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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, 2020

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
Common Stock, $0.001 par valueLQDTNasdaq
 
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 2, 2021 was 34,923,452.




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

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, 2020September 30, 2020
 (Unaudited)
Assets  
Current assets:  
Cash and cash equivalents$77,844 $76,036 
Accounts receivable, net of allowance for doubtful accounts of $396 and $389
4,801 5,322 
Inventory, net9,931 5,607 
Prepaid taxes and tax refund receivable1,442 1,652 
Prepaid expenses and other current assets6,853 5,962 
Total current assets100,871 94,579 
Property and equipment, net of accumulated depreciation of $15,300 and $14,555
17,697 17,843 
Operating lease assets13,273 10,561 
Intangible assets, net4,427 4,758 
Goodwill60,126 59,839 
Deferred tax assets792 806 
Other assets8,068 8,248 
Total assets$205,254 $196,634 
Liabilities and stockholders’ equity  
Current liabilities:  
Accounts payable$25,258 $21,957 
Accrued expenses and other current liabilities17,411 19,124 
Current portion of operating lease liabilities3,956 3,818 
Deferred revenue3,429 3,255 
Payables to sellers27,239 26,170 
Total current liabilities77,293 74,324 
Operating lease liabilities10,006 7,499 
Other long-term liabilities2,892 2,996 
Total liabilities90,191 84,819 
Commitments and contingencies (Note 11)00
Stockholders’ equity:  
Common stock, $0.001 par value; 120,000,000 shares authorized; 34,212,815 shares issued and outstanding at December 31, 2020; 34,082,406 shares issued and outstanding at September 30, 2020
34 34 
Additional paid-in capital250,002 247,892 
Treasury stock, at cost; 866,388 shares at December 31, 2020 and 547,508 shares at September 30, 2020
(8,255)(3,983)
Accumulated other comprehensive loss(8,886)(9,782)
Accumulated deficit(117,832)(122,346)
Total stockholders’ equity115,063 111,815 
Total liabilities and stockholders’ equity$205,254 $196,634 
 
See accompanying notes to the unaudited consolidated financial statements.

3

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




 Three Months Ended December 31,
 20202019
(Unaudited)
Revenue$31,071 $30,349 
Fee revenue24,680 19,155 
Total revenue55,751 49,504 
Costs and expenses from operations: 
Cost of goods sold (excludes depreciation and amortization)22,573 24,176 
Technology and operations10,573 11,241 
Sales and marketing9,108 9,605 
General and administrative6,996 7,707 
Depreciation and amortization1,871 1,572 
Other operating expenses4 193 
Total costs and expenses51,125 54,494 
Income (loss) from operations4,626 (4,990)
Interest and other income, net(185)(252)
Income (loss) before provision for income taxes4,811 (4,738)
Provision for income taxes297 458 
Net income (loss)$4,514 $(5,196)
Basic income (loss) per common share$0.14 $(0.15)
Diluted income (loss) per common share$0.13 $(0.15)
Basic weighted average shares outstanding33,176,895 33,545,235 
Diluted weighted average shares outstanding34,911,119 33,545,235 
 
See accompanying notes to the unaudited consolidated financial statements.

4

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




 Three Months Ended December 31,
 20202019
(Unaudited)
Net income (loss)$4,514 $(5,196)
Other comprehensive income:  
Foreign currency translation896 833 
Other comprehensive income 896 833 
Comprehensive income (loss)$5,410 $(4,363)
 
See accompanying notes to the unaudited consolidated financial statements.


