What changed in this filing

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Item 1. Business

2022-12-08 compared with 2021-12-09 · 130 added, 125 removed, 300 unchanged (46% of the section changed)

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

Liquidity Services, Inc.

(Liquidity Services, the Company) 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.

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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.

Our business strives to deliver value to shareholders by unleashing the intrinsic value of surplus through our marketplace platforms.

These platforms ignite and enable a self-reinforcing cycle of value creation where buyers and sellers attract one another in greater numbers.

The result of this cycle is a continuous flow of goods that becomes increasingly valuable as more participants join the platforms, thereby creating positive network effects that benefit sellers, buyers, and shareholders.

During the past three fiscal years, we have conducted over 2.2 million online transactions generating $2.7 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.

During the year ended September 30, 2022, the number of registered buyers grew from 4.0 million to 4.9 million, or 22%.

We generated GMV of $1,145 million and revenue of $280.1 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 during the year ended September 30, 2022.

Our GMV has grown at a compound annual growth rate of 12.5% 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 16 - Segment Information to the Consolidated Financial Statements for more information regarding our segments.

Liquidity Services, Inc.

(Liquidity Services, the Company) was incorporated in Delaware in November 1999 as Liquidation.com, Inc.

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

See Note 16 - Segment Information for more information regarding our segments.

Liquidity Services was incorporated in Delaware in November 1999 as Liquidation.com, Inc.

and commenced operations in early 2000.

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(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.

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

See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.

Industry Overview

While a well-established forward supply chain exists for the procurement of assets, many manufacturers, retailers, corporations and government agencies have recognized the growing need for strategic reverse supply chain solutions.

For example, research from Worldwide Business Research found the global reverse supply chain market generated $415.2 billion in 2017 and is expected to reach $604 billion by 2025, growing at a CAGR of 4.6% from 2017 to 2025.

The retail industry, as indicated by an Appriss Retail report in 2020, estimates that approximately $428 billion of merchandise is returned on an annual basis, representing almost 11% of total sales.

For example, according to Allied Market Research ( Reverse Logistics Market by Return Type:

Global Opportunity and Industry Forecast 2021-2028 (July 2021) ), the global reverse logistics market is expected to reach $958 billion by 2028, growing at a CAGR of 5.6% from 2021 to 2028.

The retail industry, as per an Appriss Retail and National Retail Federation Q4 2021 returns survey ( Customer Returns in the Retail Industry 2021 ), estimates that approximately $761 billion of merchandise is returned on an annual basis, representing almost 17% of total sales.

Liquidity Services estimates that at least $100 billion of these returns are moved through secondary markets, with the remaining volume returning to retailer shelves or being sold through discount retailers.

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The supply of surplus and idle assets in the reverse supply chain results from a number of factors, including:

• Increasing focus by corporate and government agencies to seek green solutions for surplus assets.

Many organizations appreciate the growing need to be environmentally friendly by improving their management of end-of-life or surplus goods, including the need to repurpose or efficiently redistribute surplus and capital assets to minimize waste and maximize value for themselves and the communities they serve.

• Supply chain inefficiencies.

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Organizations that manufacture, distribute, sell or use finished goods regularly dispose of excess inventory or returned merchandise.

• Growth of e-commerce.

According to Digital Commerce 360 ( US Ecommerce Grows 10.8% in Q3 2022 ), over 20% of all retail purchases come from online orders.

Furthermore, online purchases have a higher return rate at almost 21%, greater than that of 17% for total retail sales overall ( CNBC:

A more than $761 billion dilemma:

Retailers’ returns jump as online sales grow (January 2022) ).

As e-commerce growth accelerates, the flow of assets in the retail reverse supply chain is likely to grow.

• Product innovation.

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The flexible return practices of many large national retailers and online shopping sites result in a continuous supply of returned merchandise, a significant portion of which must be liquidated.

• Growth of e-commerce.

According to Digital Commerce 360, online retail has flourished during the COVID-19 pandemic, up 44.4% from 2019 and making up 20.8% of all retail sales.

With as much as 30% of e-commerce sales being returned, the flow of assets in the retail reverse supply chain is likely to grow.

• Compliance with government regulations.

