# Liquidity Services Inc: Form 10-Q for the period ended Dec 31, 2023

- Company: [Liquidity Services Inc](/companies/lqdt.md) (CIK 1235468)
- Form: 10-Q
- Filed: 2024-02-08
- Accepted by EDGAR: Feb 8, 2024, 16:38 ET
- Period: 2023-12-31
- Accession: 0000950170-24-012585
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1235468/000095017024012585/lqdt-20231231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1235468/000095017024012585/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $71.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Gross profit | 3 months, 2023-10-01 to 2023-12-31 | $39.8m | us-gaap:GrossProfit |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | $1.6m | us-gaap:OperatingIncomeLoss |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | $881.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | $1.9m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.06 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | $0.06 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 31,938,342 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-10-01 to 2023-12-31 | −$8.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-10-01 to 2023-12-31 | $1.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-10-01 to 2023-12-31 | $1.2m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Current assets | at 2023-12-31 | $138.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $278.4m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $107.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-12-31 | $113.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $165.4m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 48,346 characters.

### FORWARD-LOOKING STATEMENTS

*This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.*

*All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.*

*The following discussion should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and the information contained elsewhere in this document.*

### Overview

*About us*. Liquidity Services is a leading global commerce company providing trusted online marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by using technology to capture and unleash the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading e-commerce auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.

Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our online 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.

### Reportable Segments

The Company has four reportable segments under which we conduct business: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. Further information and operating results of our reportable segments can be found in Note 13 - *Segment Information.*

- *GovDeals*. The GovDeals reportable segment provides solutions that enable government entities including city, county, state and federal agencies located in the United States and Canada and related commercial businesses to sell surplus property and real estate assets through our GovDeals and Bid4Assets marketplaces.
- *RSCG*. The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell excess, returned, and overstocked consumer goods. RSCG also offers a suite of services that includes returns management, asset recovery, and e-commerce solutions. This segment uses multiple selling channels across our network of marketplaces and others to optimize the best combination of velocity, volume, and value. This segment uses the AllSurplus, Secondipity, and Liquidation.com marketplaces.
- *CAG*. The CAG reportable segment provides solutions to sellers and consists of marketplaces that enable commercial businesses to sell surplus assets. The core verticals in which CAG operates include industrial manufacturing, oil and gas, heavy equipment, biopharma, and electronics. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. CAG benefits from a global base of buyers and sellers enabling the sale and redeployment of assets wherever they’re most likely to generate the best value and highest use across the world. This segment primarily uses the AllSurplus and GovDeals marketplaces.
- *Machinio*. 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. Machinio also offers the Machinio System service that provides equipment sellers with a suite of online marketing tools that includes website hosting, email marketing, and inventory management, to support and enable equipment sellers’ online business.

### Macroeconomic Conditions

*Supply chain challenges and consumer sentiment*. Constraints in the production of new vehicles and heavy equipment, particularly as it relates to new fleet sales, are continuing to impact the supply of used vehicles available for sale on our marketplaces, while used car market price indices are simultaneously experiencing heightened volatility. In addition, general consumer behavior appears turbulent, with a greater focus on essential goods yet recent rise in sentiment. These conditions are impacting our financial performance and may continue to do so while these conditions persist, or if similar challenges emerge in other key asset categories.

*Effects of inflation and heightened interest rates*. Rising inflation in both the U.S. and internationally has weighed on the global economy, increasing prices for energy, shipping, and labor, among other areas of the macroeconomic environment. These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation, which has impacted buyer qualification and transaction timelines.

Currently, the Company is unable to predict the likelihood, magnitude, and timing of inflationary risk to our business, if any. As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, the impacts of which may vary across each of our individual asset classes.

*International armed and geopolitical conflicts*. The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing, as well as the recent conflict in and adjacent to Israel. The Russia-Ukraine conflict specifically resulted in numerous countries, including the United States, imposing significant new sanctions and export controls against Russia, Russian banks, and certain Russian individuals. These sanctions and export controls and international responses to the ongoing conflict in and adjacent to Israel, have further heightened global supply chain disruptions and impacted the international trade markets. For the three months ended December 31, 2023, and 2022, the Company's total revenues directly associated with Russia, Ukraine, and Israel were not material to our consolidated financial results. We will continue monitoring these armed and geopolitical conflicts around the world and any potential future impacts on our business.