5

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






 Common StockTreasury Stock
 SharesAmountAdditional
Paid-in
Capital
SharesAmountAccumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Total
(Unaudited)
Balance at September 30, 202034,082,406 $34 $247,892 (547,508)(3,983)$(9,782)$(122,346)$111,815 
Net income— — — — — — 4,514 4,514 
Exercise of stock options, grants of restricted stock awards, and vesting of restricted stock units            151,845 — 197 — — — — 197 
Taxes paid associated with net settlement of stock compensation awards(7,703)— (57)— — — — (57)
Forfeitures of restricted stock awards(13,733)— — — — — —  
Common stock repurchased— — — (309,496)(4,103)— — (4,103)
Common stock surrendered in the exercise of stock options— — 169(9,384)(169)— — — 
Stock compensation expense — — 1,801 — — — — 1,801 
Foreign currency translation— — — — — 896 — 896 
Balance at December 31, 202034,212,815 $34 $250,002 (866,388)$(8,255)$(8,886)$(117,832)$115,063 


See accompanying notes to the unaudited consolidated financial statements.
6

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


 Three Months Ended December 31,
 20202019
(Unaudited)
Operating activities  
Net income (loss)$4,514 $(5,196)
Adjustments to reconcile net loss to net cash used in operating activities:  
Depreciation and amortization1,871 1,572 
Stock compensation expense2,229 1,039 
Provision for doubtful accounts15 21 
Deferred tax provision32 100 
(Gain) on disposal of property and equipment(1)(12)
Change in fair value of earnout liability 200 
Changes in operating assets and liabilities:  
Accounts receivable506 734 
Inventory(4,324)35 
Prepaid and deferred taxes208 (77)
Prepaid expenses and other assets(1,235)(725)
Operating lease assets and liabilities(89)(97)
Accounts payable3,301 (5,337)
Accrued expenses and other current liabilities(1,994)(9,409)
Distributions payable (1,675)
Deferred revenue174 (359)
Payables to sellers1,069 658 
Other liabilities(238)(75)
Net cash provided by (used in) operating activities6,038 (18,603)
Investing activities  
Increase in intangibles(5)(20)
Purchases of property and equipment, including capitalized software(1,363)(1,330)
Proceeds from sales of property and equipment14 12 
Proceeds from promissory note508 2,553 
Purchases of short-term investments (25,000)
Maturities of short-term investments 30,000 
Net cash (used in) provided by investing activities(846)6,215 
Financing activities  
Payments of the principal portion of finance lease liabilities(9)(8)
Taxes paid associated with net settlement of stock compensation awards(58)(498)
Proceeds from exercise of stock options197 2 
Common stock repurchased(4,103) 
Net cash used in financing activities(3,973)(504)
Effect of exchange rate differences on cash and cash equivalents589 578 
Net increase (decrease) in cash and cash equivalents1,808 (12,314)
Cash and cash equivalents at beginning of period76,036 36,497 
Cash and cash equivalents at end of period$77,844 $24,183 
Supplemental disclosure of cash flow information  
Cash paid for income taxes, net$208 $9 
Non-cash: Common stock surrendered in the exercise of stock options$(169)$ 
See accompanying notes to the unaudited consolidated financial statements.
7

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 e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 600 product categories. The Company’s marketplaces provide professional buyers access to a global, organized supply of new, surplus and idle 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, heavy equipment, fleet and transportation equipment and specialty equipment. The Company’s marketplaces are: www.allsurplus.com, 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 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 the COVID-19 pandemic; 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 and the rules and regulations of the Securities and Exchange Commission (SEC). 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, and intercompany transactions and accounts have been eliminated in consolidation. 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, 2020 are not necessarily indicative of the results that may be expected for the year ending September 30, 2021 or for any future period. 

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 months ended December 31, 2020, these estimates required the Company to make assumptions about the extent and duration of the COVID-19 pandemic and its impacts on 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 December 31, 2020 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.

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 $3.4 million as of December 31, 2020 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, $1.4 million was earned as Fee revenue during the three months ended December 31, 2020.
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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)



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 December 31, 2020, the Machinio business segment had a remaining performance obligation of $3.4 million; 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 $0.9 million as of December 31, 2020 and $0.7 million as of September 30, 2020 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, 2020 and 2019.