An increasingly stringent regulatory environment necessitates the verifiable recycling and remarketing of surplus assets that would otherwise be disposed of as waste.

• Increasing focus by corporate and government agencies to seek green solutions for surplus assets.

An increasingly stringent regulatory environment necessitates verifiable recycling and remarketing of surplus assets that would otherwise be disposed of as waste.

• Changing budgetary trends in corporate and governmental entities.

As corporate and governmental entities increasingly are being pressured to enhance efficiencies, while utilizing less resources, they are looking to the liquidation of surplus and salvage capital assets as a source of funds.

As corporate and governmental entities are increasingly pressured to enhance efficiencies while also using fewer resources, they are looking to the liquidation of surplus and salvage capital assets as a source of funds.

The management and remarketing of surplus assets traditionally has been an inefficient process.

While many organizations spend considerable resources developing systems and channels supporting the flow of finished goods to their core customers and developing procurement processes for acquiring equipment and assets to support their operations, we believe that many have not historically invested resources in the reverse supply chain in the same way as the forward supply chain.

While many organizations spend considerable resources developing systems and channels supporting the flow of finished goods to their core customers as well as developing procurement processes for acquiring equipment and assets to support their operations, we believe that many have not historically invested resources in the reverse supply chain in the same way as the forward supply chain.

Factors contributing to these inefficiencies in the reverse supply chain include the lack of:

• a centralized and global marketplace to sell bulk products as well as machinery and equipment in the reverse supply chain;

• awareness of effective methods and mechanisms for disposal of surplus assets;

• awareness of effective methods and mechanisms for the disposal of surplus assets;

• experience in managing the reverse supply chain to seek optimal net returns and improve gross margins;

• real time market data on surplus assets.

Traditional methods of surplus and salvage asset disposition include ad-hoc, negotiated direct sales, utilization of individual brokers or sales agents and live on-site auctions.

Traditional methods of surplus and salvage asset disposition include ad-hoc sales, negotiated direct sales, utilization of individual brokers or sales agents and live on-site auctions.

We believe these solutions are generally highly fragmented, geographically dispersed and poorly integrated with supply chain operations.

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• pricing transparency or ability to compare asset prices.

We believe professional buyers of surplus and salvage assets will increasingly use these B2B platforms to identify and source goods available for immediate online purchase.

Our solution comprises e-commerce marketplaces, self-directed auction listing tools, and value-added services.

We believe professional buyers of surplus and salvage assets will increasingly use these business to business (B2B) platforms to identify and source goods available for immediate online purchase.

Our Solutions

Our solutions include e-commerce marketplaces, self-directed auction listing tools, and value-added services.

Our marketplaces and services provide sellers a comprehensive solution to quickly bring surplus assets to market and enhance the financial value realized from the sale of their surplus assets while providing buyers with confidence in the reliable flow of goods they purchase.

We provide our sellers access to a network of liquid marketplaces with over 4 million buyers and a suite of services including consultative surplus asset management, valuation, sales solutions, logistics capabilities, and self-directed service tools to efficiently manage sellers' reverse supply chain and maximize total supply chain value.

We provide our sellers access to a network of liquid marketplaces with over 4.9 million buyers and a suite of services including consultative surplus asset management, valuation, sales solutions, logistics capabilities, and self-directed service tools to efficiently manage our sellers' reverse supply chain and maximize total supply chain value.

We also seek the optimal methods to maximize our sellers' net recovery using channel strategies and dedicated programs to deliver transparent, sustained value.

Through our relationships with our sellers, we provide our buyers convenient access to a substantial and continuous flow of surplus and salvage assets.

Through our relationships with our sellers, we provide our buyers with convenient access to a substantial and continuous flow of surplus and salvage assets.

Buyers can find products in over 600 categories in lot sizes ranging from full truckloads to pallets, packages and individual items.

Our solution combines leading e-commerce marketplaces with integrated sales, marketing, merchandising, fulfillment, payment collection, customer support, dispute mediation and logistics services.

We provide our buyers a convenient method for sourcing surplus consumer goods and electronics, commercial capital assets, industrial equipment, energy equipment, biopharma assets and real estate.

