2021.

The change in the effective tax rate for the six months ended March 31, 2022, as compared to the same period in the prior year was primarily due to state and foreign taxes, and the utilization of net operating losses.

The effective tax rate differed from the U.S.

1 unchanged sentence

The Company applies the authoritative guidance related to uncertainty in income taxes.

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

The Company identified no new uncertain tax positions during the three months ended December 31, 2021.

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

The Company identified no new uncertain tax positions during the six months ended March 31, 2022.

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

federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom.

As of December 31, 2021, the Company has no open income tax examinations in the U.S.

As of March 31, 2022, the Company has no open income tax examinations in the U.S.

and the statute of limitations for years prior to 2018 is now closed.

However, certain tax attribute carryforwards that were generated prior to fiscal year 2018 may be adjusted upon examination by tax authorities if they are utilized.

On February 10, 2022, the Company entered into a credit facility agreement (Credit Agreement) with Wells Fargo Bank, N.A.

Terms of the Credit Agreement provide for revolving loans (Line of Credit) up to a maximum aggregate principal amount of $ 25.0 million with a $ 10.0 million sublimit for standby letters of credit.

The Credit Agreement ends on March 31, 2024, at which time any remaining amounts outstanding are due immediately.

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

Interest is payable monthly.

The Company pays an Unused Commitment Fee, on a quarterly basis, equal to 0.05 % per annum on the daily amount of the Line of Credit available, but unused.

The Company also pays a Letter of Credit Fee, on a quarterly basis, equal to 1.25 % on the daily amount available to be drawn for standby letters of credit.

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

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

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

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

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

As of March 31, 2022, the Company was in full compliance with the terms and conditions of the Credit Agreement.

During the three and six months ended March 31, 2022, the Company did not make any draws under the Credit Agreement.

As of March 31, 2022, the Company had no outstanding borrowings under the Credit Agreement.

During the three and six months ended March 31, 2022, interest expense incurred by the Company under the Credit Agreement was immaterial to the c ondensed consolidated financial statements.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Stockholders’ Equity

16 unchanged sentences

Balance at December 31, 2020 34,212,815 $ 34 $ 250,002 $ ( 866,388 ) $ ( 8,255 ) $ ( 8,886 ) $ ( 117,832 ) $ 115,063

Net income — — — — — — 5,260 5,260

Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units 1,079,955 1 154 — — — — 155

Taxes paid associated with net settlement of stock compensation awards ( 177,463 ) — ( 3,145 ) — — — — ( 3,145 )

Common stock repurchased — — — ( 647,583 ) ( 12,040 ) — — ( 12,040 )

Common stock surrendered in the exercise of stock options — — 1,333 ( 73,228 ) ( 1,333 ) — — —

Stock compensation expense — — 1,522 — — — — 1,522

Foreign currency translation — — — — — 123 — 123

Balance at March 31, 2021 35,115,307 $ 35 $ 249,866 $ ( 1,587,199 ) $ ( 21,628 ) $ ( 8,763 ) $ ( 112,572 ) $ 106,938

Liquidity Services, Inc.

2 unchanged sentences

Stock Compensation Incentive Plans

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

As of December 31, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans.

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

During the three months ended March 31, 2022, the Company's shareholders approved an amendment to the LTIP to increase the number of shares of common stock reserved for issuance from 19,100,000 to 20,300,000 .

Accordingly, as of March 31, 2022, the Company has reserved a total of 20,300,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans.

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

As of December 31, 2021, 994,605 shares of common stock remained available for use.

As of March 31, 2022 , 2,350,615 sh ares of common stock remained available for use under the LTIP.

