lqdt-20191231
0001235468false--09-302020Q1P5Y1P4YP4YP4YP4Y00012354682019-10-012019-12-31xbrli:shares00012354682020-02-03iso4217:USD00012354682019-12-3100012354682019-09-30iso4217:USDxbrli:shares0001235468us-gaap:ProductMember2019-10-012019-12-310001235468us-gaap:ProductMember2018-10-012018-12-310001235468lqdt:ServiceFeeMember2019-10-012019-12-310001235468lqdt:ServiceFeeMember2018-10-012018-12-3100012354682018-10-012018-12-310001235468us-gaap:CommonStockMember2019-09-300001235468us-gaap:AdditionalPaidInCapitalMember2019-09-300001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001235468us-gaap:RetainedEarningsMember2019-09-300001235468us-gaap:RetainedEarningsMember2019-10-012019-12-310001235468us-gaap:CommonStockMember2019-10-012019-12-310001235468us-gaap:AdditionalPaidInCapitalMember2019-10-012019-12-310001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-10-012019-12-310001235468us-gaap:CommonStockMember2019-12-310001235468us-gaap:AdditionalPaidInCapitalMember2019-12-310001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001235468us-gaap:RetainedEarningsMember2019-12-3100012354682018-09-3000012354682018-12-31lqdt:categorieslqdt:reportablesegment00012354682020-01-01lqdt:MachinioCorporationMember2019-12-310001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2015-09-300001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2015-09-302015-09-300001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2019-10-102019-10-100001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2019-10-100001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2015-09-302019-12-310001235468lqdt:TanagerAcquisitionsPromissoryNoteMember2019-12-310001235468us-gaap:OtherAssetsMemberlqdt:TanagerAcquisitionsPromissoryNoteMember2019-12-310001235468us-gaap:PrepaidExpensesAndOtherCurrentAssetsMemberlqdt:TanagerAcquisitionsPromissoryNoteMember2019-12-31xbrli:pure0001235468us-gaap:SupplierConcentrationRiskMemberlqdt:ContractWithCommercialClientMemberus-gaap:CostOfGoodsTotalMember2019-10-012019-12-310001235468us-gaap:SupplierConcentrationRiskMemberlqdt:ContractWithCommercialClientMemberus-gaap:CostOfGoodsTotalMember2018-10-012018-12-31lqdt:contract0001235468us-gaap:GovernmentContractsConcentrationRiskMemberlqdt:ScrapContractMember2018-10-012018-12-310001235468us-gaap:GovernmentContractsConcentrationRiskMemberlqdt:ScrapContractMemberus-gaap:SalesRevenueNetMember2018-10-012018-12-310001235468us-gaap:AccountingStandardsUpdate201602Member2019-10-010001235468srt:MaximumMember2019-12-310001235468lqdt:CAGMember2018-09-300001235468lqdt:GovDealsMember2018-09-300001235468lqdt:MachinioCorporationMember2018-09-300001235468lqdt:CAGMember2018-10-012019-09-300001235468lqdt:GovDealsMember2018-10-012019-09-300001235468lqdt:MachinioCorporationMember2018-10-012019-09-3000012354682018-10-012019-09-300001235468lqdt:CAGMember2019-09-300001235468lqdt:GovDealsMember2019-09-300001235468lqdt:MachinioCorporationMember2019-09-300001235468lqdt:CAGMember2019-10-012019-12-310001235468lqdt:GovDealsMember2019-10-012019-12-310001235468lqdt:MachinioCorporationMember2019-10-012019-12-310001235468lqdt:CAGMember2019-12-310001235468lqdt:GovDealsMember2019-12-310001235468lqdt:MachinioCorporationMember2019-12-310001235468us-gaap:ContractualRightsMember2019-10-012019-12-310001235468us-gaap:ContractualRightsMember2019-12-310001235468us-gaap:ContractualRightsMember2019-09-300001235468lqdt:BrandAssetsAndDevelopedTechnologyRightsMember2019-10-012019-12-310001235468lqdt:BrandAssetsAndDevelopedTechnologyRightsMember2019-12-310001235468lqdt:BrandAssetsAndDevelopedTechnologyRightsMember2019-09-300001235468lqdt:PatentsAndTrademarksMembersrt:MinimumMember2019-10-012019-12-310001235468lqdt:PatentsAndTrademarksMembersrt:MaximumMember2019-10-012019-12-310001235468lqdt:PatentsAndTrademarksMember2019-12-310001235468lqdt:PatentsAndTrademarksMember2019-09-300001235468us-gaap:CommonStockMember2018-09-300001235468us-gaap:AdditionalPaidInCapitalMember2018-09-300001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-09-300001235468us-gaap:RetainedEarningsMember2018-09-300001235468us-gaap:RetainedEarningsMember2018-10-0100012354682018-10-010001235468us-gaap:RetainedEarningsMember2018-10-012018-12-310001235468us-gaap:CommonStockMember2018-10-012018-12-310001235468us-gaap:AdditionalPaidInCapitalMember2018-10-012018-12-310001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-10-012018-12-310001235468us-gaap:CommonStockMember2018-12-310001235468us-gaap:AdditionalPaidInCapitalMember2018-12-310001235468us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001235468us-gaap:RetainedEarningsMember2018-12-310001235468lqdt:ShareBasedPaymentArrangementOptionandRestrictedStockMember2019-10-012019-12-310001235468us-gaap:StockAppreciationRightsSARSMember2019-10-012019-12-310001235468lqdt:EmployeeStockOptionServiceBasedMember2019-10-012019-12-310001235468lqdt:EmployeeStockOptionMarketBasedMember2019-10-012019-12-310001235468lqdt:RestrictedStockServiceBasedMember2019-10-012019-12-310001235468lqdt:RestrictedStockMarketBasedMember2019-10-012019-12-310001235468lqdt:EmployeeStockOptionServiceBasedMembersrt:MinimumMember2019-10-012019-12-310001235468srt:MaximumMemberlqdt:EmployeeStockOptionServiceBasedMember2019-10-012019-12-310001235468lqdt:RestrictedStockMarketBasedMembersrt:MinimumMember2019-10-012019-12-310001235468lqdt:EmployeeStockOptionMarketBasedMembersrt:MinimumMember2019-10-012019-12-310001235468lqdt:EmployeeStockOptionMarketBasedMembersrt:MaximumMember2019-10-012019-12-310001235468lqdt:RestrictedStockMarketBasedMembersrt:MaximumMember2019-10-012019-12-310001235468us-gaap:StockAppreciationRightsSARSMember2019-12-310001235468us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-09-300001235468us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-10-012019-12-310001235468us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001235468srt:MinimumMember2019-12-310001235468srt:MinimumMember2019-09-300001235468srt:MaximumMember2019-09-30iso4217:GBP0001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2018-10-012018-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2018-10-012018-12-310001235468us-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468us-gaap:EmployeeSeveranceMember2018-10-012018-12-310001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2018-10-012018-12-310001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2018-10-012018-12-310001235468lqdt:OccupancyAndOtherCostsMember2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMember2018-10-012018-12-310001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2018-09-300001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2018-10-012019-09-300001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2019-09-300001235468us-gaap:AccountingStandardsUpdate201602Memberlqdt:CAGMemberus-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468lqdt:CAGMemberus-gaap:EmployeeSeveranceMember2019-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2018-09-300001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2018-10-012019-09-300001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2019-09-300001235468us-gaap:AccountingStandardsUpdate201602Memberus-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:EmployeeSeveranceMember2019-12-310001235468us-gaap:EmployeeSeveranceMember2018-09-300001235468us-gaap:EmployeeSeveranceMember2018-10-012019-09-300001235468us-gaap:EmployeeSeveranceMember2019-09-300001235468us-gaap:AccountingStandardsUpdate201602Memberus-gaap:EmployeeSeveranceMember2019-10-012019-12-310001235468us-gaap:EmployeeSeveranceMember2019-12-310001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2018-09-300001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2018-10-012019-09-300001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2019-09-300001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:AccountingStandardsUpdate201602Memberlqdt:CAGMember2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMemberlqdt:CAGMember2019-12-310001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2018-09-300001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2018-10-012019-09-300001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2019-09-300001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:AccountingStandardsUpdate201602Memberus-gaap:CorporateNonSegmentMember2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:CorporateNonSegmentMember2019-12-310001235468lqdt:OccupancyAndOtherCostsMember2018-09-300001235468lqdt:OccupancyAndOtherCostsMember2018-10-012019-09-300001235468lqdt:OccupancyAndOtherCostsMember2019-09-300001235468lqdt:OccupancyAndOtherCostsMemberus-gaap:AccountingStandardsUpdate201602Member2019-10-012019-12-310001235468lqdt:OccupancyAndOtherCostsMember2019-12-310001235468us-gaap:AccountingStandardsUpdate201602Member2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:GovDealsMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:GovDealsMember2018-10-012018-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:GovDealsMember2019-10-012019-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:GovDealsMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:GovDealsMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:GovDealsMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:RSCGMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:RSCGMember2018-10-012018-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:RSCGMember2019-10-012019-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:RSCGMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:RSCGMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:RSCGMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:CAGMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberus-gaap:ProductMemberlqdt:CAGMember2018-10-012018-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:CAGMember2019-10-012019-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:CAGMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:CAGMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:CAGMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMemberus-gaap:ProductMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMemberus-gaap:ProductMember2018-10-012018-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMember2019-10-012019-12-310001235468lqdt:ServiceFeeMemberus-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMember2018-10-012018-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMember2019-10-012019-12-310001235468us-gaap:OperatingSegmentsMemberlqdt:MachinioCorporationMember2018-10-012018-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:ProductMember2019-10-012019-12-310001235468us-gaap:CorporateNonSegmentMemberus-gaap:ProductMember2018-10-012018-12-310001235468lqdt:ServiceFeeMemberus-gaap:CorporateNonSegmentMember2019-10-012019-12-310001235468lqdt:ServiceFeeMemberus-gaap:CorporateNonSegmentMember2018-10-012018-12-310001235468us-gaap:CorporateNonSegmentMember2019-10-012019-12-310001235468us-gaap:CorporateNonSegmentMember2018-10-012018-12-310001235468us-gaap:NonUsMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2019-10-012019-12-310001235468us-gaap:NonUsMemberus-gaap:SalesRevenueNetMemberus-gaap:GeographicConcentrationRiskMember2018-10-012018-12-31