We provide our buyers with a convenient method for sourcing surplus consumer goods and electronics, commercial capital assets, industrial equipment, energy equipment, biopharma assets and real estate.

We continually look for new categories in which we can expand our presence.

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We believe our marketplaces benefit over time from greater scale and adoption by our constituents creating a continuous flow of goods benefiting our buyers and sellers.

As of September 30, 2021, we had 4,031,000 registered buyers in our marketplaces.

As of September 30, 2022, we had 4.9 million registered buyers in our marketplaces.

We had access to millions of additional end-users through a range of external consumer marketplaces.

Aggregating this level of buyer demand and market data enables us to generate a continuous flow of goods from corporate and government sellers, which in turn attracts an increasing number of buyers.

During the year ended September 30, 2021, we had approximately 2,279,000 auction participants in our online auctions.

During the year ended September 30, 2022, we had approximately 3.1 million auction participants in our online auctions.

During fiscal 2022, we grew our registered buyer base by 21.6% or 871,000.

None of our buyers represented more than 10% of our revenue during the year ended September 30, 2021.

Of the increase, approximately 16% is attributable to the Bid4Assets register buyer base acquired during the three months ended December 31, 2021.

As buyers continue to discover and use our e-commerce marketplaces as an effective method to source assets, we believe our solutions become an increasingly attractive sales channel for corporate and government agency sellers.

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We offer marketplaces with full-service and self-directed solutions.

Our self-directed solutions provide transaction settlement and marketing support while allowing sellers undertake the work of photographing, cataloging, and building auctions.

Our self-directed solutions provide transaction settlement and marketing support while allowing sellers to undertake the work of photographing, cataloging, and building their auctions.

Our value-added services simplify the sales and supply chain processes for our sellers and improve the utility of our marketplaces for our buyers.

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Sellers simply make goods available at their facilities or deliver them to our distribution centers and we deliver the sale proceeds, less our portion of such proceeds and/or our commissions or fees, after the sale is completed.

In response to feedback from our sellers, we have learned that our sellers prefer bespoke returns process management or return to vendor solutions tailored to their own systems, and accordingly, we shifted focus from developing SaaS solutions to refining our own internal returns management processes that we use to serve our sellers.

In response to feedback from our sellers, we have learned that our sellers prefer bespoke returns process management or return to vendor solutions tailored to their own systems, and accordingly, we have shifted focus from developing SaaS solutions to refining our own internal returns management processes that we use to serve our sellers.

We have also expanded our capabilities to process individual items, pallets, less-than-truckload (LTL) and full-truckload (FTL) auctions.

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Solutions that promote sustainability for improved corporate/government stewardship

Our pioneering e-commerce marketplace solutions continue to power the circular economy and our triple bottom line, which benefits businesses, communities, and the environment.

Our e-commerce marketplace solutions power the circular economy and provide benefits to businesses, communities, and the environment.

We achieve this through our safe and effective resale and redeployment of surplus assets;

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We continue to make strategic investments in our technology capabilities.

Aligning the capabilities of our auction platforms with the Company’s unique, vertical-specific knowledge has enabled us to develop our newest marketplace, AllSurplus.

Aligning the capabilities of our auction platforms with the Company’s unique, vertical-specific knowledge has enabled us to develop the AllSurplus marketplace.

This platform provides an aggregated view of all assets available globally in our government and commercial sectors, and retail assets for select local markets.

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Our strategic plan rests on four pillars, that we refer to by the acronym RISE, which pillars are as follows:

(1) R ecovery maximization;

(2) I ncrease volume;

(3) S ervice Expansion;

and (4) E xpense Leverage.

Recovery Maximization

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This approach allows us to more completely penetrate the total addressable market by better meeting the needs of small and mid-sized organizations, equipment dealers, and organizations with lower volume needs.

We also anticipate increasing volume by placing a greater focus on certain categories, including construction and heavy equipment.

We intend to grow our volume within the retail supply chain by leveraging the self-directed service model.

We will continue to provide flexible pricing models that allow our sellers to use either a consignment or a principal-based model.

We also anticipate increasing volume by placing a greater focus on certain categories, including real estate, construction, and heavy equipment.

We intend to grow our volume within the retail supply chain by leveraging the self-directed service model, continuing to expand our distribution network, and the launching of AllSurplus Deals in fiscal year 2020 as a new marketplace offering consumers deals for curbside pickup.

We will continue to provide flexible pricing models that allow our sellers to use either a consignment or a Purchase-based model.

Service Expansion

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We intend to improve operating expense leverage by controlling costs and through technology innovation that increases productivity.

We have simplified and streamlined our operations and consolidated business processes and systems, which has reduced our fixed costs and improved scalability.

We have developed and will leverage a unified marketing organization to improve our seller and buyer marketing productivity by increasing the number of sellers using our platform and by driving increased volumes of highly targeted buyers to our marketplaces.

In sum, we intend to deliver a more diversified, asset light business with recurring revenue that focuses on profitability while growing a solid foundation for long-term growth.

As we continue to drive organic growth in GMV and revenues, grow our asset light technology enabled services, and build more recurring revenue, we believe our long-term value and ability to serve our sellers and buyers will grow.

We have simplified and streamlined our operations and consolidated business processes and systems, which has improved scalability.

We have a unified marketing organization to improve our seller and buyer marketing productivity by increasing the number of sellers using our platform and by driving increased volumes of highly targeted buyers to our marketplaces.

Our Marketplaces

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We operate and enable several marketplaces, including the following:

• Our Liquidation.com marketplace enables corporations located in the United States and Canada to sell surplus and salvage consumer goods and retail capital assets.

This leading B2B marketplace and our related value-added services are designed to meet the needs of our sellers by selling their surplus assets to domestic and international buyers.

• Our GovDeals marketplace provides self-directed service solutions in which sellers list their own assets, and enables local and state government entities including city, county and state agencies, located in the United States and Canada to sell surplus and salvage assets.

GovDeals also offers a suite of self-directed solutions that include transaction settlement and buyer marketing.

• Our AllSurplus marketplace, launched in fiscal 2020, leverages our 20 years of experience in the online surplus industry to create a centralized marketplace that connects our entire global buyer base with assets from across our network of marketplaces in a single destination.

• Our AllSurplus marketplace, launched in fiscal year 2020, leverages our 20 years of experience in the online surplus industry to create a centralized marketplace that connects our entire global buyer base with assets from across our network of marketplaces in a single destination.

The AllSurplus platform will continually evolve as we enhance our marketplace technology and add new seller and buyer services.

• Our Liquidation.com marketplace enables corporations located in the United States and Canada to sell surplus and salvage consumer goods and retail capital assets.

This leading B2B marketplace and our related value-added services are designed to meet the needs of our sellers by selling their surplus assets to domestic and international buyers.

We also provide a global search, advertising, and inventory management platform that connects dealers and sellers of used machinery and equipment in the construction, machine tool, transportation, printing, and agriculture sectors with interested buyers through our Machinio segment.

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We have developed the capability to sell products on our sellers' behalf directly to end-users and/or consumers using a range of existing marketplaces.

In 2021, AllSurplus Deals was born as an expansion of the core platform enabling a hyper-localized direct to consumer experience.

During fiscal year 2020, AllSurplus Deals was born as an expansion of the core platform enabling a hyper-localized direct to consumer experience.

AllSurplus Deals provides a convenient, local pickup solution connecting our retail supply directly to consumers in our target markets.

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◦ Channel optimization—we determine the marketplace and channel sales strategy that we believe will create the most value for the individual asset using our real-time transaction systems and proprietary data to support ongoing optimization.

◦ Marketing and promotion—we use a variety of both online and traditional marketing methods to promote our sellers' merchandise and generate the interest in each asset.

◦ Marketing and promotion—we use a variety of both online and traditional marketing methods to promote our sellers' merchandise and generate interest in each asset.

◦ Asset lotting and merchandising—we leverage our industry experience to organize the merchandise we receive into size and product combinations that meet buyer preferences within each marketplace and channel.

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Our sales activities are focused on acquiring new sellers and expanding existing sellers' use of our solutions.

Our marketing activities are focused on acquiring and

activating new buyers and increasing existing buyers' participation.

Our marketing activities are focused on acquiring and activating new buyers and increasing existing buyers' participation.