### Industry Trends

We believe there are several industry trends positively impacting the long-term growth of our business including:

- the increase in volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales;
- the increase in government regulations and the need for corporations to have sustainability solutions with verifiable recycling and remarketing of surplus assets;
- the increase in outsourcing surplus disposition and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital, and increasingly prefer service providers with proven track records, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain;
- an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which could impact our long-term growth;
- the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events; and
- in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets.

### Our Marketplace Transactions

We believe our marketplaces benefit over time from greater scale and adoption by our users creating a continuous flow of goods benefiting our buyers and sellers. As of December 31, 2023, we had 5.2 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 more buyers. During the twelve months ended December 31, 2023, the approximate number of registered buyers increased from 5.0 million to 5.2 million, or approximately 5%. As buyers continue to discover and use our e-commerce marketplaces as an effective method to source assets, we believe our solutions become a more attractive sales channel for corporate and government agency sellers. We believe this self-reinforcing cycle results in greater transaction volume and enhances the value of our marketplaces.

### Revenues

Substantially all of our revenue is earned through the following transaction models:

*Purchase model*. Under our purchase transaction model, we recognize revenue within the Purchase revenues line-item on the Condensed Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the principal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. The proceeds paid by buyers also include transaction fees, referred to as buyer premiums.

*Consignment model—fee revenue*. Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces, and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized upon auction close or upon collection of auction proceeds, depending upon the settlement service level selected by the seller. Revenue under the consignment model is recorded within the Consignment and other fee revenues line-item on the Condensed Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to seller commissions, we also collect buyer premiums.

*Other — fee revenue*. We also earn non-consignment fee revenue from Machinio's subscription services, as well as other services including asset valuation, product handling, and storage fees. Non-consignment fee revenue is recorded within the Consignment and other fee revenues line-item on the Consolidated Statements of Operations.

*Transaction Model Mix*. Most of our transactions are conducted under the consignment model, which represented 88.7% and 85.7% of our consolidated GMV for the three months ended December 31, 2023, and 2022, respectively; however, only the consignment fee, representing a small portion of the consignment GMV, is recognized as revenue, causing consignment revenues to account for 39.6% and 38.9% of our total revenues for the three months ended December 31, 2023, and 2022, respectively.

Purchase model transactions are a smaller proportion of our consolidated GMV, representing 11.3% and 14.3% of our consolidated GMV for the three months ended December 31, 2023, and 2022, respectively. However, all of the GMV associated with the purchase model transaction is generally able to be recognized as revenue, causing purchase revenues to account for 50.8% and 53.4% of our total revenues for the three months ended December 31, 2023, and 2022, respectively.

We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While purchase model transactions account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated Costs of goods sold. $8.3 million and $5.8 million of inventory purchased under such contracts with Amazon.com, Inc. is included in our Condensed Consolidated Inventory balances as of December 31, 2023, and September 30, 2023, respectively. Our vendor contracts with respect to sourcing or consigning merchandise for our RSCG segment generally reflect the concentration dynamics inherent to the retail industry.

Other fee revenues accounted for 9.6% and 7.7% of our total revenues for the three months ended December 31, 2023, and 2022, respectively.

### Key Business Metrics

Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources, and our capacity to fund capital expenditures and expand our business. These key business metrics include:

*Gross merchandise volume (GMV)*. GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time. We review GMV because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have made and continue to make, including in the areas of buyer and seller support, value-added services, product development, sales and marketing, and operations. Our GMV for the three months ended December 31, 2023 and 2022, was $305.9 million and $270.8 million, respectively.

*Total registered buyers*. We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address, contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list.

Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of December 31, 2023, and 2022, we had 5.2 million and 5.0 million registered buyers, respectively. None of our buyers represented more than 10% of our revenue during the three months ended December 31, 2023.

*Total auction participants*. For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended December 31, 2023 and 2022, 848,000 and 744,000 participants participated in auctions on our marketplaces, respectively.

*Completed transactions*. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended December 31, 2023 and 2022, we completed 239,000 and 214,000 transactions, respectively.

### Critical Accounting Policies and Estimates

The Company's critical accounting policies and estimates are described in our Annual Report on Form 10-K for the year ended September 30, 2023, and in Note 2 — *Summary of Significant Accounting Policies* to the condensed consolidated financial statements.

### Components of Revenue and Expenses

*Revenue.* Refer to the discussion in the *Our revenue* section above, and to Note 2 — *Summary of Significant Accounting Policies* in our Annual Report on Form 10-K for the year ended September 30, 2023, for discussion of the Company's related accounting policies.

