LIQUIDITY SERVICES INC (LQDT) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with our consolidated financial statements and related notes contained elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could vary materially from those indicated, implied, or suggested by these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
About us. Liquidity Services is a leading global commerce company providing trusted marketplace platforms that power the circular economy. We create a better future for organizations, individuals, and the planet by capturing and unleashing the intrinsic value of surplus. We connect millions of buyers and thousands of sellers through our leading auction marketplaces, search engines, asset management software, and related services. Our comprehensive solutions enable the transparent, efficient, sustainable recovery of value from excess items owned by business and government sellers.
Our business delivers value to shareholders by unleashing the intrinsic value of surplus through our marketplace platforms. These platforms ignite and enable a self-reinforcing cycle of value creation where buyers and sellers continue to attract one another in ever-increasing numbers. The result is a continuous flow of goods that becomes increasingly valuable as more participants join the platform, thereby creating positive network effects that benefit sellers, buyers, and shareholders. During the past three fiscal years, we have conducted over 2.2 million online transactions generating $2.7 billion in gross merchandise volume or 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.
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During the year ended September 30, 2022, the number of registered buyers grew from 4.0 million to 4.9 million. We believe the continuous flow of goods in our marketplaces attracts a growing buyer base which creates a self-sustaining cycle for our buyers and sellers. We generated GMV of $1,145.4 million and revenue of $280.1 million through multiple sources, including transaction fees from sellers and buyers, proceeds from the sale of products we purchased from sellers, and value-added service charges. Our GMV has grown at a compound annual growth rate of 12.5% since 2006.
Results from our operations are organized into four reportable segments: GovDeals, Retail Supply Chain Group (RSCG), Capital Assets Group (CAG), and Machinio. See Note 16 - Segment Information to the consolidated financial statements for more information regarding our segments.
On November 1, 2021, we acquired Bid4Assets, Inc. (Bid4Assets), a Maryland corporation based in Silver Spring, MD. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. The results of Bid4Assets' operations are included within our GovDeals reportable segment. See Note 3 - Bid4Assets Acquisition for more information regarding this transaction.
Macroeconomic Conditions
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. Since May 2020, we have seen subsequent increases in GMV and revenues as businesses and governments re-opened from government ordered closures which, combined with cost control measures, generated positive net income since the third quarter of fiscal 2020. However, COVID-19 and its variants continue to impact the global economy, supply chains, and the ability to conduct commerce due to ongoing travel restrictions in various countries, and lockdowns reintroduced within regions of China. Additionally, the COVID-19 pandemic in combination with various macroeconomic factors, has impacted the supply chain of new vehicles, and construction and heavy equipment production, which in turn negatively affected the supply of used vehicles and construction and heavy equipment being sold in North America.
At this time, the likelihood, magnitude and timing of business developments across our reportable 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. The Company believes that its liquidity position and working capital are more than sufficient to meet its projected needs.
Effects of Inflation. Rising inflation in both the U.S. and internationally has weighed on the global economy, increasing prices for energy, shipping, and labor, among other areas of the macroeconomic environment. These events have caused a rise in borrowing costs as well, partly driven by actions taken by central banks to curb rising inflation. Currently, the Company is unable to predict the likelihood, magnitude and timing of inflationary risk to our business, if any. However, the Company does not believe inflation has had a material effect on our operating expenses. As a marketplace operator, the GMV, revenues and costs of revenues that result from our primarily auction-based sales may be influenced by macroeconomic factors, including but not limited to inflation, whose impacts may vary across each of our individual asset classes.
Russia-Ukraine Conflict. The global financial markets have experienced volatility subsequent to the invasion of Ukraine by Russia in February 2022, a conflict which remains ongoing. In response to the invasion, numerous countries, including the United States, imposed significant new sanctions and export controls against Russia, Russian banks and certain Russian individuals. The conflict has further heightened global supply chain disruptions and impacted the international trade and energy markets. For the year ended September 30, 2022, the Company's total revenues directly associated with Russia and Ukraine were not material to our consolidated financial results. We will continue monitoring the events in Ukraine and any potential future impacts on our business.
See Part I, Item 1A, Risk Factors, for an additional discussion of risks related to global economic conditions including those discussed above.
Industry Trends
We believe there are several industry trends positively impacting the long-term growth of our business including:
•the increase in volume of returned merchandise handled both online and in stores as online and omni-channel retail grow as a percentage of overall retail sales;
•the increase in government regulations and the need for corporations to have sustainability solutions with verifiable recycling and remarketing of surplus assets;
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•the increase in outsourcing surplus disposition and end-of-life assets by corporations and government entities as they focus on reducing costs, improving transparency, compliance and working capital, and increasingly prefer service providers with proven track records, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain;
•an increase in buyer demand for surplus merchandise as consumers trade down by purchasing less expensive goods and seek greater value from their purchases, which could impact our long term growth;
•the increase in demand from sellers and buyers to transact in a low touch, online solution as compared to live, in-person auctions or public sale events; and
•in the long-term we expect innovation in the retail supply chain will increase the pace of product obsolescence and, therefore, increase the supply of surplus assets.
