Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our consolidated financial statements and related
notes and the information contained under the caption "Selected Consolidated Financial Data" contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors,
including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
About us. We operate leading online auction marketplaces for surplus and salvage assets. We enable buyers and sellers to transact in an
efficient, online auction environment offering over 500 product categories. Our marketplaces provide professional buyers access to a global, organized supply of surplus and salvage assets presented
with customer focused information including digital images and other relevant product information along with services to efficiently complete the transaction. Additionally, we enable our corporate and
government sellers to enhance their financial return on excess assets by providing liquid marketplaces and value-added services that integrate sales and marketing, logistics and transaction settlement
into a single offering. We organize our products 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, fleet and transportation equipment and specialty equipment. Our online auction marketplaces are www.liquidation.com, www.govliquidation.com,
www.govdeals.com, www.networkintl.com, www.truckcenter.com, www.secondipity.com, and
believe our ability to create liquid marketplaces for surplus and salvage assets generates a continuous flow of goods from our corporate and government sellers. This valuable and
reliable flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During fiscal year 2014, the number of registered buyers grew from approximately 2,424,000 to
approximately 2,615,000, or 7.9%. During the past three fiscal years, we have conducted over 1,578,000 online transactions generating approximately $2.8 billion in gross merchandise volume or
GMV. We believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a virtual cycle for our buyers and sellers.
Our history. We were incorporated in Delaware in November 1999 as Liquidation.com, Inc. and commenced operations in early 2000.
During 2000, we developed our online auction marketplace platform and began auctioning merchandise primarily for small commercial sellers and government agencies. In 2001, we changed our name to
Liquidity Services, Inc. In June 2001, we were awarded our first major DoD contract, the Surplus Contract. Under this agreement, we became the exclusive contractor with the DLA Disposition
Services, for the sale of usable DoD surplus assets in the United States. In June 2005, we were awarded an additional exclusive contract with the DLA Disposition Services to manage and sell
substantially all DoD scrap property. During 2005, we opened our first distribution center in Dallas, Texas and began serving the reverse logistics needs of top 100 retailers.
Recent initiatives. On January 17, 2014, we were awarded a sole source follow-on contract that extended the performance period of
the Surplus Contract for an additional ten month base period with two one-month renewal option periods, thus, extending the term of the second Surplus Contract until February 2015, assuming both
renewal options are included. The surplus property flow from the DoD continues to be higher than historical levels. The mix of property has shifted to lower value smaller unit items, requiring us to
rent more space, increase the number of shifts in our distribution centers, and
increase our staff. The DoD, in accordance with the award of the next (third) surplus contract, split the contract into a rolling stock and a non-rolling stock contract; with bidding on these two
surplus contracts held on April 1 and 2, 2014. On April 1, 2014, we were the high bidder for the non-rolling