UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| (Mark One) | |||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission file number 0-51813
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |||||||
| Incorporation or Organization) | Identification No.) | |||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||
(202 ) 467-6868
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report)
Securities registered to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | ||||||||
Non-accelerated filer ☐ | Smaller reporting company | |||||||
Emerging growth company | ||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares outstanding of the issuer’s common stock, par value $0.001 per share, as of August 2, 2021 was 35,440,468 .
INDEX
| Page | ||||||||
| PART I. FINANCIAL INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| PART II. OTHER INFORMATION | ||||||||
| Item 1. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
2
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)
| June 30, 2021 | September 30, 2020 | ||||||||||
| (Unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $ | |||||||||||
| Inventory, net | |||||||||||
| Prepaid taxes and tax refund receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Property and equipment, net of accumulated depreciation of $ | |||||||||||
| Operating lease assets | |||||||||||
| Intangible assets, net | |||||||||||
| Goodwill | |||||||||||
| Deferred tax assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and stockholders’ equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other current liabilities | |||||||||||
| Current portion of operating lease liabilities | |||||||||||
| Deferred revenue | |||||||||||
| Payables to sellers | |||||||||||
| Total current liabilities | |||||||||||
| Operating lease liabilities | |||||||||||
| Other long-term liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 12) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Treasury stock, at cost; | ( | ( | |||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
3
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Revenue | $ | $ | $ | $ | |||||||||||||||||||
| Fee revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Costs and expenses from operations: | |||||||||||||||||||||||
| Cost of goods sold (excludes depreciation and amortization) | |||||||||||||||||||||||
| Technology and operations | |||||||||||||||||||||||
| Sales and marketing | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Other operating expenses | |||||||||||||||||||||||
| Total costs and expenses | |||||||||||||||||||||||
| Income (loss) from operations | ( | ||||||||||||||||||||||
| Interest and other income, net | ( | ( | ( | ( | |||||||||||||||||||
| Income (loss) before provision for income taxes | ( | ||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic income (loss) per common share | $ | $ | $ | $ | ( | ||||||||||||||||||
| Diluted income (loss) per common share | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic weighted average shares outstanding | |||||||||||||||||||||||
| Diluted weighted average shares outstanding | |||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
4
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
(Dollars in Thousands)
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
| Other comprehensive income (loss): | |||||||||||||||||||||||
| Foreign currency translation | ( | ||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive income (loss) | $ | $ | $ | $ | ( | ||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
5
Liquidity Services, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(Dollars In Thousands)
| Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Additional Paid-in Capital | Shares | Amount | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | ||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2020 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards | ( | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock repurchased | — | — | — | ( | ( | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Common stock surrendered in the exercise of stock options | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation and other | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2021 | $ | $ | ( | $ | ( | $ | ( | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
See accompanying notes to the unaudited consolidated financial statements.