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 December 31, 2019

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
 
LIQUIDITY SERVICES, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware 52-2209244
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
   
6931 Arlington Road, Suite 200, Bethesda, MD

 20814  
(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 ClassTrading 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 ☐
 
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 February 3, 2020 was 33,988,798.




INDEX
 
  Page
PART I. FINANCIAL INFORMATION  
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION 
Item 1.
Item 1A.

Item 6.

3

Table of Contents
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.
Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands, Except Par Value)
December 31, 2019September 30, 2019
 (Unaudited)
Assets  
Current assets:  
Cash and cash equivalents$24,183  $36,497  
Short-term investments25,000  30,000  
Accounts receivable, net of allowance for doubtful accounts of $250 and $291
5,949  6,704  
Inventory, net5,808  5,843  
Prepaid taxes and tax refund receivable2,608  2,531  
Prepaid expenses and other current assets6,975  8,350  
Total current assets70,523  89,925  
Property and equipment, net of accumulated depreciation of $11,564 and $10,566
18,695  18,846  
Operating lease assets11,724  —  
Intangible assets, net5,727  6,043  
Goodwill59,728  59,467  
Deferred tax assets851  866  
Other assets11,948  12,136  
Total assets$179,196  $187,283  
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$9,714  $15,051  
Accrued expenses and other current liabilities19,055  28,794  
Current portion of operating lease liabilities4,893  —  
Distributions payable  1,675  
Deferred revenue2,689  3,049  
Payables to sellers20,910  20,253  
Total current liabilities57,261  68,822  
Operating lease liabilities7,646  —  
Deferred taxes and other long-term liabilities1,852  2,286  
Total liabilities66,759  71,108  
Commitments and contingencies (Note 11)00
Stockholders’ equity:  
Common stock, $0.001 par value; 120,000,000 shares authorized; 33,887,591 shares issued and outstanding at December 31, 2019; 33,687,115 shares issued and outstanding at September 30, 2019
34  34  
Additional paid-in capital243,311  242,686  
Accumulated other comprehensive loss(7,140) (7,973) 
Accumulated deficit(123,768) (118,572) 
Total stockholders’ equity112,437  116,175  
Total liabilities and stockholders’ equity$179,196  $187,283  
 
See accompanying notes to the unaudited consolidated financial statements.


4

Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)



 Three Months Ended December 31,
 20192018
(Unaudited)
Revenue$30,349  $35,735  
Fee revenue19,155  18,318  
Total revenue49,504  54,053  
Costs and expenses from operations:  
Cost of goods sold (excludes depreciation and amortization)24,176  24,956  
Seller distributions  2,624  
Technology and operations11,241  12,524  
Sales and marketing9,605  8,981  
General and administrative7,707  8,634  
Depreciation and amortization1,572  1,204  
Other operating expenses193  205  
Total costs and expenses54,494  59,128  
Loss from operations(4,990) (5,075) 
Interest and other income, net(252) (319) 
Loss before provision (benefit) for income taxes(4,738) (4,756) 
Provision (benefit) for income taxes458  266  
Net loss$(5,196) $(5,022) 
Basic and diluted loss per common share$(0.15) $(0.15) 
Basic and diluted weighted average shares outstanding33,545,235  32,808,144  
 
See accompanying notes to the unaudited consolidated financial statements.

5

Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Loss
(Dollars in Thousands)



 Three Months Ended December 31,
 20192018
(Unaudited)
Net loss$(5,196) $(5,022) 
Other comprehensive income (loss):  
Foreign currency translation833  (427) 
Other comprehensive income (loss)833  (427) 
Comprehensive loss$(4,363) $(5,449) 
 
See accompanying notes to the unaudited consolidated financial statements.