Stock Compensation Expense

The table below presents the components of share-based compensation expense (in thousands):

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Equity-classified awards:

3 unchanged sentences

Liability-classified awards:

SARs ( 111 ) 239 ( 101 ) 667

Total stock compensation expense:

$ 1,992 $ 1,761 $ 4,272 $ 3,990

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

Three Months Ended December 31,

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

Three Months Ended March 31, Six Months Ended March 31,

2022 2021 2022 2021

Stock Compensation Expense by Line Item

9 unchanged sentences

The following table presents stock option and RSUs & RSAs grant activity:

Three Months Ended

December 31, 2021

Six Months Ended

March 31, 2022

Stock Options granted:

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

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Sc holes option-pricing model during the three months ended December 31, 2021 were as follows:

Three Months Ended

December 31, 2021

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Sc holes option-pricing model during the six months ended March 31, 2022, were as follows:

Six Months Ended

March 31, 2022

Dividend yield —

2 unchanged sentences

Expected term 4.5 - 7.4 years

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the three months ended December 31, 2021 were as follows:

Three Months Ended

December 31, 2021

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the six months ended March 31, 2022, were as follows:

Six Months Ended

March 31, 2022

Dividend yield —

5 unchanged sentences

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

During the three months ended December 31, 2021, the Company did no t issue any SARs, 750 SARs were exercised requiring the Company to make cash payments of less than $ 0.1 million, and 2,500 SARs were canceled.

As of December 31, 2021 , 38,795 SARs were outstanding.

During the six months ended March 31, 2022, the Company did no t issue any SARs, 6,725 SARs were exercised requiring the Company to make cash payments of less than $ 0.1 million, and 3,250 SARs were canceled.

As of March 31, 2022 , 32,070 SARs were outstanding.

Share Repurchase Program

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

From time to time, we may be 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.

2 unchanged sentences

The Company had no remaining share repurchase authorization as of September 30, 2021.

On December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan (the "December 6 Stock Repurchase Plan") of up to $ 20 million of the Company's ou tstanding shares of common stock through December 31, 2023.

During the three months ended December 31, 2021, the Company repurchased a total of 147,185 shares for $ 3.0 million under this program.

As of December 31, 2021, the company may repurchase an additional $ 17.0 million of shares under this program.

On December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan of up to $ 20 million of the Company's ou tstanding shares of common stock through December 31, 2023.

The Company repurchased 1,011,881 shares for $ 17.0 million, and 1,159,066 shares for $ 20.0 million during the three and six months ended March 31, 2022, respectively.

As of March 31, 2022, the Company had no remaining authorization to repurchase shares.

Other Share Repurchases

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

During the three months ended December 31, 2021 and December 31, 2020, participants surrendered 4,678 a nd 9,384 shares of common stock, respectively, in the exercise of stock options.

During the three months ended March 31, 2022, no shares of common stock were surrendered by participants in the exercise of stock options.

During the three months ended March 31, 2021, participants surrendered 73,228 shares of common stock in the exercise of stock options.

During the six months ended March 31, 2022, and March 31, 2021, participants surrendered 4,678 and 82,612 shares of common stock, respectively, in the exercise of stock options.

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

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Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.

The Company had $ 40.0 million of money market funds considered cash equivalents at December 31, 2021 and September 30, 2021.

These assets were measured at fair value at December 31, 2021 and September 30, 2021 and were classified as Level 1 assets within the fair value hierarchy.

The Company held no money market funds considered cash equivalents at March 31, 2022, while it held $ 40.0 million of money market funds considered cash equivalents at September 30, 2021.

The decrease in money market funds held during the period was a result of the Company's movement of excess cash balances to higher yield product offerings in interest bearing and earnings allowance checking accounts.

There were no money market fund assets to measure at fair value at March 31, 2022.

Money market funds held at September 30, 2021, were measured at fair value and classified as Level 1 assets within the fair value hierarchy.

There were no transfers between levels during the periods presented.

During the three months ended December 31, 2021, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $ 26.9 million on its Condensed Consolidated Balance Sheets.

During the three and six months ended March 31, 2022, and as a result of the acquisition of Bid4Assets, the Company recorded preliminary fair value of contingent consideration in the amount of $ 28.0 million on its Condensed Consolidated Balance Sheets.