Revenues
Substantially all of our revenue is earned through the following transaction models:
Purchase model. Under our purchase transaction model, we recognize revenue within the Purchase revenues line item on the 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. Revenue from our purchase transaction model accounted for 54%, 57% and 62%, of our total revenue for the years ended September 30, 2022, 2021 and 2020, respectively. These amounts included sales of commercial merchandise sourced from multiple vendor contracts with Amazon.com, Inc. by our RSCG segment. The commercial merchandise we purchased under these contracts represented 55%, 61% and 55%, of Cost of goods sold for the years ended September 30, 2022, 2021 and 2020, respectively. The merchandise sold under our purchase transaction model accounted for 14%, 16% and 21%, of our GMV for the years ended September 30, 2022, 2021 and 2020.
Consignment model—fee revenue. Under our consignment transaction model, we enable our sellers to sell goods they own in our marketplaces, and we charge them a commission fee based on the gross or net proceeds received from such sales. The revenue from our consignment transaction model is recognized upon auction close or upon collection of auction proceeds, depending upon the settlement service level selected by the seller. Revenue under the consignment model is recorded within the Consignment and other fee revenues line item on the 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. Revenue from our consignment model accounted for 38%, 36% and 32%, of our total revenue for the years ended September 30, 2022, 2021 and 2020, respectively, and 86%, 84% and 79%, of our GMV for the years ended September 30, 2022, 2021 and 2020, respectively.
Other — fee revenue. We also earn non-consignment fee revenue from Machinio's Advertising and System subscription services, as well as other services including returns management, refurbishment of assets, and asset valuation services. Non-consignment fee revenue is recorded within the Consignment and other fee revenues line item on the Consolidated Statements of Operations. Other fee revenues accounted for 8%, 7% and 6% of our Total revenues for the years ended September 30, 2022, 2021 and 2020, respectively.
Our Vendor Agreements
Commercial agreements. We have multiple vendor contracts with Amazon.com, Inc. under which we acquire and sell commercial merchandise. While purchase model transactions account for less than 20% of our total GMV, the cost of inventory for purchase model transactions is the most significant component of our consolidated Costs of goods sold. The property we purchased under these contracts represented 55%, 61% and 55%, of cost of goods sold for the years ended September 30, 2022, 2021 and 2020, respectively. This contract is included within our RSCG segment. Our agreements with our other sellers are generally terminable at will by either party.
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Key Business Metrics
Our management periodically reviews certain key business metrics for operational planning purposes and to evaluate the effectiveness of our operational strategies, allocation of resources and our capacity to fund capital expenditures and expand our business. These key business metrics include:
Gross merchandise volume (GMV). GMV is the total sales value of all merchandise sold by us or our sellers through our marketplaces or by us through other channels during a given period of time. We review GMV because it provides a measure of the volume of goods being sold in our marketplaces and thus the activity of those marketplaces. GMV also provides a means to evaluate the effectiveness of investments that we have made and continue to make, including in the areas of buyer and seller support, value-added services, product development, sales and marketing, and operations. Our GMV for the year ended September 30, 2022, was $1.1 billion.
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 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 September 30, 2022, 2021, and 2020, we had 4.9 million, 4.0 million, and 3.8 million, registered buyers, respectively. Of the increase, approximately 16% is attributable to the Bid4Assets registered buyer base acquired during the three months ended December 31, 2021. None of our buyers represented more than 10% of our revenue during the year ended September 30, 2022.
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 years ended September 30, 2022, 2021, and 2020, 3.1 million, 2.3 million, and 1.9 million participants participated in auctions on our marketplaces, respectively.
Completed transactions. Completed transactions represents the number of auctions in a given period from which we have recorded revenue. Similar to GMV, we believe that completed transactions is a key business metric because it provides an additional measurement of the volume of activity flowing through our marketplaces. During the years ended September 30, 2022, 2021, and 2020, we completed 933,000, 703,000 and 553,000 transactions, respectively.
Critical Accounting Policies and Estimates
The Company's consolidated financial statements, included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K with their accompanying notes, have been prepared in accordance with GAAP, which requires management of the Company to make assumptions, judgments and estimates that affect amounts reported in its consolidated financial statements. Accounting policies and estimates are considered to be "critical" when the nature of the estimate includes subjective or sensitive assumptions or judgments that can have a material impact on the financial condition or operating performance of the Company. Actual results may differ from these estimates.
We consider the following accounting policies to be critical: revenue recognition, business combinations, valuation of goodwill and intangible assets, and income taxes. Refer to Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details on these accounting policies.