6

Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(Dollars In Thousands)





 Common Stock
 SharesAmountAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
(Unaudited) 
Balance at September 30, 201933,687,115  $34  $242,686  $(7,973) $(118,572) $116,175  
Net loss—  —  —  —  (5,196) (5,196) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units            283,164  —  2  —  —  2  
Taxes paid associated with net settlement of stock compensation awards(67,688) —  (498) —  —  (498) 
Forfeitures of restricted stock awards(15,000) —  —  —  —    
Stock compensation expense —  —  1,121  —  —  1,121  
Foreign currency translation—  —  —  833  —  833  
Balance at December 31, 201933,887,591  $34  $243,311  $(7,140) $(123,768) $112,437  


See accompanying notes to the unaudited consolidated financial statements.

7

Table of Contents
Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars In Thousands)

 Three Months Ended December 31,
 20192018
(Unaudited)

Operating activities  
Net loss$(5,196) $(5,022) 
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:  
Depreciation and amortization1,572  1,204  
Stock compensation expense1,039  1,513  
Provision for doubtful accounts21  81  
Deferred tax provision (benefit)100  20  
Gain on disposal of property and equipment(12) (11) 
Change in fair value of earnout liability200  100  
Changes in operating assets and liabilities:  
Accounts receivable734  (1,298) 
Inventory35  (374) 
Prepaid and deferred taxes(77) 211  
Prepaid expenses and other assets(725) 1,401  
Operating lease assets and liabilities(97) —  
Accounts payable(5,337) (3,490) 
Accrued expenses and other current liabilities(9,409) (413) 
Distributions payable(1,675) (607) 
Deferred revenue(359) 633  
Payables to sellers658  (1,785) 
Other liabilities(75) (239) 
Net cash (used in) provided by operating activities(18,603) (8,076) 
Investing activities  
Increase in intangibles(20) (5) 
Purchases of property and equipment, including capitalized software(1,330) (1,575) 
Proceeds from sales of property and equipment12  24  
Proceeds from promissory note2,553    
Purchases of short-term investments(25,000) (10,000) 
Maturities of short-term investments30,000    
Net cash (used in) provided by investing activities6,215  (11,556) 
Financing activities  
Payments of the principal portion of finance lease liabilities(8) —  
Taxes paid associated with net settlement of stock compensation awards(498)   
Proceeds from exercise of stock options2  8  
Net cash (used in) provided by financing activities(504) 8  
Effect of exchange rate differences on cash and cash equivalents578  (311) 
Net (decrease) increase in cash and cash equivalents(12,314) (19,935) 
Cash and cash equivalents at beginning of period36,497  58,448  
Cash and cash equivalents at end of period$24,183  $38,513  
Supplemental disclosure of cash flow information  
Cash paid for income taxes, net$9  $32  

See accompanying notes to the unaudited consolidated financial statements.

8

Table of Contents
Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements
1. Organization

Liquidity Services, Inc. (the Company) operates a network of ecommerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 500 product categories. The Company’s marketplaces provide professional buyers access to a global, organized supply of new, surplus and scrap assets presented with digital images and other relevant product information. Additionally, the Company enables 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, fleet and transportation equipment and specialty equipment. Currently, the Company’s marketplaces are: www.liquidation.com, www.govdeals.com, www.networkintl.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 12 in the Notes to the Consolidated Financial Statements 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, 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
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal, recurring adjustments considered necessary for a fair presentation, have been included. The information disclosed in the notes to the consolidated financial statements for these periods is unaudited. Operating results for the three months ended December 31, 2019 are not necessarily indicative of the results that may be expected for the year ending September 30, 2020 or for any future period. 

Leases

The Company adopted Accounting Standards Codification (ASC) Topic 842, Leases (ASC 842) effective October 1, 2019. As a result of adopting ASC 842, there have been significant changes to the Company's lease accounting policy from the disclosures in the Company’s Annual Report on Form 10-K for the year ended September 30, 2019. These changes are described below.

The Company determines if an arrangement is a lease upon inception. A contract is or contains a lease if the contract provides the right to control the use of an identified asset for a period of time.

Lease assets and liabilities are recognized at the lease commencement date at an amount equal to the present value of the lease payments to be made over the lease term. The lease payments represent the combination of lease and nonlease components. The discount rate used to determine the present value is the Company’s incremental borrowing rate for a duration that is consistent with the lease term, as the rates implicit in the Company’s leases are generally not determinable. The Company’s incremental borrowing rate is estimated using publicly-available information for companies with comparable financial profiles, adjusted for the impact of collateralization. The lease term includes the impacts of options to extend or terminate the lease only if it is reasonably certain that the option will be exercised.