6
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)
| Nine Months Ended June 30, | |||||||||||
| 2021 | 2020 | ||||||||||
(Unaudited) | |||||||||||
| Operating activities | |||||||||||
| Net income (loss) | $ | $ | ( | ||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock compensation expense | |||||||||||
| Provision for doubtful accounts | |||||||||||
| Deferred tax provision | |||||||||||
| Loss (gain) on disposal of property and equipment | ( | ||||||||||
| Change in fair value of earnout liability | |||||||||||
| Impairment of long-lived and other assets | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | ( | ||||||||||
| Inventory | ( | ( | |||||||||
| Prepaid and deferred taxes | ( | ||||||||||
| Prepaid expenses and other assets | ( | ||||||||||
| Operating lease assets and liabilities | ( | ||||||||||
| Accounts payable | |||||||||||
| Accrued expenses and other current liabilities | ( | ||||||||||
| Distributions payable | ( | ||||||||||
| Deferred revenue | ( | ||||||||||
| Payables to sellers | |||||||||||
| Other liabilities | ( | ||||||||||
| Net cash provided by operating activities | |||||||||||
| Investing activities | |||||||||||
| Increase in intangibles | ( | ( | |||||||||
| Purchases of property and equipment, including capitalized software | ( | ( | |||||||||
| Proceeds from sales of property and equipment | |||||||||||
| Proceeds from promissory note | |||||||||||
| Purchases of short-term investments | ( | ||||||||||
| Maturities of short-term investments | |||||||||||
| Net cash provided by investing activities | |||||||||||
| Financing activities | |||||||||||
| Payments of the principal portion of finance lease liabilities | ( | ( | |||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | ( | |||||||||
| Proceeds from exercise of stock options | |||||||||||
| Payment of earnout liability related to business acquisition | ( | ||||||||||
| Common stock repurchased | ( | ||||||||||
| Net cash (used in) financing activities | ( | ( | |||||||||
| Effect of exchange rate differences on cash and cash equivalents | ( | ||||||||||
| Net increase in cash and cash equivalents | |||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||
| Cash and cash equivalents at end of period | $ | $ | |||||||||
| Supplemental disclosure of cash flow information | |||||||||||
| Cash paid for income taxes, net | $ | $ | |||||||||
| Non-cash: Common stock surrendered in the exercise of stock options | $ | $ | |||||||||
See accompanying notes to the unaudited consolidated financial statements.
7
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
1. Organization
Liquidity Services, Inc. (the Company) operates a network of e-commerce marketplaces that power the circular economy which benefits businesses, society, and the environment through the safe and effective resale and redeployment of surplus assets; reducing waste, carbon emissions and transportation costs; and by creating markets for items that would otherwise be landfilled. The Company's marketplaces enable buyers and sellers to transact in an efficient, automated environment offering over 600 product categories and provide professional buyers access to a global, organized supply of new, surplus and idle assets presented with digital images and other relevant product information. The Company's marketplaces enable corporate and government sellers to enhance their financial return on offered assets by providing a liquid marketplace and value-added services that encompass the consultative management, valuation and sale of surplus assets. The Company's services include program management, valuation, asset management, reconciliation, refurbishment and recycling, fulfillment, marketing and sales, warehousing and transportation, buyer support, compliance and risk mitigation, as well as self-directed service tools for its sellers. The Company organizes the products on its marketplaces into categories across major industry verticals such as consumer electronics, general merchandise, apparel, scientific equipment, aerospace parts and equipment, technology hardware, energy equipment, industrial capital assets, heavy equipment, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are: www.allsurplus.com, www.liquidation.com, www.govdeals.com, www.secondipity.com, and www.go-dove.com. The Company also operates a global search engine for listing used machinery and equipment for sale at www.machinio.com. The Company has four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. See Note 13 for Segment Information.
The Company's operations are subject to certain risks and uncertainties, many of which are associated with technology-oriented companies, including, but not limited to, the Company's dependence on use of the Internet; the effect of general business and economic trends, including the extent and duration of travel restrictions and the COVID-19 pandemic's impact on current and future macroeconomic conditions; the Company's susceptibility to rapid technological change; actual and potential competition by entities with greater financial and other resources; and the potential for the commercial sellers from which the Company derives a significant portion of its inventory to change the way they conduct their disposition of surplus assets or to otherwise terminate or not renew their contracts with the Company.
2. Summary of Significant Accounting Policies
Unaudited Interim Financial Information
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect amounts in the consolidated financial statements and accompanying notes. For the three and nine months ended June 30, 2021, these estimates required the Company to make assumptions about the extent and duration of restrictions on cross-border transactions and the impact of the COVID-19 pandemic on macroeconomic conditions and, in turn, the Company's results of operations. As there remains uncertainty associated with the COVID-19 pandemic, the Company will continue to update its assumptions as conditions change. Actual results could differ significantly from those estimates.
Contract Assets and Liabilities
Contract assets reflect an estimate of expenses that will be reimbursed upon settlement with a seller. The contract asset balance was $0.4 million as of June 30, 2021 and $0.4 million as of September 30, 2020 and is included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets.