Our marketing team also manages our marketplace brands and drives seller lead generation efforts that support the sales team.

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Our sales team works with several auction partners globally for both purchase and consignment transaction model projects.

In addition, we have a lead generation team which tracks announcements regarding plant closures around the world.

The lead generation team uses several sources to research plant closures, which sources include news aggregators, trade journals, industry specific web sites and bankruptcy reports on a global basis.

We organize our sellers group into two distinct groups:

large full-service sellers, and self-directed sellers.

In addition, we have a lead generation team which tracks relevant media around the world.

The lead generation team uses several sources to research information relevant to our marketplaces, which sources include news aggregators, trade journals, industry specific web sites and business reports on a global basis.

We organize our sellers into two distinct groups:

full-service sellers, and self-directed sellers.

We base our approach on our experience in understanding and serving the unique needs of each type of seller:

• Large full-service sellers.

• Full-service sellers.

These sellers require a customized approach, using a combination of our industry-focused sales team and our value-added services to create a comprehensive solution tailored to their needs.

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• Sales Support.

Our marketing department employs a robust lead generation program, creates documentation and research to support our sales team in presenting our company to potential sellers and buyers, including sales brochures and white papers, and participates in selected trade shows.

Our marketing department employs a robust demand generation program, creates documentation and research to support our sales team in presenting our company to potential sellers, including sales brochures and white papers, and participates in selected trade shows.

All marketing activities are evaluated based on the level of auction participation in our marketplaces, the cost to acquire new participants, and the cost effectiveness of each action.

Technology and IT Infrastructure

Our marketplaces are web-based and can be accessed from any Internet-enabled device by using a standard web browser.

Our technology systems enable us to automate and streamline many of the manual processes associated with finding, evaluating, bidding on, paying for and shipping surplus and salvage assets.

The technology and content behind our marketplaces and integrated value-added services were developed by us, providing us with control over the marketplaces and the ability to make enhancements quickly to better fit the specific needs of our buyers and sellers.

As digital transformation accelerates globally, sellers are searching for partner solutions that enable them to move faster and generate maximum recovery with minimal investment.

Buyers search for marketplaces that are efficient, trustworthy, secure, and always-on, regardless of device.

Our marketplaces are web-enabled, and cloud backed, accessible from Internet-enabled devices using a standard web browser.

Our technology systems enable us to automate and streamline many of the manual processes associated with finding, evaluating, bidding on, paying for, and shipping surplus and salvage assets, retail overstocks and returns, and government owned real-estate.

The technology and content behind our marketplaces and integrated value-added services were developed by us, providing us with flexibility and control over the marketplaces.

This enables the ability to make enhancements quickly to better fit the specific needs of our buyers and sellers.

Our infrastructure provides:

• an efficient channel to sell online through a variety of pricing mechanisms (standard auction, sealed bid, make an offer, fixed price, and a combination of fixed price and auction);

• efficient channels to sell online through a variety of pricing mechanisms (standard auction, sealed bid, make an offer, fixed price, and a combination of fixed price and auction);

• a scalable back office that enables buyers and sellers to efficiently manage transactions among remote business users by utilizing account management tools, including payment collection, invoicing management, shipping, and transaction settlement;

• an input/output agnostic platform, including Application Programming Interface or other conduits that enable us to integrate seamlessly with partner enterprise applications of sellers and third-party service providers.

• an input/output agnostic platform, including Application Programming Interface or other conduits that enable us to scale and integrate seamlessly with partners of all sizes, from single asset sellers to Fortune 500 enterprises and third-party service providers.

We have designed our websites and supporting infrastructure to be robust and to support new services and increased traffic.

Our servers are fully managed and hosted by Amazon Web Services and Microsoft Azure Public Cloud Platforms.

Our services leverage the scale and power of Amazon Web Services and Microsoft Azure Public Cloud platforms.

Our applications are designed with resiliency and fault tolerance in mind.

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Our applications support multiple layers of security, including password-protected logins, encryption technology to safeguard information transmitted in web sessions and firewalls to help prevent unauthorized access to our network and servers.

We devote resources to protecting our systems from intrusion.