Lease expense related to operating lease assets and liabilities is recognized on a straight-line basis over the lease term. Lease expense related to finance lease assets is recognized on a straight-line basis over the shorter of the useful life of the asset or the lease term, while lease expense related to finance lease liabilities is recognized using the interest method. Lease-related
9

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


payments not included in the determination of the lease assets and liabilities, such as variable lease payments, are expensed as incurred.

Lease assets and liabilities are not recognized when the lease term is 12 months or less, however, short-term lease expense is still recognized on a straight-line basis over the lease term.

Balances related to the Company's finance leases are included with Other assets (finance lease assets), Accrued expenses and other liabilities (current portion of finance lease liabilities), and Deferred taxes and other long-term liabilities (non-current portion of finance lease liabilities).

Lease assets are assessed for impairment in accordance with the Company’s accounting policy for the impairment of long-lived assets.

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 $0.3 million as of December 31, 2019 and $0.3 million as of September 30, 2019 and is included in the line item Prepaid expenses and other current assets on the Consolidated Balance Sheets.

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 $2.7 million as of December 31, 2019 and $3.0 million as of September 30, 2019, and is included in the line item Deferred revenue on the Consolidated Balance Sheets. Of the September 30, 2019 contract liability balance, $1.4 million was earned as Fee revenue during the three months ended December 31, 2019.

The $2.7 million contract liability balance as of December 31, 2019 also represents the Company's remaining performance obligations related to contracts with customers that are one year or greater in duration. The Company expects to recognize the substantial majority of that amount as Fee revenue over the next 12 months.

Contract Costs

Contract costs relate to sales commissions paid on subscription contracts that are capitalized. Contract costs are amortized over the expected life of the customer contract. The contract cost balance was $0.5 million as of December 31, 2019 and $0.5 million as of September 30, 2019 and is included in the line item Prepaid expenses and other current assets and Other assets on the Consolidated Balance Sheet. Amortization expense was immaterial during the three months ended December 31, 2019 and 2018.

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. JTC has the opportunity to prepay the full amount remaining before May 15, 2020 at a $0.5 million discount. Of the $12.3 million owed to the Company, $6.6 million has been repaid as of December 31, 2019.

The Company considered the terms of the Forbearance Agreement and the cash flows expected to be received from JTC under the new repayment schedule in concluding that it remains probable that the Company will collect the amounts due to the Company as of December 31, 2019 and that no impairment loss has been incurred. Of the $5.7 million outstanding at December 31, 2019, $5.1 million is recorded in Other assets, and $0.6 million is recorded in Prepaid expenses and other current assets, based on the scheduled repayment dates.

10

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


Risk Associated with Certain Concentrations

The Company does not perform credit evaluations for the majority of its buyers. However, most sales are recorded subsequent to payment authorization being received. As a result, the Company is not subject to significant collection risk, as most goods are not shipped before payment is received.

For consignment sales transactions, funds are typically collected from buyers and are held by the Company on the sellers' behalf in Payables to sellers on the Consolidated Balance Sheets. The Company releases the funds, less the Company's commission and other fees due, to the seller 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 over FDIC limits, certificates of deposit, accounts receivable, and the promissory note. The Company deposits its cash with financial institutions that the Company considers to be of high credit quality.

The Company's RSCG segment has vendor contracts with Amazon.com, Inc. under which the RSCG segment acquires and sells commercial merchandise. Transactions under these contracts represented 48.3% and 40.5% of consolidated Cost of goods sold for the three months ended December 31, 2019 and 2018, respectively.

During the three months ended December 31, 2018, the Company had one material vendor contract with the Department of Defense (DoD) under which its CAG segment acquired, managed and sold government property: the Scrap Contract, which concluded on September 30, 2019. Sales of property acquired under the Scrap Contract accounted for 7.5% of the Company's consolidated revenues for the three months ended December 31, 2018.

Earnings per Share
 
For the three months ended December 31, 2019 and 2018, basic and diluted weighted average common shares were the same because the Company operated at a net loss in both periods, causing any inclusion of potentially dilutive securities in the computation of diluted net income (loss) per share to be anti-dilutive. See Note 7 for the amounts of outstanding stock options, restricted stock awards and restricted stock units that could potentially dilute net income (loss) per share in the future.

Recent Accounting Pronouncements
 
Accounting Standards Adopted

On October 1, 2019, the Company adopted ASC 842 using the modified retrospective transition method. Prior periods have not been restated. To perform the adoption, the Company elected several practical expedients, including the package of practical expedients to not reassess prior conclusions on whether a contract is or contains a lease, lease classification, and initial direct costs. The Company also elected to combine both the lease and nonlease components as a single component to be accounted for as a lease, to not recognize lease assets or liabilities for leases with initial lease terms of 12 months or less, and to not use hindsight when determining the lease term.