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We consider the following accounting estimates to be critical: valuation of goodwill and intangible assets (Notes 7 and 8, respectively), and income taxes (Note 10). Refer to these individually referenced notes and Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements for further details on these accounting estimates. The following discussion is a supplement to the disclosures referenced.
Intangible assets. Intangible assets consist of contract intangibles, brand and technology, and patent and trademarks. Intangible assets are amortized using the straight-line method over their estimated useful lives. The preliminary fair value of acquired intangible assets, excluding goodwill, arising from the Bid4Assets acquisition was $16.5 million. This balance consisted of the following identified intangible assets, each with their own significant assumptions used, as follows:
•Contract Intangibles - We valued the contract intangibles using the multi-period excess earnings method, an income approach valuation model. The significant assumptions used in the income approach includes estimates about future expected cash flows from supplier contracts, the attrition rate, and the discount rate.
•Developed Software - We valued the developed software by applying the relief-from-royalty method, an income approach valuation model. The significant assumptions used in the relief-from-royalty method include estimates about future expected cash flows from the developed software, the royalty rate, the obsolescence factor and the discount rate.
•Trade Name - We valued the trade name acquired using a relief-from-royalty method. The significant assumptions used in the relief-from-royalty method include future expected cash flows from the trade name, the royalty rate, and the discount rate.
Earn-out liability. Shareholders of Bid4Assets are eligible to receive up to $37.5 million in cash, payable based on Bid4Assets' achievement of trailing twelve-month EBITDA targets measured at the end of each calendar quarter until the quarter ended December 31, 2022. The earn-out consideration was preliminarily fair valued at approximately $28.0 million as of the acquisition date. As of September 30, 2022, $3.5 million in earn out payments have been made, and the remaining earn-out fair value has been measured to be $0 based upon the expected performance through the final earn-out period ending December 31, 2022. The significant unobservable inputs used in the fair value measurement categorized within Level 3 of the fair value hierarchy included estimated results of operations over the earn-out period, a high level of volatility of operating results given the nature of the business model and its economic environment create a wider range of potential outcomes over the earn-out period, and the discount rate.
Goodwill. Goodwill represents the costs in excess of the fair value of net assets acquired through acquisitions by the Company. Pursuant to our preliminary purchase price allocation, goodwill arising from the acquisition was determined to be $30.1 million. See Note 3 - Bid4Assets Acquisition, for further information. As discussed in Note 13 – Fair Value Measurement, the fair value of the Bid4Assets earn-out liability declined by $24.5 million during the fiscal year ended September 30, 2022, due to timing changes, which were not known nor knowable as of the acquisition date, impacting the level of auction events and transactions that are expected to occur during the earn-out period ending December 31, 2022. These timing changes have not reflected substantive changes to the long-term outlook for real estate sales within the GovDeals segment and were not considered a triggering event for testing goodwill or long-lived assets for impairment as of September 30, 2022. The Company will continue to monitor for changes that could impact the recoverability of its goodwill.
Components of Revenue and Expenses
Revenue. Refer to the discussion in the Our revenue section above, and to Note 2 - Summary of Significant Accounting Policies to the Company's consolidated financial statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for discussion of the Company's related accounting policies.
Cost of goods sold. Refer to Note 2 - Summary of Significant Accounting Policies, to the Company's consolidated financial statements in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K for discussion of the Company's Costs of goods sold and related accounting policies.
Technology and operations. Technology expenses primarily consist of the cost of technical staff (including stock compensation), third party services, licenses, and infrastructure, all as required to develop, configure, deploy, maintain, and secure our marketplace platforms, business operational systems, and facilities. Technology expenses are net of the required capitalization of costs associated with enhancing our marketplace platforms and other software development activities. Depreciation and amortization of capitalized software development costs, purchased software, acquired developed software intangible assets, and computer hardware are included within Depreciation and amortization in the accompanying Consolidated Statements of Operations. Technology expenses are presented separately from Costs of goods sold (excluding depreciation and amortization) in the Consolidated Statements of Operations, as these expenses provide for the general availability of our
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marketplace platforms and other business operational systems and are not attributable to specific revenue generating transaction activity occurring on our marketplaces.
Because our marketplaces and support systems require frequent upgrades and enhancements to maintain viability, we have determined that the useful life for certain internally developed software is less than one year. As a result, we expense those costs as incurred. However, where we determine that the useful life of the internally developed software will be greater than one year, we capitalize development costs in accordance with ASC 350-40, Internal-use software. As such, we are capitalizing certain development costs associated with our e-commerce platform, as well as other software development activities.
Operations expenses consist primarily of costs to operate our distribution centers, including shipping logistics, inventory management, refurbishment, and administrative functions; costs to enhance our online auctions listings and provide customer support; and costs associated with field support and preparation and transfer of goods from sellers to buyers. Operations expenses include both internal and external labor costs, as well as other third-party charges. These costs are expensed as incurred.