*Cost of goods sold (excludes depreciation and amortization).* Refer to the discussion in Note 2 — *Summary of Significant Accounting Policies* in our Annual Report on Form 10-K for the year ended September 30, 2023, for discussion of the Company's Costs of goods sold and related accounting policies.

*Technology and operations.* Technology expenses primarily consist of the cost of technical staff (including stock compensation), third-party services, licenses, and infrastructure, all as required to develop, configure, deploy, maintain, and secure our marketplace platforms, business operational systems, and facilities. Technology expenses are net of the required capitalization of costs associated with enhancing our marketplace platforms and other software development activities. Depreciation and amortization of capitalized software development costs, purchased software, acquired developed software intangible assets, and computer hardware are included within Depreciation and amortization in the accompanying Condensed Consolidated Statements of Operations. Technology expenses are presented separately from Costs of goods sold (excluding depreciation and amortization) in the Condensed Consolidated Statements of Operations, as these expenses provide for the general availability of our marketplace platforms and other business operational systems and are not attributable to specific revenue generating transaction activity occurring on our marketplaces.

Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, *Internal-use software*. As such, we are capitalizing certain development costs associated with our marketplaces and support systems, as well as other software development activities.

Operations expenses consist primarily of costs to operate our network of warehouses, including shipping logistics, inventory management, refurbishment, and administrative functions; costs to enhance our online auctions listings and provide customer support; and costs associated with field support and preparation and transfer of goods from sellers to buyers. Operations expenses include both internal and external labor costs, as well as other third-party charges. These costs are expensed as incurred.

*Sales and marketing*. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of lead generation, marketing and promotional activities, including buyer and seller acquisition, as well as general brand marketing. These activities include online marketing campaigns, such as paid search advertising and geofencing campaigns, as well as offline marketing efforts, trade shows, and marketing analytics.

*General and administrative*. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in nature than our other operating expenses and do not vary as significantly in response to the volume of merchandise sold through our marketplaces.

*Depreciation and amortization*. Depreciation and amortization consist of depreciation of property and equipment, amortization of internally developed software, and amortization of intangible assets.

*Fair value adjustment of acquisition earn-outs*. Fair value adjustment of acquisition earn-outs consists of the change in fair value of earn-out consideration following a business combination.

*Other operating expenses, net*. Other operating expenses, net includes impairment of long-lived and other assets, impacts of lease terminations, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.

*Interest and other income, net*. Interest and other income, net consists of interest income on interest-bearing checking accounts, money market funds, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net periodic pension (benefit) cost other than the service component and impacts of foreign currency fluctuations.

*Income taxes.* Income taxes include current and deferred income tax expense for the U.S. federal, state, and foreign jurisdictions. For interim income tax reporting, we estimate our annual effective tax rate and apply this effective tax rate to our year-to-date pre-tax income. Our effective income tax rate after discrete items was 31.6% for the three months ended December 31, 2023. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the impact of foreign, state, and local income taxes and permanent tax adjustments.

### Results of Operations

The following table sets forth, for the periods indicated, our operating results:

*(in thousands)*

|  | Three Months Ended December 31, 2023 | 2022 | Change $% |  |
| --- | ---: | ---: | ---: | ---: |
| Purchase revenues | $36,225 | $38,634 | $(2,409) | (6.2)% |
| Consignment and other fee revenues | 35,100 | 33,648 | 1,452 | 4.3% |
| Total revenue | 71,325 | 72,282 | (957) | (1.3)% |
| Costs and expenses from operations: |  |  |  |  |
| Cost of goods sold (excludes depreciation and amortization) | 31,526 | 31,773 | (247) | (0.8)% |
| Technology and operations | 14,238 | 14,704 | (466) | (3.2)% |
| Sales and marketing | 12,980 | 10,790 | 2,190 | 20.3% |
| General and administrative | 7,585 | 7,385 | 200 | 2.7% |
| Depreciation and amortization | 2,904 | 2,764 | 140 | 5.1% |
| Other operating expenses, net | 445 | 139 | 306 | 219.9% |
| Total costs and expenses | 69,678 | 67,555 | 2,123 | 3.1% |
| Income from operations | 1,647 | 4,727 | (3,080) | (65.2)% |
| Interest and other income, net | (1,141) | (389) | (752) | 193.4% |
| Income before provision for income taxes | 2,788 | 5,116 | (2,328) | (45.5)% |
| Provision for income taxes | 881 | 1,149 | (268) | (23.3)% |
| Net income | $1,907 | $3,967 | $(2,060) | (51.9)% |