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

The liability for this consideration has $ 14.5 million included in Accrued expenses and other current liabilities and $ 12.4 million recorded in Other long-term liabilities within the Condensed Consolidated Balance Sheets.

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

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

The Company fair valued the earn-out consideration using Monte Carlo valuation method.

The fair value measurements utilized were classified as Level 3 assets within the fair value hierarchy under the provisions of ASC 820 and ASC 805.

The fair value measurements utilized were classified as Level 3 assets within the fair value hierarchy under the provisions of ASC 820, Fair Value Measurements , and ASC 805, Business Combinations .

The significant unobservable inputs used in the fair value measurem ent categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out period, volatility of gross profit and operating expenses, and the discount rate.

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Fair value of the earn-out consideration will be remeasured at the end of each calendar quarter until December 31, 2022.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

T he changes in earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value during the three months ended December 31, 2021, is as follows (in thousands):

The changes in earn-out liability measured at fair value for which the Company has used Level 3 inputs to determine fair value during the three and six months ended March 31, 2022, is as follows (in thousands):

Contingent Consideration

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Balance at December 31, 2021 $ 26,900

Measurement period adjustment 1,100

Change in fair value ( 8,500 )

Balance at March 31, 2022 $ 19,500

See further discussion in Note 3 - Bid4Assets Acquisition .

During the three months ended March 31, 2022, the fair value of the earn-out liability was reduced by $ 8.5 million to $ 19.5 million, due to a decline in the auction events and transactions that are expected to be completed during the earn-out period ending December 31, 2022.

This change resulted from events occurring subsequent to the November 1, 2021, acquisition date and therefore were not known nor knowable at that time.

These events include extended timelines to advance legislation that allows for online auctions of foreclosed real estate in certain target markets, and other client specific delays in bringing foreclosed real estate to auction.

This change in fair value was recorded as a gain within Fair value adjustment of acquisition earn-outs in the Condensed Consolidated Statements of Operations.

The $ 19.5 million in earn-out liability as of March 31, 2022, is recorded within Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets.

During the three and six months ended March 31, 2022, Bid4Assets achieved certain of the trailing twelve-month EBITDA targets such that payout totaling $ 3.5 million to former Bid4Assets shareholders is expected to be made by the Company during the third quarter of fiscal 2022.

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

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

As of December 31, 2021, the Company had no non-financial instruments measured at fair value on a non-recurring basis other than fair value measurements associated with the preliminary purchase accounting for Bid4Assets.

As of March 31, 2022, the Company had no non-financial instruments measured at fair value on a non-recurring basis other than fair value measurements associated with the preliminary purchase accounting for Bid4Assets.

See Note 3 - Bid4Assets Acquisition for more information.

As of September 30, 2021, the Company did no t have any material assets or liabilities measured at fair value on a non-recurring basis.

Liquidity Services, Inc.

and Subsidiaries

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

Defined Benefit Pension Plan

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The Scheme was closed to new members on January 1, 2002.

The net periodic (benefit) is recognized within Interest and other income, net in the Condensed Consolidated Statements of Operations, and for the three months ended December 31, 2021 and 2020 included the following components:

Three Months Ended December 31,

The net periodic (benefit) is recognized within Interest and other income, net in the Condensed Consolidated Statements of Operations, and for the three and six months ended March 31, 2022, and 2021 included the following components:

Three Months Ended March 31, Six Months Ended March 31,

(in thousands) 2022 2021 2022 2021

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Legal Proceedings and Other Contingencies

The Company reserves for contingent liabilities based on ASC 450, Contingencies , when it determines that a liability is

probable and reasonably estimable.

From time to time, the Company may become involved in litigation relating to claims

arising in the ordinary course of the business.

The Company reserves for contingent liabilities based on ASC 450, Contingencies , when it determines that a liability is probable and reasonably estimable.

From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business.