8
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
Contract liabilities reflect obligations to provide services for which the Company has already received consideration, and generally arise from up-front payments received in connection with Machinio's subscription services. The contract liability balance was $4.5 million as of June 30, 2021 and $3.3 million as of September 30, 2020 and is included in the line item Deferred revenue on the Consolidated Balance Sheets. Of the September 30, 2020 contract liability balance, $3.0 million was earned as Fee revenue during the nine months ended June 30, 2021.
For the Company's Machinio business segment, performance obligations are satisfied over time as the Company provides the services over the term of the subscription. At June 30, 2021, the Machinio business segment had a remaining performance obligation of $4.5 million; the Company expects to recognize the substantial majority of that amount as Fee Revenue over the next 12 months.
Contract Costs
Other Assets - Promissory Note
On September 30, 2015, the Company sold certain assets related to its Jacobs Trading business to Tanager Acquisitions, LLC (Tanager). In connection with the disposition, Tanager assumed certain liabilities related to the Jacobs Trading business. Tanager issued a $12.3 million five-year interest-bearing promissory note to the Company.
On October 10, 2019, the Company entered into a Forbearance Agreement and Amendment to Note, Security Agreement and Guaranty Agreement (the "Forbearance Agreement") with Tanager (now known as Jacobs Trading, LLC) and certain of its affiliates (collectively, "JTC"). In exchange for additional collateral, security, and a higher interest rate, the Company granted JTC a new repayment schedule that requires quarterly payments to be made from August 2020 to August 2023. Upon execution of the Forbearance Agreement, JTC repaid $2.5 million in principal, plus $0.4 million in accrued interest. As of March 31, 2021, JTC had repaid $7.7 million of the $12.3 million owed to the Company and had an outstanding principal balance of $4.6 million.
On May 12, 2021, the Company entered into the First Amendment to the Forbearance Agreement with JTC, providing JTC with full satisfaction and discharge from its indebtedness upon receipt of a $3.5 million payment made on May 17, 2021. As a result, the Company recorded a $1.1 4.6 million outstanding balance of principal and accrued interest and the $3.5 million payment received.
Risk Associated with Certain Concentrations
For the majority of buyers that receive goods before payment to the Company is made, credit evaluations are performed. However, for the remaining buyers, goods are not shipped before payment is made, and as a result the Company is not subject to significant collection risk from those buyers.
For consignment sales transactions, funds are typically collected from buyers and are held by the Company on the sellers' behalf. The funds are included in Cash and cash equivalents on the Consolidated Balance Sheets. The Company releases the funds to the seller, less the Company's commission and other fees due, through Accounts payable after the buyer has accepted the goods or within 30 days, depending on the state where the buyer and seller conduct business.
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash in banks and cash equivalent money market funds in accounts which may at times exceed federally insured limits (FDIC and/or SIPC), and Accounts receivable. The Company deposits its cash and acquires cash equivalent money market funds with financial institutions that the Company considers to be of high credit quality.
9
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
Accounting Standards Adopted
On October 1, 2020, the Company adopted ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. This accounting standard has not had a material impact on the Company's consolidated financial statements as no significant implementations of cloud computing arrangements have occurred since adoption.
Accounting Standards Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326), or ASC 326. ASC 326, including all amendments and related guidance, was designed to provide financial statement users with more useful information about the expected credit losses on financial instruments and other commitments to extend credit. ASC 326 will require estimation of expected credit losses using a methodology that takes into consideration a broad range of reasonable and supportable information. The guidance will be effective for the Company beginning on October 1, 2023 and will be applied on a modified-retrospective basis, with any cumulative-effect adjustment recorded to retained earnings on the adoption date. The Company is in the process of evaluating the impact ASC 326 will have on its consolidated financial statements and expects to estimate credit losses on its financial assets such as its Accounts receivable and money market funds. While the Company has not experienced significant credit losses historically, the materiality of the impact of adoption will depend on events and conditions as of the date of adoption, which cannot be determined conclusively at this time.