Upon adoption, the Company recognized $11.3 million of operating lease assets and $12.2 million of operating lease liabilities. The Company does not have significant finance lease assets and liabilities. No cumulative-effect adjustment to opening retained earnings was required. No material impacts were noted on the Consolidated Statements of Operations or Consolidated Statements of Cash Flows. Refer to Note 3 for additional details on the Company’s leases.

On October 1, 2019, the Company adopted ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. As the Company had no stranded tax effects resulting from the Tax Cuts and Jobs Act enacted on December 22, 2017, no election to reclassify stranded tax effects from Accumulated other comprehensive to Retained earnings was made.

The Company also adopted the following ASU 2018-07, Improvements to Nonemployee Share-based Payment Accounting, during the three months ended December 31, 2019. It did not have a significant impact on the consolidated financial statements or the related footnote disclosures.




11

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


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, Short-term investments, and promissory note. 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.

In August 2018, the FASB issued ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement with the requirement for capitalizing implementation costs incurred to develop or obtain internal-use software. This ASU will become effective for the Company beginning October 1, 2020. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. ASU 2019-12 seeks to improve the consistent application of and simplify the guidance for the accounting for income taxes. The ASU removes certain exceptions to the general principals in ASC 740, Income Taxes, and clarifies and amends other existing guidance. The ASU will become effective for the Company beginning October 1, 2021. The Company is currently evaluating the effect that the adoption of this ASU may have on its consolidated financial statements.

12

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


3.  Leases

The Company has operating leases for its corporate offices, warehouses, vehicles and equipment. The operating leases have remaining terms of up to 5.7 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
(in thousands)December 31, 2019
Finance lease – lease asset amortization$21  
Finance lease – interest on lease liabilities7  
Operating lease cost1,336  
Short-term lease cost21  
Variable lease cost (1)
331  
Sublease income(119) 
Total net lease cost$1,597  
(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.

Maturities of lease liabilities are:

December 31, 2019
(in thousands)Operating LeasesFinance Leases
Remainder of 2020$4,165  $41  
20213,942  56  
20222,618  55  
20231,897  56  
2024953  56  
Thereafter379  106  
Total lease payments (1)
$13,954  $370  
Less: imputed interest (2)
(1,415) (78) 
Total lease liabilities$12,539  $292  

(1) The weighted average remaining lease term is 3.3 years for operating leases and 6.6 years for finance leases.
(2) The weighted average discount rate is 6.4% for operating leases and 7.5% for finance leases.

Supplemental disclosures of cash flow information related to leases are:

(in thousands)Three Months Ended
December 31, 2019
Cash paid for amounts included in operating lease liabilities$1,266  
Cash paid for amounts included in finance lease liabilities8  
Non-cash: lease liabilities arising from new operating lease assets obtained (1)
12,188  
Non-cash: lease liabilities arising from new finance lease assets obtained10  
Non-cash: adjustments to lease assets and liabilities1,598  
(1) Amount includes $12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019 (see Note 2).
13

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


4. Goodwill
 
The following table presents changes in the carrying amount of goodwill by reportable segment:
(in thousands)CAGGovDealsMachinioTotal
Balance at September 30, 2018
$21,530  $23,731  $14,558  $59,819  
Translation adjustments(352)     (352) 
Balance at September 30, 2019
$21,178  $23,731  $14,558  $59,467  
Translation adjustments261      261  
Balance at December 31, 2019
$21,439  $23,731  $14,558  $59,728  

Goodwill is tested for impairment at the beginning of the fourth quarter and during interim periods whenever events or circumstances indicate that the carrying value may not be recoverable. The Company did not identify any indicators of impairment that required an interim impairment test during the three months ended December 31, 2019.

5. Intangible Assets
 
The components of intangible assets are as follows:  
  December 31, 2019September 30, 2019
(dollars in thousands)Useful
Life
(in years)
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Contract intangibles6$3,100  $(775) $2,325  $3,100  $(646) $2,454  
Technology52,700  (810) 1,890  2,700  (675) 2,025  
Patent and trademarks
7 - 10
2,293  (781) 1,512  2,276  (712) 1,564  
Total intangible assets $8,093  $(2,366) $5,727  $8,076  $(2,033) $6,043  
 
The remaining intangible assets balance at December 31, 2019 is expected to be amortized as follows: 
(in thousands)Expected Amortization Expense
Years ending September 30,
Remainder of 2020
$1,003  
20211,333  
20221,324  
20231,180  
2024642  
2025 and thereafter
245  
Total$5,727  
 
Intangible asset amortization expense was $0.3 million and $0.3 million for the three months ended December 31, 2019 and 2018, respectively.