Further, we devote resources to continuous improvement of our technology and IT infrastructure.

In fiscal 2021, we continued to expand the capabilities of our flagship e-commerce platform, AllSurplus, to enable support for direct-to-consumer transactions.

This expansion of the platform, AllSurplus Deals, provides a hyper-localized selling platform connecting our retail supply with customers in specific geographies.

The key features of this expansion include:

• dedicated, location specific shopping experience

• mobile optimized, curbside pickup solution that informs and engages customers through each step of a contactless pickup experience

• channel integration with retail warehouse systems providing additional sales channel to localized retail partners

Additionally, we introduced the following new features:

• Updated payment processor integration further enhancing our payment processing capabilities and reducing risk

• Automated buyer payment reminders

• Enabled buyers to easily find assets listed by government sellers on the AllSurplus marketplace

• Enhanced the buyer Saved Search experience increasing use of the daily emails and adding click tracking

• Updated the AllSurplus URLs structure to support SEO friendly URLs enabling better site discovery and more organic traffic

For our existing marketplaces we continue to deploy new capabilities to improve the customer experience.

Liquidation.com’s truckload purchase experience has been expanded to provide more robust manifest and ship quoting information, enabling our buyers to make more informed bid decisions.

We continue to invest in our security infrastructure to ensure it meets or exceeds industry standards for cybersecurity and employ dedicated resources to protect our systems.

Further, we devote substantial resources to the continuous improvement of our technology and IT infrastructure which allows us to deliver value rapidly to our buyers, sellers, and internal employees.

In fiscal year 2022, we continued to expand the capabilities of our flagship e-commerce platform, AllSurplus, enabling multiple user experience and back-office improvements.

Customers now receive onsite alerts to notify them of event and invoice activity.

These will provide a visual reminder of required actions to complete their auction purchase.

We have also automated the invoice generation process, reducing the time between when an auction is concluded, and the buyer is prompted to pay.

Additional product categories were added to the marketplaces' taxonomy to accommodate an ever-expanding field of assets.

For our existing marketplaces and services, we continue to deploy new capabilities to improve the customer experience, including a new unified header navigation that spans all marketplace properties.

This new navigation element enables our customers to quickly switch between sites, aiding in the viewing of our comprehensive range of assets, and thereby maximizing the traffic benefits of our customer acquisition marketing.

Our core back-office infrastructure is flexible by design.

In response to the continued COVID-19 travel restrictions and shelter-in-place orders, we continued to leverage the remote work capabilities we had previously made in VoIP telephony, collaboration software, mobile device support, cloud-based enterprise services, as well as ‘always on’ VPN technology.

These investments enable a global, remote workforce to service our customers’ needs regardless of location.

Following the onset of the COVID-19 pandemic, we shifted to a remote work model.

The cloud-based, flexible infrastructure has enabled our operations to continue, uninterrupted, in a variety of working models, including fully remote, on-site, and hybrid.

This flexibility affords us the ability to recruit and retain outstanding talent and to service our customers’ needs regardless of location.

Our customers are increasingly looking to our solutions to facilitate robust recovery for their assets, regardless of industry or location.

We continue to develop intelligent solutions for our customers that facilitate rapid and secure transactions between buyer and seller, whether they are in the same town or across the globe.

Our goal is to lead the industry in several distinct areas over the long term, which we expect will translate to sustained growth.

We are investing significant resources in:

• Our marketplace user experiences

• Our seller tools - optimizing the interface for key industry verticals

• Expanding our use of and Machine Learning to drive asset search and recommendations

Our future growth depends on our continued ability to execute against these priorities.

Supporting large organizations that have a recurring need to sell surplus and salvage assets requires systematic processes to enhance the financial value and convenience received by our sellers.

We believe we have integrated the required operational processes into our solution to efficiently and to effectively support our buyers and sellers.

Our operations group comprises three functions:

(1) buyer relations, (2) shipping logistics and (3) distribution center and field service operations.

Our operations group comprises three functions as follows:

Buyer relations

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Our Vendor Contracts with Amazon.com, Inc.

and the United States Department of Defense

Our RSCG segment has multiple vendor contracts with Amazon.com, Inc., under which we acquire commercial merchandise to sell under the purchase model.