NM = not meaningful

The following table presents reportable segment GMV, revenue, segment direct profit is calculated as total revenue less cost of goods sold (excluding depreciation and amortization), and segment direct profit as a percentage of total revenue for the periods indicated:

*(dollars in thousands*

| GovDeals: | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| GMV | $190,408 | $161,122 |
| Total revenue | $15,900 | $13,607 |
| Segment direct profit | $15,056 | $12,892 |
| Segment direct profit as a percentage of total revenue | 94.7% | 94.7% |
| **RSCG:** |  |  |
| GMV | $66,561 | $64,897 |
| Total revenue | $43,721 | $46,015 |
| Segment direct profit | $14,112 | $16,011 |
| Segment direct profit as a percentage of total revenue | 32.3% | 34.8% |
| **CAG:** |  |  |
| GMV | $48,895 | $44,756 |
| Total revenue | $7,834 | $9,393 |
| Segment direct profit | $6,943 | $8,502 |
| Segment direct profit as a percentage of total revenue | 88.6% | 90.5% |
| **Machinio:** |  |  |
| GMV | — | — |
| Total revenue | $3,886 | $3,283 |
| Segment direct profit | $3,703 | $3,120 |
| Segment direct profit as a percentage of total revenue | 95.3% | 95.0% |
| **Consolidated:** |  |  |
| GMV | $305,864 | $270,775 |
| Total revenue | $71,325 | $72,282 |

22

### Three Months Ended December 31, 2023, Compared to the Three Months Ended December 31, 2022

### Segment Results

*GovDeal*s. Total revenues from our GovDeals reportable segment increased 16.9%, or $2.3 million, due to a $29.3 million, or 18.2%, increase in GMV driven by increased personal property sales, including improved availability of used vehicles and increased take-rate pricing, and an increase in volume in our real estate category. Revenue grew at a lower rate than GMV due to an increase in the mix of lower take-rate foreclosed real estate properties available for auction. In periods where GovDeals real estate sales increase, GovDeals revenue as a percent of GMV would be expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories. Segment direct profit increased by $2.2 million, or 16.8%, consistent with the increase in revenues. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

*RSCG*. Revenue from our RSCG reportable segment decreased by $2.3 million, or 5.0%, as GMV growth in our consignment solutions, which provide for a lower revenue take-rate, outpaced purchase programs. GMV increased by $1.7 million, or 2.6%, reflecting an increase in sell-in-place consignment solutions partially offset by an inferior product mix in certain full-service consignment and purchase programs. Segment direct profit decreased by $1.9 million, or 11.9%, and segment direct profit as a percentage of total revenue decreased from 34.8% to 32.3%, due to a lower blended take-rate on our consignment sales from growth in our sell-in-place consignment solutions, and an inferior product mix in certain other programs.

*CAG.* Revenue from the CAG reportable segment decreased by $1.6 million, or 16.6%, due to a large international spot purchase transaction in the prior year. GMV increased by $4.1 million, or 9.2%, driven by consignment sales in our energy and industrial categories. As a result of the decrease in revenues, Segment direct profit decreased by $1.6 million, or 18.3%. Segment direct profit as a percentage of total revenue decreased 1.9%, which may fluctuate due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, and due to favorable margins on a large international spot transaction in the prior year. Challenged global supply chains are experiencing heightened disruptions due to international tensions and other factors, which could limit the volume of assets made available for sale in any period.

*Machinio*. Revenue from our Machinio reportable segment increased 18.4%, or $0.6 million, due to price increases and continued growth in subscribers. As a result of the increase in revenues, segment direct profit increased 18.7%, or $0.6 million. Segment direct profit as a percentage of total revenue remained relatively consistent between the periods.

### Consolidated Results

*Total revenues -* Total consolidated revenue decreased $1.0 million, or 1.3%. Refer to the discussion of Segment Results above for discussion of the increase in revenue.

*Cost of goods sold (excludes depreciation and amortization).* Cost of goods sold decreased $0.2 million, or 0.8%, due to large international spot transactions at the CAG reportable segment in the prior year.

*Technology and operations expenses.* Technology and operations expenses decreased $0.5 million, or 3.2%, primarily due to the streamlining of operations expenses following the prior year growth in our distribution network.

*Sales and marketing expenses.* Sales and marketing expenses increased $2.2 million, or 20.3%, due to our market share expansion and client diversification efforts, as well as a $0.9 million non-recurring benefit from a concluded client program during the three months ended December 31, 2022.