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 had 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, $7.3 million has been repaid as of December 31, 2020. Of the $5.0 million in principal outstanding at December 31, 2020, $3.4 million was recorded in Other assets, and $1.6 million in Prepaid expenses and other current assets based on the scheduled repayment dates.

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 in the consolidated financial statements. The Company releases the funds to the seller, 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 and cash equivalents in banks over FDIC limits, Short-term investments, and Accounts receivable. The Company deposits its Cash and cash equivalents with and acquires Short-term investments from financial institutions that the Company considers to be of high credit quality.

Additionally, the Company has multiple vendor contracts with Amazon.com, Inc. under which it acquires and sells commercial merchandise. The property purchased under this contract represented 60.0% and 48.3% of consolidated Cost of goods sold for the three months ended December 31, 2020 and 2019, respectively. These contracts are included within the RSCG segment.

Earnings per Share
 
For the three months ended December 31, 2020, diluted weighted average common shares outstanding contains 1,734,225 shares representing the dilutive impact of stock options, RSUs and RSAs. 1,711,221 stock options, RSUs and RSAs were excluded from the computation of diluted weighted average common shares outstanding as they were anti-dilutive. For the three months ended December 31, 2019, basic and diluted weighted average common shares were the same because the Company operated at a net loss, 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.
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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)



Recent Accounting Pronouncements
 
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. The Company has not identified any significant impacts as a result of adoption of this ASU however, material impacts could be experienced if and when the Company implements cloud computing arrangements in the future.

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, money market funds 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 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.

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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 5.5 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 December 31,
(in thousands)20202019
Finance lease – lease asset amortization$16 $21 
Finance lease – interest on lease liabilities5 7 
Operating lease cost1,389 1,336 
Short-term lease cost74 21 
Variable lease cost (1)
363 331 
Sublease income(76)(119)
Total net lease cost$1,771 $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, 2020
(in thousands)Operating LeasesFinance Leases
2021$3,605 $42 
20224,173 55 
20233,302 56 
20242,301 56 
20251,786 55 
Thereafter744 50 
Total lease payments (1)
$15,911 $314 
Less: imputed interest (2)
(1,949)(57)
Total lease liabilities$13,962 $257 

(1) The weighted average remaining lease term is 3.9 years for operating leases and 5.6 years for finance leases.
(2) The weighted average discount rate is 6.6% for operating leases and 7.5% for finance leases.

Supplemental disclosures of cash flow information related to leases are:

Three Months Ended December 31,
(in thousands)20202019
Cash paid for amounts included in operating lease liabilities$1,240 $1,266 
Cash paid for amounts included in finance lease liabilities 9 8 
Non-cash: lease liabilities arising from new operating lease assets obtained (1)
468 12,188 
Non-cash: lease liabilities arising from new finance lease assets obtained  10 
Non-cash: adjustments to lease assets and liabilities 3,187 1,598 
(1) The December 31, 2019 amount includes $12.2 million of lease liabilities recognized upon the adoption of ASC 842 on October 1, 2019.

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


4.    Goodwill
 
The carrying value and changes in the carrying value of goodwill attributable to each reportable segment were as follows:
(in thousands)CAGGovDealsMachinioTotal
Balance at September 30, 2019
$21,178 $23,731 $14,558 $59,467 
Translation adjustments372   372 
Balance at September 30, 2020
$21,550 $23,731 $14,558 $59,839 
Translation adjustments287   287 
Balance at December 31, 2020
$21,837 $23,731 $14,558 $60,126 

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, 2020.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its goodwill. As there have been favorable developments in the factors that previously indicated an interim goodwill impairment test was necessary during the prior fiscal year, the Company did not identify any indicators of impairment that required an interim goodwill impairment test during the three months ended December 31, 2020.