The commercial merchandise we purchased under this contract represented 60.7%, 55.1% and 43.6% of consolidated cost of goods sold for the years ended September 30, 2021, 2020 and 2019, respectively.

DoD agreement.

Historically, we had a material vendor contract with the Department of Defense (DoD) referred to as the Scrap Contract.

The contract results were included in the results of our CAG segment.

• Scrap Contract.

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

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

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

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

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 for the year ended September 30, 2019.

The commercial merchandise we purchased under these contracts represented 55%, 61% and 55% of consolidated cost of goods sold for the years ended September 30, 2022, 2021 and 2020, respectively.

Government Regulation

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Intellectual Property

We regard our intellectual property, particularly domain names, copyrights and trade secrets, as critical to our success.

We rely on contractual restrictions and common law copyright and trade secret laws to protect our proprietary rights, know-how, information and technology.

These contractual restrictions include confidentiality and non-compete provisions.

We generally enter into agreements containing these provisions with our employees, contractors and third parties with whom we have strategic relationships.

Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without our authorization.

We are the registered owners of several Internet domain names, including www.allsurplus.com, www.liquidation.com, www.govdeals.com, www.networkintl.com, www.secondipity.com, www.go-dove.com, and www.machinio.com.

We pursue the registration of our trademarks in the U.S.

We regard our intellectual property, particularly domain names, copyrights and buyer database trade secrets, as critical to our success.

We rely on contractual restrictions and copyright and trade secret laws to protect our proprietary rights, know-how, information and technology.

We currently are the registered owners of several Internet domain names, including www.liquidation.com, www.govdeals.com, www.allsurplus.com, www.secondipity.com, www.go-dove.com, www.machinio.com, www.machineryhost.com and www.bid4assets.com.

We pursue the registration of our domain names in the U.S.

and internationally.

Effective patent, copyright, trademarks, trade secret and domain name protections are expensive to maintain, and we may have to litigate to enforce our intellectual property rights.

We seek to protect our domain names in an increasing number of jurisdictions and may not succeed in certain jurisdictions.

We have no patents or registered copyrights.

Effective patent, copyright, trademark, service mark, trade secret and domain name protection are expensive to maintain and may require litigation to enforce.

Human Capital Management

In order to achieve our goal to build the world’s leading marketplace for surplus assets to benefit buyers, sellers, and the planet, it is crucial that we attract, develop and retain employees who deliver outstanding performance.

To do so, we strive to make LSI a rewarding place to work and an environment where we promote diversity, equity, and inclusion.

To do so, we strive to make Liquidity Services a rewarding place to work and an environment where we promote diversity, equity, and inclusion.

As of September 30, 2022, we had 735 employees worldwide, of which 91% were located in North America, 6% in the EMEA region, and 3% in the Asia-Pacific region.

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Our plans are designed to enhance employee wellness by focusing on health, financial security, life, and learning.

Our health benefits include multiple medical plans, dental and vision coverage.

Our health benefits include multiple medical plans, dental and vision coverage, and paid parental leave.

In the US, we pay a significant portion of the benefit premiums related to our health benefits.

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The financial security benefits program includes a 401(k) plan with discretionary employer match and access to health savings accounts and health and dependent care flexible spending accounts.

Our life program provides a range of insurance products and employee assistance programs.

We provide a range of insurance products and employee assistance programs.

Internationally, we also offer a variety of benefit plans customized to reflect local conditions.

Our learning and development programs include tuition support for employees and a global training and development program that focuses on leadership development, as well as training in various topics including diversity, anti-harassment, ethics, and regulatory compliance.

COVID-19 Response

In fiscal 2021, our ongoing focus on workplace safety and regulatory compliance has enabled us to maintain business continuity while promoting a safe work environment during the COVID-19 pandemic.

Protecting the health and safety of our employees and their families has been a priority throughout the COVID-19 pandemic.

In March 2020, all employees who could work remotely began working from home.

Many of these employees continue to work remotely.

To help prevent the spread of COVID-19 and protect the safety of our frontline employees, all our facilities are thoroughly cleaned regularly, and we

implemented safety measures, including mask and social distancing requirements, in accordance with the U.S.