*General and administrative expenses.* General and administrative expenses increased $0.2 million, or 2.7%, due to increased legal fees incurred during the three months ended December 31, 2023; see Note 12 - *Legal Proceedings and Other Contingencies.*

*Depreciation and amortization*. Depreciation and amortization expense was consistent between the three months ended December 31, 2023 and 2022.

*Other operating expenses, net*. Other operating expenses, net increased $0.3 million, due to transaction-related costs incurred in connection with our acquisition of Sierra; see Note 14 - *Subsequent Events.*

*Interest and other income, net.* Interest and other income, net increased $0.8 million, due to the effect of rising interest rates on our cash equivalent and short-term investment holdings.

*Provision for income taxes*. Provision for income taxes decreased $0.3 million due to the impact of foreign, state, and local taxes and permanent tax adjustments.

### Non-GAAP Financial Measures

*Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA*. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income (loss) plus Interest and other (income) expense, net excluding the non-service components of net periodic pension (benefit) cost; Provision (benefit) for income taxes; and Depreciation and amortization. Interest and other (income) expense, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.

We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:

- Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year.
- As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
- The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values over the requisite vesting period. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
- The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value based upon information known or knowable as of the acquisition date, with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.
- We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
- We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
- We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
- We also believe that analysts and investors use Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry.

Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:

- as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
- for planning purposes, including the preparation of our internal annual operating budget;
- to allocate resources to enhance the financial performance of our business;
- to evaluate the effectiveness of our operational strategies; and
- to evaluate our capacity to fund capital expenditures and expand our business.

Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP.

We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.

The table below reconciles Net income to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.

|  | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Net income | $1,907 | $3,967 |
| Interest and other income, net1 | (1,141) | (303) |
| Provision for income taxes | 881 | 1,149 |
| Depreciation and amortization | 2,904 | 2,764 |
| EBITDA | $4,551 | $7,577 |
| Stock compensation expense | 2,249 | 2,081 |
| Acquisition costs and impairment of long-lived and other non-current assets2 | 451 | 184 |
| Non-GAAP Adjusted EBITDA | $7,251 | $9,842 |

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

2 *Acquisition costs and impairment of long-lived and other non-current assets, are components of Other operating expenses, net on the Condensed Consolidated Statements of Operations.*

### Liquidity and Capital Resources

Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate, and equipment used in our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. The Company has not paid a dividend historically, nor do we have any intention to do so in the foreseeable future. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases and acquisitions. As of December 31, 2023, we had $98.6 million and $8.5 million in Cash and cash equivalents and Short-term investments, respectively, which we believe is sufficient to meet the Company’s anticipated cash needs for at least one year from the date of these financial statements.

#### Capital Expenditures

Our capital expenditures consist primarily of capitalized software, warehouse equipment, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the three months ended December 31, 2023 and 2022, were $1.7 million and $1.2 million, respectively. This increase was primarily driven by enhancements to our platforms and marketplaces. As of December 31, 2023, we had no significant outstanding commitments for capital expenditures.

Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to expand our network of warehouses including our lease for warehouse space in Brownsburg, IN as entered into during the three months ended December 31, 2023, but which has not yet commenced. We may seek to enter agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.

#### Credit Agreement

The Company maintains a $25.0 million Credit Agreement with Wells Fargo Bank, National Associated (the Credit Agreement). During the year ended September 30, 2023, the Credit Agreement was amended to extend the maturity date by 12 months to March 31, 2025 (the First Amendment). No other changes, including with respect to the borrowing terms or capacities, were made to the Credit Agreement as a result of the First Amendment).

The Company may draw upon the Credit Agreement for general corporate purposes. Repayments of any borrowings under the Credit Agreement shall become available for redraw at any time by the Company. The interest rate on borrowings under the Credit Agreement 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. During the three months ended December 31, 2023, the Company did not make any draws under the Credit Agreement. As of December 31, 2023, the Company had no outstanding indebtedness under the Credit Agreement and our borrowing availability was $25.0 million.

The obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic subsidiaries and secured on a first priority basis by a security interest (subject to permitted liens) in substantially all assets owned by us, and each of our other domestic subsidiaries, subject to limited exceptions. 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 December 31, 2023, the Company was in full compliance with the terms and conditions of the Credit Agreement.

#### Working Capital Management

Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet-based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.

We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities, and tools for data-driven product recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.

We intend to indefinitely reinvest the earnings of our foreign subsidiaries outside the United States. As a result, we did not record a provision for deferred U.S. tax expense on the $10.7 million of undistributed foreign earnings as of December 31, 2023. As of December 31, 2023, and September 30, 2023, $16.8 million and $19.1 million, respectively, of cash and cash equivalents was held outside of the U.S.