5.    Intangible Assets
 
Intangible assets consist of the following:  
  December 31, 2020September 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 intangibles6$3,100 $(1,292)$1,808 $3,100 $(1,162)$1,938 
Technology52,700 (1,350)1,350 2,700 (1,215)1,485 
Patent and trademarks
7 - 10
2,333 (1,064)1,269 2,329 (994)1,335 
Total intangible assets $8,133 $(3,706)$4,427 $8,129 $(3,371)$4,758 
 
Future expected amortization of intangible assets at December 31, 2020, is as follows: 

(in thousands)Expected Amortization Expense
Years ending September 30,
Remainder of 2021
$1,002 
20221,328 
20231,184 
2024646 
2025267 
Total$4,427 
 
Intangible asset amortization expense was $0.3 million and $0.3 million for the three months ended December 31, 2020 and 2019, respectively.

The Company has continued to evaluate the impact of the COVID-19 pandemic on the recoverability of its long-lived assets. As there have been favorable developments in the factors that previously indicated an interim long-lived assets impairment test was necessary during the prior fiscal year, the Company did not identify any indicators of impairment that required an interim long-lived assets impairment test during the three months ended December 31, 2020.

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


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 pre-tax income in the first three months of fiscal year 2021 and its corresponding effective tax rate is 6.2% compared to (9.7%) for the first three months of fiscal year 2020. The change in the effective tax rate for the three months ended December 31, 2020 as compared to the same period in the prior year was primarily due to state and foreign taxes. Tax expense in the three months ended December 31, 2020 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 three months ended December 31, 2020. 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, 2020, 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 2017 is now closed. However, certain tax attribute carryforwards that were generated prior to fiscal year 2017 may be adjusted upon examination by tax authorities if they are utilized. The Company's Hong Kong subsidiary is currently under examination for fiscal years 2015 through 2017.

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. In addition, NOLs incurred in fiscal years 2019, 2020, and 2021 may be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes. The Company is currently evaluating the impact of the CARES Act, but at present does not expect the NOL provisions of the CARES Act to result in a material cash benefit.


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, 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 units283,164 — 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 

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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 December 31, 2020, 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 1.5x shares against the plan reserves. As of December 31, 2020, 2,037,876 shares of common stock remained available for use.

Stock Compensation Expense

Stock-based compensation expense was $2.2 million for the three months ended December 31, 2020, which included $1.8 million of expense related to equity-classified stock options and RSUs & RSAs (restricted stock units and awards) and a $0.4 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, 2020
Stock Options granted:
Options containing only service conditions:509,600 
Weighted average exercise price$9.72 
Weighted average grant date fair value$3.98 
Options containing performance or market conditions:509,600 
Weighted average exercise price$9.72 
Weighted average grant date fair value$3.97 
RSUs & RSAs granted:
RSUs & RSAs containing only service conditions:91,950 
Weighted average grant date fair value$9.48 
RSUs & RSAs containing performance or market conditions:121,950 
Weighted average grant date fair value$7.30 

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 performance conditions will vest upon the achievement of specified financial targets of the Company or its business units. 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 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, 2020 include a dividend yield of 0.0%, expected volatility rates of 51.0% to 51.7%, risk-free interest rates of 0.36% to 0.42%, 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, 2020 include a dividend yield of 0.0%, expected volatility rates of 51.6% to 54.6%, risk-free interest rates of 0.3% to 0.9%, and expected holding period (% of remaining term for stock options only) of 31.7% to 100%.
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Liquidity Services, Inc. and Subsidiaries
Notes to the Unaudited Consolidated Financial Statements - (Continued)



SARs

During the three months ended December 31, 2020, the Company did not issue any SARs, 28,379 SARs were exercised requiring the Company to make cash payments of $0.2 million, and 72,681 SARs were canceled. As of December 31, 2020, 59,750 SARs were outstanding.

Share Repurchase Program

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

The Company repurchased 309,496 shares for $4.1 million under this program during the three months ended December 31, 2020. As of December 31, 2020, the Company may repurchase an additional $2.0 million of shares under this program.