Centers for Disease Control and Prevention and the World Health Organization guidelines.

We also educated employees on how they can help keep themselves, their families, and coworkers safe.

Our safety measures have helped us to avoid COVID-19 spread among our employees.

Culture and Community

LSI’s culture is rooted in our core values and aligned to the company’s strategic framework.

The Company's culture is rooted in our core values and aligned to the Company’s strategic framework.

Our culture expresses our expansive vision and fervor for community and collaboration and is honed by the following core values:

• Integrity .

Our partners and colleagues know they can trust us to always keep our promises, be transparent, and adhere to the highest ethical standards.

• Customer Focus.

Buyer and seller satisfaction are key to our continued success.

We seek to exceed our customers’ expectations every day.

• Continuous Improvement.

We embrace change and are motivated to constantly improve our individual and collective performance.

• Innovation.

We continually seek out, develop, and implement new ideas to enhance our position as industry leader.

• Mutual Trust and Accountability.

Our collaborative environment values open communication, mutual respect, teamwork, and acknowledging our successes and failures.

• Shared Success.

Everyone in our organization acts as leaders with a shared sense of pride in our accomplishments.

• Doing Well and Doing Good.

By continuing to positively impact our clients and the environment, we make Liquidity Services a rewarding place to work.

We make a difference by our words and actions in our company, our community, and our world.

We reinforce, monitor, and assess our culture through a variety of programs which include performance management, succession planning, and employee engagement surveys, all of which serve to further our human capital objectives.

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Supporting community outreach, disaster relief, zero-waste initiatives, youth mentoring, military families and veterans, and access to higher education.

Flexible Workspace

The COVID-19 pandemic has changed the way we work.

Roles that were able to work remotely continued to do so throughout 2022.

We are committed to allowing flexibility in our workplace to promote high performance, retention, diversity, equity, and inclusion while also continuing to meet customer and business needs.

Sustainability Efforts

At our core, LSI strives to benefit businesses, communities, and the environment through our marketplaces which enable the continued use of surplus and salvage assets that may otherwise wind up in landfills.

At our core, Liquidity Services strives to benefit businesses, communities, and the environment through our marketplaces which enable the continued use of surplus and salvage assets that may otherwise wind up in landfills.

These efforts extend to our employees as well, where our remote work structure for applicable employees has enabled lower expended energy and emissions from both transportation-related activities and operations across our real estate portfolio.

Available Information

Our annual, quarterly, and current reports, proxy statements, amendments to those reports and other information are provided free of charge on our website www.liquidityservices.com, as soon as reasonably practicable after we electronically file these materials with or furnish them to, the Securities and Exchange Commission (the SEC).

Our proxy statement, annual, quarterly, and current reports, as well as amendments to those reports and other information, are provided free of charge on our website at www.investors.liquidityservices.com, as soon as reasonably practicable after we electronically file these materials with or furnish them to, the Securities and Exchange Commission (the SEC).

We use our website as a channel of distribution for material Company information.

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Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this Annual Report or to reflect the occurrence of unanticipated events.

Use of Market and Industry Data

Unless otherwise indicated, information contained in this Annual Report on Form 10-K concerning our industry and the markets in which we operate, including our general expectations about our industry, market position, market opportunity and market size, is based on data from various sources including internal data and estimates as well as third party sources widely available to the public such as independent industry publications, government publications, reports by market research firms or other published independent sources and on our assumptions based on that data and other similar sources.

Industry publications and other published sources generally state that the information contained therein has been obtained from third-party sources believed to be reliable.

Internal data and estimates are based upon information obtained from trade and business organizations and other contacts in the markets in which we operate and management’s understanding of industry conditions, and such information has not been verified by any independent sources.

This data involves several assumptions and limitations, and you are cautioned not to give undue weight to such estimates.

While we believe the market, industry and other information included in this Annual Report on Form 10-K to be the most recently available and to be generally reliable, such information is inherently imprecise and we have not independently verified any third-party information or verified that more recent information is not available.

The information in any such publication, report, survey or article is not incorporated by reference in this Annual Report on Form 10-K.

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What changed 10-K

Item 1. Business