6. 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 a pre-tax loss in the first three months of fiscal year 2020 and its corresponding effective tax rate is (9.7%). Tax expense in the three months ended December 31, 2019 is due to state and foreign taxes paid. The effective tax rate differed from the statutory federal rate of 21% primarily as a result of the valuation allowance charge on current year losses and the impact of foreign, state, and local income taxes and permanent tax adjustments.

The Company identified no new uncertain tax positions during the three months ended December 31, 2019. The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions and in foreign jurisdictions, primarily Canada and the United Kingdom. As of December 31, 2019, none of the Company's federal or state income tax returns are under examination. The statute of limitations for U.S. federal income tax returns for years prior to fiscal
14

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


2016 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal 2016 may be adjusted upon examination by tax authorities if they are utilized.

7. Stockholders’ Equity

The changes in stockholders’ equity for the prior year comparable period is as follows:

 Common Stock
(dollars in thousands)SharesAmountAdditional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
Balance at September 30, 201832,774,118  $33  $236,115  $(6,449) $(100,045) $129,654  
Cumulative adjustment related to the adoption of ASC 606—  —  —  —  730  730  
Net loss—  —  —  —  (5,022) (5,022) 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units          409,060  —  8  —  —  8  
Stock compensation expense—  —  1,556  —  —  1,556  
Foreign currency translation—  —  —  (427)   (427) 
Balance at December 31, 201833,183,178  $33  $237,679  $(6,876) $(104,337) $126,499  

Stock Compensation Expense

Stock-based compensation expense was $1.0 million for the three months ended December 31, 2019, which included $1.1 million of expense related to equity-classified stock options and RSUs & RSAs (restricted stock units and awards) and a$0.1 million benefit related to liability-classified SARs (cash-settled stock appreciation rights).

Stock Options and RSUs & RSAs

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

Three Months Ended
December 31, 2019
Stock Options granted:
Options containing only service conditions:387,800  
Weighted average exercise price$6.93  
Weighted average grant date fair value$2.71  
Options containing market conditions:387,800  
Weighted average exercise price$6.93  
Weighted average grant date fair value$2.66  
RSUs & RSAs granted:
RSUs & RSAs containing only service conditions:158,600  
Weighted average grant date fair value$6.69  
RSUs & RSAs containing market conditions:158,600  
Weighted average grant date fair value$4.55  

The stock options and RSUs & RSAs containing only service conditions will vest over a four year service period. The stock options and RSUs & RSAs containing market conditions will vest upon the achievement of specified increases in the Company’s share price. Vesting is measured the first day of each fiscal quarter over the four-year terms of the awards, starting
15

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


with the first fiscal quarter after the first anniversary of the grant date, based upon the trailing 20-days average of the Company’s share price.

The range of assumptions used to determine the fair value of stock options containing only service conditions using the Black-Scholes option-pricing model during the three months ended December 31, 2019 include a dividend yield of 0%, expected volatility rates of 46.5% to 49.0%, risk-free interest rates of 1.5%, and expected terms of 4.6 to 5.0 years.

The range of assumptions used to determine the fair value of stock options and RSUs & RSAs containing market conditions using Monte Carlo simulations during the three months ended December 31, 2019 include a dividend yield of 0%, expected volatility rates of 46.7% to 51.2%, risk-free interest rates of 1.5% to 1.7%, and expected holding period (% of remaining term for stock options only) of 30.7% to 100%.

SARs

During the three months ended December 31, 2019, the Company did not issue any SARs, 225,267 SARs were exercised requiring the Company to make cash payments of $0.6 million, and 12,241 SARs were canceled. As of December 31, 2019, 195,894 SARs were outstanding.

Share Repurchase Program

The Company did not repurchase shares during the three months ended December 31, 2019 or 2018. As of December 31, 2019, the Company has $10.1 million of remaining authorization to repurchase shares under its share repurchase program.

8. Fair Value Measurement

The Company measures and records certain assets and liabilities at fair value on a recurring basis. Authoritative guidance issued by the FASB establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs). The hierarchy consists of three levels:
 
Level 1: Quoted market prices in active markets for identical assets or liabilities;
Level 2: Inputs other than Level 1 inputs that are either directly or indirectly observable; and
Level 3: Unobservable inputs developed using estimates and assumptions developed by the Company, which reflect those that a market participant would use.
 