Other Share Repurchases

Separate from the share repurchase program, our stock incentive plans allow for participants to exercise stock options by surrendering shares of common stock equivalent in value to the exercise price due. During the three months ended December 31, 2020, participants surrendered 9,384 shares of common stock in the exercise of stock options. Any shares surrendered to the Company in this manner are not available for future grant.

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.
 
The Company had $30.0 million of money market funds considered cash equivalents at December 31, 2020 and September 30, 2020. These assets were measured at fair value at December 31, 2020 and September 30, 2020 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, accounts receivable, a promissory note, and accounts payable. The Company believes the carrying values of these assets and liabilities approximate fair value.

As of December 31, 2020 and September 30, 2020, 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.

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


The net periodic (benefit) is recognized within Interest and other income, net in the Consolidated Statements of Operations, and for the three months ended December 31, 2020 and 2019 included the following components:

 Three Months Ended December 31,
(in thousands)20202019
Interest cost107 109 
Expected return on plan assets(194)(200)
Amortization of prior service cost5 5 
Total net periodic (benefit)$(82)$(86)

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


10. Business Realignment Expenses
Business realignment expenses are associated with management changes, exiting certain businesses, or other cost saving actions, and include employee severance and benefit costs associated with terminations, occupancy costs associated the ceased use of facilities, and other related costs, such as impairments. Business realignment expenses are recorded as a component of Other operating expenses on the Consolidated Statements of Operations.
For the year ended September 30, 2020, business realignment expenses were incurred related to the elimination of certain positions in response to the COVID-19 pandemic.

The table below sets forth the significant components and activity in the liability for business realignment initiatives during the year ended September 30, 2020 and for the three months ended December 31, 2020, on a segment and consolidated basis:

(in thousands)Liability Balance at September 30, 2019Adoption of ASC 842Business
Realignment
Expenses
Cash
Payments
Liability Balance at September 30, 2020Business
Realignment
Expenses
Cash
Payments
Liability Balance at December 31, 2020
Employee severance and benefit costs:
GovDeals$ $ $29 $(25)$4 $ $(4)$ 
RCSG  84 (64)20  (20) 
CAG414  120 (481)53 5 (58) 
Corporate & Other238  172 (410)    
Total employee severance and benefit costs$652 $ $405 $(980)$77 $5 $(82)$ 
Occupancy and other costs:
CAG169 (169)      
Corporate & Other        
Total occupancy and other costs$169 $(169)$ $ $ $ $ $ 
Total business realignment$821 $(169)$405 $(980)$77 $5 $(82)$ 

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


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.

On December 22, 2020, the Company’s former Vice President, Human Resources filed a claim with the Equal Employment Opportunity Commission for wrongful termination on the basis of gender, race, and age. Separately, he has alleged wage and hour violations under Maryland law for failure to pay his fiscal year 2020 performance bonus. The Company believes the allegations are without merit and cannot estimate a range of potential liability, if any, at this time. The Company’s employment practices liability insurance carrier, CNA, has accepted tender of these claims.

Unless otherwise noted, there are no claims or actions pending or threatened against the Company that, if adversely determined, would in the Company's management's judgment have a material adverse effect on the Company.


12.     Segment Information

The Company provides operating results in four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Asset Group (CAG), and Machinio. Descriptions of our reportable segments are as follows:

The GovDeals reportable segment provides self-directed service solutions in which sellers list their own assets, and it consists of marketplaces that enable local and state government entities including city, county and state agencies, as well as quasi-governmental businesses located in the United States and Canada to sell surplus and salvage assets. GovDeals also offers a suite of services to sellers that includes asset sales and marketing.

The RSCG reportable segment consists of marketplaces that enable corporations located in the United States and Canada to sell surplus and salvage consumer goods and retail capital assets. RSCG also offers a suite of services that includes returns management, asset recovery, and e-commerce services. This segment includes the Company's Liquidation.com, Liquidation.com DIRECT, and Secondipity marketplaces.