3. Earnings per Share
Basic net income (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income for the period by the weighted average number of shares of common stock and potentially dilutive common stock outstanding during the period. The calculation of diluted net income per share excludes all anti-dilutive common shares.
The computation of basic and diluted net income per share is as follows:
| Three Months Ended June 30, | Nine Months Ended June 30, | |||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||
| Basic weighted average shares outstanding | ||||||||||||||||||||||||||
| Dilutive impact of stock options, RSUs and RSAs | ||||||||||||||||||||||||||
| Diluted weighted average shares outstanding | ||||||||||||||||||||||||||
| Basic income (loss) per common share | $ | $ | $ | $ | ( | |||||||||||||||||||||
| Diluted income (loss) per common share | $ | $ | $ | $ | ( | |||||||||||||||||||||
Stock options, RSUs and RSAs excluded from income (loss) per diluted share because their effect would have been anti-dilutive | ||||||||||||||||||||||||||
10
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
4. Leases
The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 5.0 years. Some of the leases have options to extend or terminate the leases. The exercise of such options is generally at the Company’s discretion. The lease agreements do not contain any significant residual value guarantees or restrictive covenants. The Company also subleases excess corporate office space. The Company's finance leases and related balances are not significant.
The components of lease expense are:
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| (in thousands) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Finance lease – lease asset amortization | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease – interest on lease liabilities | |||||||||||||||||||||||
| Operating lease cost | |||||||||||||||||||||||
| Operating lease impairment expense | |||||||||||||||||||||||
| Short-term lease cost | |||||||||||||||||||||||
Variable lease cost (1) | |||||||||||||||||||||||
| Sublease income | ( | ( | ( | ( | |||||||||||||||||||
| Total net lease cost | $ | $ | $ | $ | |||||||||||||||||||
(1) Variable lease costs primarily relate to the Company's election to combine non-lease components such as common area maintenance, insurance and taxes related to its real estate leases. To a lesser extent, the Company's equipment leases have variable costs associated with usage and subsequent changes to costs based upon an index.
11
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
Maturities of lease liabilities are:
| June 30, 2021 | |||||||||||
| (in thousands) | Operating Leases | Finance Leases | |||||||||
| 2021 | $ | $ | |||||||||
| 2022 | |||||||||||
| 2023 | |||||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| Thereafter | |||||||||||
Total lease payments (1) | $ | $ | |||||||||
Less: imputed interest (2) | ( | ( | |||||||||
| Total lease liabilities | $ | $ | |||||||||
(1) The weighted average remaining lease term is 3.6 years for operating leases and 4.4 years for finance leases.
(2) The weighted average discount rate is 6.6 % for operating leases and 7.0 % for finance leases.
Additionally, the Company has approximately $4.8 million of future payment obligations related to executed warehouse lease agreements that have not yet commenced as of June 30, 2021.
Supplemental disclosures of cash flow information related to leases are:
| Nine Months Ended June 30, | |||||||||||
| (in thousands) | 2021 | 2020 | |||||||||
| Cash paid for amounts included in operating lease liabilities | $ | $ | |||||||||
| Cash paid for amounts included in finance lease liabilities | |||||||||||
Non-cash: lease liabilities arising from new operating lease assets obtained (1) | |||||||||||
| Non-cash: lease liabilities arising from new finance lease assets obtained | |||||||||||
| Non-cash: adjustments to lease assets and liabilities | |||||||||||
(1) Nine months ended June 30, 2020 amount includes $12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019.
5. Goodwill
The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:
| (in thousands) | CAG | GovDeals | Machinio | Total | ||||||||||||||||||||||
Balance at September 30, 2019 | $ | $ | $ | $ | ||||||||||||||||||||||
| Translation adjustments | ||||||||||||||||||||||||||
Balance at September 30, 2020 | $ | $ | $ | $ | ||||||||||||||||||||||
| Translation adjustments | ||||||||||||||||||||||||||
Balance at June 30, 2021 | $ | $ | $ | $ | ||||||||||||||||||||||
12
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
6. Intangible Assets
Intangible assets consist of the following:
| June 30, 2021 | September 30, 2020 | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||||
| Contract intangibles | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Technology | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Patent and trademarks | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
Future expected amortization of intangible assets at June 30, 2021, is as follows:
| (in thousands) | Expected Amortization Expense | |||||||
| Years ending September 30, | ||||||||
Remainder of 2021 | $ | |||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Total | $ | |||||||
Intangible asset amortization expense was $0.3 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively, and $1.0 million and $1.0 million for the nine months ended June 30, 2021 and 2020, respectively.