Former Employee Matters

On December 22, 2020, the Company’s former Vice President, Human Resources (the “HR Plaintiff”) filed a claim with the Equal Employment Opportunity Commission (“EEOC”) for wrongful termination on the basis of gender, race, and age.

The EEOC subsequently assigned HR Plaintiff’s claim to the Montgomery County Office of Human Rights for investigation, which, in turn, dismissed HR Plaintiff’s claim after HR Plaintiff filed a complaint in the United States District Court for the District of Maryland Southern Division on May 19, 2021.

In May 2021, the Company’s former Vice President, Human Resources filed a complaint against the Company in federal court in Montgomery County, Maryland, alleging wrongful termination on the basis of gender, race, and age.

The parties have completed the discovery phase of this case.

On April 4, 2022, the Company filed a motion for summary judgment.

The Company believes this claim is without merit and cannot estimate a range of potential liability, if any, at this time.

The Company’s employment practices liability insurance carrier, CNA, has accepted tender of this claim.

In October 2021, the Company’s former Chief Marketing Officer filed a claim with the Equal Employment Opportunity Commission (the “EEOC”), alleging wrongful termination on the basis of race and age and that the Company retaliated against him.

The Company submitted its position statement to the EEOC on February 8, 2022.

The Company believes these claims are without merit and cannot estimate a range of potential liability, if any, at this time.

CNA has accepted tender of these claims as well.

Unless otherwise noted, based on the information currently available, there are no claims or actions pending or threatened against the Company that, if adversely determined, would have, in Company’s management’s judgement based on the information known to management, a material adverse effect on the Company.

Liquidity Services, Inc.

1 unchanged sentence

Notes to the Unaudited Condensed Consolidated Financial Statements - (Continued)

On October 22, 2021, the Company’s former Chief Marketing Officer (“Marketing Plaintiff”) filed a claim with the EEOC alleging that the Company discriminated against him on the basis of his race and age and that the Company retaliated against him.

The Company believes these claims are without merit and cannot estimate a range of potential liability, if any, at this time.

CNA has accepted tender of the claims.

Segment Information

10 unchanged sentences

CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing.

Commercial seller assets are located across North America, Europe, Australia, Asia, and Africa.

This segment includes the Company's Network International and GoIndustry DoveBid marketplaces and self-directed service solutions for commercial businesses on the AllSurplus marketplace.

Commercial seller assets are located across North America, South America, Europe, Australia, Asia, and Africa.

This segment includes the Company's GoIndustry DoveBid and AllSurplus marketplaces.

• The Machinio reportable segment operates a global search engine platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

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The following table sets forth certain financial information for the Company's reportable segments:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

(in thousands) 2022 2021 2022 2021

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The following table reconciles gross profit used in the reportable segments to the Company's consolidated results:

Three Months Ended December 31,

Three Months Ended March 31, Six Months Ended March 31,

(in thousands) 2022 2021 2022 2021

1 unchanged sentence

Gross profit $ 39,307 $ 35,401 $ 78,253 $ 68,580

Operating expenses 34,494 28,548

Other operating (income) expenses ( 32 ) 4

Total operating expenses 34,824 29,763 69,287 58,315

Fair value adjustment of acquisition earn-outs ( 8,500 ) — ( 8,500 ) —

Interest and other income, net ( 46 ) ( 29 ) ( 177 ) ( 214 )

Income before provision for income taxes $ 13,029 $ 5,667 $ 17,643 $ 10,479

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended December 31, 2021 and 2020 w as 13.5 % and 9.6 %, respectively.

The percent of our revenues that came from transactions conducted outside of the United States for the three months ended March 31, 2022, and 2021 w as 15.4 % and 18.4 %, respectively, and the percent of our revenue s that came from transactions conducted outside of the United States for the six months ended March 31, 2022, and 2021 was 14.5 % and 17.2 %, respectively.

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

What changed 10-Q

Item 1. Financial Statements