The CAG reportable segment provides full-service solutions to sellers and it consists of marketplaces that enable commercial businesses to sell surplus and idle assets. CAG also offers a suite of services that includes surplus management, asset valuation, asset sales and marketing. Commercial sellers are located in the United States, Europe, Australia and Asia. This segment includes the Company's Network International and GoIndustry DoveBid marketplaces and self-directed service solutions for commercial businesses on the AllSurplus marketplace.

The Machinio reportable segment operates a global online platform for listing used equipment for sale in the construction, machine tool, transportation, printing and agriculture sectors.

We also report results of Corporate & Other, including elimination adjustments.

Decisions concerning the allocation of the Company’s resources are made by the Company’s Chief Operating Decision Maker (CODM), which is the Company's Chief Executive Officer, with oversight by the Board of Directors. The Company reports segment information based on the internal performance measures used by the CODM to assess the performance of each operating segment in a given period. In connection with that assessment, the CODM uses segment gross profit to evaluate the performance of each segment. Segment gross profit is calculated as total revenue less cost of goods sold (excludes depreciation and amortization).











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



The following table sets forth certain financial information for the Company's reportable segments:

Three Months Ended December 31,
(in thousands)20202019
GovDeals:
Revenue$ $ 
Fee revenue10,818 8,015 
Total revenue10,818 8,015 
Gross profit$10,203 $7,446 
RSCG:
Revenue$28,161 $27,826 
Fee revenue6,745 3,871 
Total revenue34,906 31,697 
Gross profit$14,627 $10,305 
CAG:
Revenue$2,910 $2,523 
Fee revenue5,003 5,419 
Total revenue7,913 7,942 
Gross profit$6,358 $5,814 
Machinio:
Revenue$ $ 
Fee revenue2,114 1,850 
Total revenue2,114 1,850 
Gross Profit$1,991 $1,763 
Corporate & Other, including elimination adjustments:
Revenue$ $ 
Fee revenue  
Total revenue  
Gross profit$ $ 
Consolidated:
Revenue$31,071 $30,349 
Fee revenue24,680 19,155 
Total revenue55,751 49,504 
Gross profit$33,178 $25,328 

The following table presents a reconciliation of gross profit used in the reportable segments to the Company's consolidated results:
Three Months Ended December 31,
(in thousands)20202019
Reconciliation:
Gross profit$33,178 $25,328 
Operating expenses28,548 30,125 
Other operating expenses4 193 
Interest and other income, net(185)(252)
Income (loss) before provision for income taxes$4,811 $(4,738)

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


The percent of our revenues that came from transactions conducted outside of the United States for the three months ended December 31, 2020 and 2019 was 9.6% and 13.9%, respectively.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
FORWARD-LOOKING STATEMENTS
 
This document contains forward-looking statements. These statements are only predictions. The outcome of the events described in these forward-looking statements is subject to known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include but are not limited to the factors set forth in our Annual Report on Form 10-K for the fiscal year ended September 30, 2020 and subsequent filings with the Securities and Exchange Commission (SEC). You can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. There may be other factors of which we are currently unaware or deem immaterial that may cause our actual results to differ materially from the forward-looking statements.
 
All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this document and are expressly qualified in their entirety by the cautionary statements included in this document. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect events or circumstances occurring after the date of this document or to reflect the occurrence of unanticipated events.
The following discussion should be read in conjunction with our consolidated financial statements and related notes and the information contained elsewhere in this document.
 
Overview

The Company operates a network of e-commerce marketplaces that enable buyers and sellers to transact in an efficient, automated environment offering over 600 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 its 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. We also operate a global search engine for used machinery and equipment at www.machinio.com. The Company has over 14,000 sellers, including Fortune 1000 and Global 500 organizations as well as federal, state, and local government agencies.