During the year ended September 30, 2018, and as a result of the acquisition of Machinio, the Company recorded contingent consideration which is measured at fair value (Level 3) at December 31, 2019 and September 30, 2019. At September 30, 2019, the Company estimated the fair value of the contingent consideration using a Monte Carlo simulation. The simulation estimated Machinio's adjusted EBITDA over the calendar year 2019 earn-out period using a market-based volatility factor and market interest rates resulting in an average EBITDA. A present value factor was applied based on the expected settlement date of the contingent consideration. At December 31, 2019, the calendar year 2019 earn-out period was complete, and the liability was based upon Machinio's actual adjusted EBITDA results during that period.

The changes in the earn-out liability measured at fair value using Level 3 inputs to determine fair value for the three months ended December 31, 2019 are as follows:

(in thousands)Contingent Consideration
Balance at September 30, 2019
$4,800  
Change in fair value
200  
Balance at December 31, 2019
$5,000  

The increase in the fair value of the earn-out liability is due to Machinio's full attainment of its actual adjusted EBITDA target for the calendar year 2019 earn-out period. The liability for this consideration is included in Accrued expenses and other current liabilities in the Consolidated Balance Sheets as of December 31, 2019 and September 30, 2019, as the earn-out is expected to settle prior to the end of the second quarter of fiscal 2020. The expense for the change in fair value is included Other operating expenses in the Consolidated Statements of Operations.

16

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


The Company also has short-term investments of $25.0 million and $30.0 million at December 31, 2019 and September 30, 2019, respectively, in certificates of deposit with maturities of six months or less, and interest rates between 1.75% and 2.50%. These assets were measured at fair value at December 31, 2019 and September 30, 2019 and were classified as Level 1 assets within the fair value hierarchy.

The Company’s financial assets and liabilities not measured at fair value are cash and cash equivalents (which includes cash and commercial paper with original maturities of less than 90 days), accounts receivable, a promissory note and accounts payable. The Company believes the carrying values of these instruments approximate fair value.

At December 31, 2019 and September 30, 2019, the Company did not have any assets or liabilities measured at fair value on a non-recurring basis.

9.  Defined Benefit Pension Plan

Certain employees of Liquidity Services UK Limited (GoIndustry), which the Company acquired in July 2012, are covered by the Henry Butcher Pension Fund and Life Assurance Scheme (the Scheme), a qualified defined benefit pension plan. The Company guarantees GoIndustry's performance on all present and future obligations to make payments to the Scheme for up to a maximum of £10 million British pounds. The Scheme was closed to new members on January 1, 2002.

The net periodic benefit, other than service costs, is recognized within Interest other income, net in the Consolidated Statements of Operations, and for the three months ended December 31, 2019 and 2018 included the following components:

 Three Months Ended December 31,
(in thousands)20192018
Service cost$  $  
Interest cost109  158  
Expected return on plan assets(200) (244) 
Amortization of prior service cost5    
Total net periodic (benefit)$(86) $(86) 


10. Business Realignment Expenses
Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving actions and are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.
For the year ended September 30, 2019, business realignment expenses were incurred related to: management changes associated with a strategic reorganization of the Company's go-to-market strategy for self-directed and fully-managed market place services, the conclusion of the Scrap Contract, and other cost saving actions.
Business realignment expenses were as follows for the periods presented:
Three Months Ended December 31,
(in thousands)
20192018
Employee severance and benefit costs:
CAG$  $  
Corporate & Other  170  
Total employee severance and benefit costs  170  
Occupancy and other costs:
CAG  46  
Corporate & Other  134  
Total occupancy and other costs  180  
Total business realignment expenses$  $350  

17

Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)


The table below sets forth the significant components and activity in the liability for business realignment initiatives, on a segment and consolidated basis:
(in thousands)Liability Balance at September 30, 2018Business
Realignment
Expenses
Cash
Payments
Liability Balance at September 30, 2019Adoption of ASC 842Business
Realignment
Expenses
Cash
Payments
Liability Balance at December 31, 2019
Employee severance and benefit costs:
CAG$89  $443  $(118) $414  $  $  $(384) $30  
Corporate & Other21  1,537  (1,320) 238      (229) 9  
Total employee severance and benefit costs$110  $1,980  $(1,438) $652  $  $  $(613) $39  
Occupancy and other costs:
CAG459  51  (341) 169  (169)       
Corporate & Other807  134  (941)           
Total occupancy and other costs$1,266  $185  $(1,282) $169  $(169) $  $  $  
Total business realignment$1,376  $2,165  $(2,720) $821  $(169) $  $(613) $39  

11.   Legal Proceedings and Other Contingencies
 
The Company reserves for contingent liabilities based on ASC 450, Contingencies, when it determines that a liability is probable and reasonably estimable. From time to time, the Company may become involved in litigation relating to claims arising in the ordinary course of the business. There are no claims or actions pending or threatened against the Company that, if adversely determined, would in management's judgment have a material adverse effect on the Company.

Dur