#### Other Uses of Capital Resources

*Sierra Acquisition.* On January 1, 2024, the Company acquired all the issued and outstanding equity securities of Sierra for $13.5 million in cash, subject to a customary working capital adjustment; see Note 14 - *Subsequent Events.*

*Share Repurchases*. From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash.

As of September 30, 2023, the Company had $17.0 million of remaining share repurchase authorization through December 31, 2025.

The Company repurchased 68,692 shares for $1.2 million during the three months ended December 31, 2023. As of December 31, 2023, the Company had $15.8 million of remaining authorization to repurchase shares through December 31, 2025.

*Off-Balance Sheet Arrangements.* We do not have any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.

### Changes in Cash Flows: Three Months Ended December 31, 2023, Compared to the Three Months Ended December 31, 2022

*Net cash used in operating activities* was $8.9 million and $10.7 million for the three months ended December 31, 2023 and 2022, respectively. The $1.8 million decrease in cash used in operating activities between periods was attributable to a combined $9.2 million decrease in cash outflows associated with our Accounts payable and Payables to sellers primarily due to timing differences in the payment of GovDeals seller settlements relative to the period end date. These decreases were offset by $2.2 million in lower Net income as adjusted for non-cash items, and a $3.9 million decrease in cash inflows from Accounts receivable.

Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. As GovDeals real estate sales with settlement services increase, operating cash flow fluctuations from Accounts payable and Payables to sellers are expected to become more variable. The amount of cash received and settled will be substantially higher than our take-rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.

*Net cash used in investing activities* was $2.1 million and $3.0 million for the three months ended December 31, 2023 and 2022, respectively. The $0.9 million decrease in cash used in investing activities was driven by a $2.0 million increase in the maturity of short-term investments. This was partially offset by a $0.5 million increase in the purchase of short-term investments, and a $0.5 million increase in the purchase of property and equipment.

*Net cash used in financing activities* was $1.3 million and $7.0 million for the three months ended December 31, 2023 and 2022, respectively. The $5.7 million decrease in cash used in financing activities was primarily driven by a $6.0 million decrease in share repurchases. This was partially offset by a $0.4 million decrease in the proceeds from the exercise of stock options.

## Market risk

As filed, 2,128 characters.

*Interest rate sensitivity*. Our investment policy requires us to invest funds in excess of current operating requirements. The principal objectives of our investment activities are to preserve principal, provide liquidity, and maximize income consistent with minimizing risk of material loss. As of December 31, 2023, we hold cash and cash equivalents and short-term investments that are subject to varying interest rates based upon their maturities. A hypothetical 100 basis point decline in interest rates would impact our pre-tax earnings by less than $1.0 million on an annualized basis.

As of December 31, 2023, we do not have any debt; however, should the Company draw on our Line of Credit in the future, such draw would incur interest as determined by the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%.

*Exchange rate sensitivity*. Because of the number of countries and currencies we operate in, movements in currency exchange rates may affect our results. We report our operating results and financial condition in U.S. dollars. Our U.S. operations earn revenues and incur expenses primarily in U.S. dollars.

Outside the United States, we generate revenues and incur expenses in both U.S. dollars and local currencies. Our primary foreign exchange exposures include British Pounds, Canadian Dollars, Chinese Yuan, Euros, and Hong Kong Dollars. When we translate the results and net assets of our international operations into U.S. dollars for financial reporting purposes, movements in exchange rates will affect our reported results. Volatile market conditions arising from ongoing macroeconomic conditions such as rising interest rates at federal banks, as well as armed and geopolitical conflicts around the world, may result in significant changes in exchange rates, which could affect our results of operations expressed in U.S. dollars. A hypothetical 10% decrease in foreign exchange rates reduce our total expected revenues by approximately 1%. The potential impact on pre-tax earnings would be less as total expected expenses would also decrease.

## Controls and procedures

As filed, 2,329 characters.

### Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective and were operating to provide reasonable assurance that the information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

During the three months ended December 31, 2023, no change occurred in our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

## Risk factors

As filed, 732 characters.

*There have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023. In addition to the other information set forth in this report, you should carefully consider the factors set forth in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023, which could materially affect our business, financial condition or future results. The risks described in our Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.*

Filed Feb 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-012585. Last ingested by Listed: Oct 24, 2026, 15:10 ET. No prices; not investment advice.