Impacts of the COVID-19 Pandemic

The Company has been closely monitoring the COVID-19 pandemic. In April 2020, the Company experienced the largest impacts on its operations thus far stemming from the initial actions taken by governments and the private sector to limit the spread of COVID-19. The restrictions on economic activity were caused, in part, by business closures, limitations on the operations of business activity and significant prioritization of essential business functions. Starting in May 2020, we have seen subsequent increases in Gross Merchandise Volume (GMV) and revenues as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income for the third and fourth quarters of fiscal 2020, and continued into the first quarter of fiscal 2021. However, the likelihood, magnitude and timing of business developments across our segments are difficult to predict given the current economic uncertainty, unknown duration and overall impact of the global pandemic. As a result, prior trends in the Company's results of operations may not be applicable throughout the duration of the COVID-19 pandemic.

Throughout the COVID-19 pandemic, the Company has actively monitored its liquidity position and working capital needs. In the first quarter of fiscal 2021, the Company determined that its liquidity position and working capital was more than sufficient to meet its projected needs and commenced share repurchases, acquiring 309,496 shares for $4.1 million during the three months ended December 31, 2020.

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In the longer term, we continue to be highly focused on creating efficiencies and benefits for our sellers and our buyers by focusing on the platform services and support that will deliver optimal liquidity in the reverse supply chain and further enable our growth through an asset light, low-touch marketplace solution. As e-commerce penetration continues to grow substantially for both consumers and business-to-business (B2B), we believe that our online platform and cloud-based solutions should become even more relevant and necessary for the evolving global economy.

Our Marketplace Transactions

We 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 flow of goods in turn attracts an increasing number of professional buyers to our marketplaces. During the twelve months ended December 31, 2020, the approximate number of registered buyers increased from 3,630,000 to 3,839,000, or 5.8%.

Our revenue.  Substantially all of our revenue is earned through the following transaction models:
 
Purchase model.  Under our purchase transaction model, we recognize revenue within the Revenue line item on the Consolidated Statements of Operations from the resale of inventory that we purchased from sellers. We consider these sellers to be our vendors. We pay our sellers either a fixed amount or a portion of the net or gross proceeds received from our completed sales based on the value we receive from the sale, in some cases, after deducting a required return to us that we have negotiated with the seller. Because we are the principal in purchase transaction model sales, we recognize as revenue the sale price paid by the buyer upon completion of a transaction. The proceeds paid by buyers also include transaction fees, referred to as buyer premiums. For the three months ended December 31, 2020 and 2019, our purchase transaction model accounted for 16.2% and 20.5% of our GMV, and 55.7% and 61.3% of our total revenues, respectively. These amounts included sales of commercial merchandise sourced from vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial merchandise we purchased under these contracts with Amazon.com, Inc. represented 60.0% and 48.3% of consolidated Costs of goods sold for three months ended December 31, 2020 and 2019, respectively.

Consignment model — fee revenue.  Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized within the Fee revenue line item on the Consolidated Statements of Operations. Because we are the agent in consignment model sales, our commission fee revenue, which we refer to as seller commissions, represents a percentage of the sales price the buyer pays upon completion of a transaction. We vary the percentage amount of the seller commission depending on the various value-added services we provide to the seller to facilitate the transaction. For example, we generally increase the percentage amount of the commission if we take possession, handle, ship, or provide enhanced product information for the merchandise. In most cases we collect the seller commission by deducting the appropriate amount from the sales proceeds prior to the distribution to the seller after completion of the transaction. In addition to seller commissions, we also collect buyer premiums. For the three months ended December 31, 2020 and 2019, our consignment model accounted for 83.8% and 79.5% of our GMV, and 36.7% and 32.0% of our total revenues, respectively.

Other — fee revenue. We also earn non-consignment fee revenue from Machinio's sales listing subscription and MachineryHost services, as well as other services including returns management, refurbishment of assets, and asset valuation services.