7. Income Taxes
The Company’s interim effective income tax rate is based on management’s best current estimate of the Company's expected annual effective income tax rate. The Company recorded pre-tax income in the first nine months of fiscal year 2021 and its corresponding effective tax rate is 5.9 % compared to (8.4 %) for the first nine months of fiscal year 2020. The change in the effective tax rate for the nine months ended June 30, 2021 as compared to the same period in the prior year was primarily due to state and foreign taxes. Tax expense in the nine months ended June 30, 2021 is due to state and foreign taxes paid. The effective tax rate differed from the U.S. statutory federal rate of 21% primarily as a result of the utilization of net operating losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.
The Company applies the authoritative guidance related to uncertainty in income taxes. ASC Topic 740, Income Taxes, states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of technical merits. The Company identified no new uncertain tax positions during the nine months ended June 30, 2021. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom. As of June 30, 2021, none of the Company's federal or state income tax returns are under examination, however, we remain subject to examination for certain of our foreign income tax returns. The Company has no open income tax examinations in the U.S. and the statute of limitations for years prior to 2018 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 2018 may be adjusted upon examination by tax authorities if they are utilized.
On March 27, 2020, The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic. The CARES Act, among other things, accelerates the recovery of alternative minimum tax (AMT) credits into fiscal year 2020. During fiscal year 2020, the Company recovered its full AMT refund of $1.7 million. Prior to the CARES Act, the Company’s AMT credits were recoverable in fiscal years 2021 through 2023. The CARES Act also permits net operating loss (NOL) carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.
13
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
8. Stockholders’ Equity
The changes in stockholders’ equity for the prior year comparable period is as follows:
| Common Stock | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Shares | Amount | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total | |||||||||||||||||||||||||||||
| Balance at September 30, 2019 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | ||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Forfeitures of restricted stock awards | ( | — | — | — | — | — | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | ||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Foreign currency translation | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units | — | — | — | ||||||||||||||||||||||||||||||||
| Taxes paid associated with net settlement of stock compensation awards | ( | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | |||||||||||||||||||||||||||||||
| Foreign currency translation and other | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at June 30, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
14
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)
Stock Compensation Incentive Plans
The Company has several incentive plans under which stock options, restricted stock units (RSUs), restricted stock awards (RSAs), and cash-settled stock appreciation rights (SARs) have been issued, including the Third Amended and Restated 2006 Omnibus Long-Term Incentive Plan, as amended, and a plan and private placement issuances related to the Company’s acquisition of Machinio. As of June 30, 2021, the Company has reserved at total of 19,100,000 shares of its common stock for exercises of stock options, vesting of RSUs, and grants of RSAs under these plans. Vesting of RSUs and grants of RSAs count as 1.5 x shares against the plan reserves. As of June 30, 2021, 1,901,415 shares of common stock remained available for use.
Stock Compensation Expense
The table below presents the components of share-based compensation expense (in thousands):
| Three Months Ended June 30, | Nine Months Ended June 30, | ||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||
| Equity-classified awards: | |||||||||||||||||||||||
| Stock options | $ | $ | $ | $ | |||||||||||||||||||
| RSUs & RSAs | |||||||||||||||||||||||
| Total equity-classified awards | $ | $ | $ | $ | |||||||||||||||||||
| Liability-classified awards: | |||||||||||||||||||||||
| SARs | ( | ||||||||||||||||||||||
| Total stock compensation expense: | $ | $ | $ | $ | |||||||||||||||||||