Industry trends. While we are experiencing challenges presented by the COVID-19 pandemic, we believe there are several industry trends positively impacting the long-term growth of our business including: (1) the increase in the volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales; (2) the increase in government regulations and the need for corporations to have sustainability solutions necessitating verifiable recycling and remarketing of surplus assets; (3) the increase in outsourcing the disposition of surplus and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital flows, and increasingly prefer service providers with a proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain; (4) the increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which results in lower per unit prices and margins in our retail goods vertical; (5) in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets; and (6) the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events.

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Our Vendor Agreements
 
Our commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. The property we purchased under these contracts represented 60.0% and 48.3% of consolidated cost of goods sold for the three months ended December 31, 2020 and 2019, respectively. These contracts are included within our RSCG segment. Our agreements with our other sellers are generally terminable at will by either party.

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

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

Total registered buyers. We grow our buyer base through a combination of marketing and promotional efforts. A person becomes a registered buyer by completing an online registration process on one of our marketplaces. As part of this process, we collect business and personal information, including name, title, company name, business address and contact information, and information on how the person intends to use our marketplaces. Each prospective buyer must also accept our terms and conditions of use. Following the completion of the online registration process, we verify each prospective buyer’s e-mail address and confirm that the person is not listed on any banned persons list maintained internally or by the U.S. federal government. After the verification process, which is completed generally within 24 hours, the registration is approved and activated, and the prospective buyer is added to our registered buyer list.
 
Total registered buyers, as of a given date, represent the aggregate number of persons or entities who have registered on one of our marketplaces. We use this metric to evaluate how well our marketing and promotional efforts are performing. Total registered buyers exclude duplicate registrations, buyers who are suspended from utilizing our marketplaces and those buyers who have voluntarily removed themselves from our registration database. In addition, if we become aware of registered buyers that are no longer in business, we remove them from our database. As of December 31, 2020 and 2019, we had approximately 3,839,000 and 3,630,000 registered buyers, respectively.
 
Total auction participants.  For each auction we manage, the number of auction participants represents the total number of registered buyers who have bid one or more times in that auction. As a result, a registered buyer who bids, or participates, in more than one auction is counted as an auction participant in each auction in which he or she participates. Thus, total auction participants for a given period is the sum of the auction participants in each auction conducted during that period. We use this metric to allow us to compare our online auction marketplaces to our competitors, including other online auction sites and traditional on-site auctioneers. In addition, we measure total auction participants on a periodic basis to evaluate the activity level of our base of registered buyers and to measure the performance of our marketing and promotional efforts. During the three months ended December 31, 2020 and 2019, approximately 517,000 and 453,000, respectively, total auction participants participated in auctions on our marketplaces.
 
Completed transactions.  Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the three months ended December 31, 2020 and 2019, we completed approximately 152,000 and 136,000 transactions, respectively.

Non-GAAP Financial Measures
 
EBITDA and Adjusted EBITDA. EBITDA is a supplemental non-GAAP financial measure and is equal to net income (loss) plus interest and other income, net excluding the non-service components of net periodic pension (benefit); provision for income taxes; and depreciation and amortization. Interest and other income, net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Adjusted EBITDA differs from EBITDA because we further adjust EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.
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We believe EBITDA and Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
 
Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year.
As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the statements of operations, and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.
We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
We believe EBITDA and Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
We also believe that analysts and investors use EBITDA and Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry.
Our management uses EBITDA and Adjusted EBITDA:
as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
for planning purposes, including the preparation of our internal annual operating budget;
to allocate resources to enhance the financial performance of our business;
to evaluate the effectiveness of our operational strategies; and
to evaluate our capacity to fund capital expenditures and expand our business.

EBITDA and Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, EBITDA and Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP.
We prepare Adjusted EBITDA by adjusting EBITDA to eliminate the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Adjusted EBITDA is subject to all of the limitations applicable to EBITDA. Our presentation of Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
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The table below reconciles net income (loss) to EBITDA and Adjusted EBITDA for the periods presented. 
Three Months Ended December 31,
 20202019
(in thousands) (Unaudited)
Net income (loss)$4,514 $(5,196)
Interest and other income, net1