Sales and marketing. Sales and marketing expenses include the cost of our sales and marketing personnel as well as the cost of marketing and promotional activities, including buyer and seller acquisition, as well as general brand marketing. These activities include online marketing campaigns such as paid search advertising, as well as offline marketing efforts, trade shows, and marketing analytics.
General and administrative. General and administrative expenses include all corporate and administrative functions that support our operations and provide an infrastructure to facilitate our future growth. These expenses are generally more fixed in nature than our other operating expenses and do not significantly vary in response to the volume of merchandise sold through our marketplaces.
Depreciation and amortization. Depreciation and amortization consist of depreciation of property and equipment, amortization of internally developed software, and amortization of intangible assets.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs consists of the change in fair value of earn-out consideration following a business combination.
Other operating expenses, net. Other operating expenses, net includes impairment of long-lived and other assets, impacts of lease terminations, as well as business realignment expenses, including those associated with restructuring initiatives and the exit of certain business operations.
Interest and other income, net. Interest and other income, net consists of interest income on interest bearing checking accounts, money market funds, the prior promissory note issued to JTC, interest and unused commitment fees in connection with the Company's Credit Agreement, the components of net periodic pension (benefit) other than the service component, and impacts of foreign currency fluctuations.
Income taxes. During the years ended September 30, 2022, 2021 and 2020, the Company had an effective income tax rate of 15.4%, (84.7)% and (26.9)%, respectively, which included federal, state and foreign income taxes.
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Results of Operations
The following table presents reportable segment GMV, revenue, segment gross profit (which is calculated as total revenue less cost of goods sold (exclusive of depreciation and amortization)), and segment gross profit as a percentage of total revenue for the periods indicated ($ in thousands):
| Year Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||||||||||
| GovDeals: | ||||||||||||
| GMV | $ | 720,323 | $ | 498,742 | $ | 325,993 | ||||||
| Total revenue | 59,352 | 49,579 | 32,806 | |||||||||
| Segment gross profit | 56,408 | 47,030 | 30,721 | |||||||||
| Segment gross profit as a percentage of total revenue | 95.0 | % | 94.9 | % | 93.6 | % | ||||||
| RSCG: | ||||||||||||
| GMV | 236,236 | 229,290 | 181,473 | |||||||||
| Total revenue | 166,100 | 158,806 | 136,491 | |||||||||
| Segment gross profit | 63,704 | 64,564 | 49,727 | |||||||||
| Segment gross profit as a percentage of total revenue | 38.4 | % | 40.7 | % | 36.4 | % | ||||||
| CAG: | ||||||||||||
| GMV | 188,813 | 158,736 | 112,384 | |||||||||
| Total revenue | 42,575 | 39,645 | 29,481 | |||||||||
| Segment gross profit | 29,120 | 29,324 | 22,714 | |||||||||
| Segment gross profit as a percentage of total revenue | 68.4 | % | 74.0 | % | 77.0 | % | ||||||
| Machinio: | ||||||||||||
| GMV | — | — | — | |||||||||
| Total revenue | 12,083 | 9,559 | 7,213 | |||||||||
| Segment gross profit | 11,471 | 8,992 | 6,813 | |||||||||
| Segment gross profit as a percentage of total revenue | 94.9 | % | 94.1 | % | 94.4 | % | ||||||
| Corporate & Other, including elimination adjustments: | ||||||||||||
| GMV | — | — | — | |||||||||
| Total revenue | (60) | (57) | (51) | |||||||||
| Segment gross profit | (60) | (57) | (51) | |||||||||
| Segment gross profit as a percentage of total revenue | NM | NM | NM | |||||||||
| Consolidated: | ||||||||||||
| GMV | 1,145,372 | 886,768 | 619,850 | |||||||||
| Total revenue | 280,050 | 257,531 | 205,940 |
NM = not meaningful
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Year Ended September 30, 2022 Compared to Year Ended September 30, 2021
Segment Results
GovDeals. Total revenues from our GovDeals reportable segment increased 19.7%, or $9.8 million, due to a 44.4%, or $221.6 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate. In addition, increased recovery rates on assets sold were driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. However, this has been partially offset by lower volumes of used vehicles made available for sale, as new vehicle production disruptions impact government agency vehicle fleet retirement timelines. As GovDeals real estate sales increase through the integration with Bid4Assets, GovDeals revenue as a percent of GMV is expected to decline, as these higher value real estate sales are generally conducted at a lower take-rate than our traditional GovDeals asset categories. For that reason, revenue as a percentage of GMV decreased to 8.2% from 9.9% last year. As a result of the increase in revenues, segment gross profit increased 19.9%, or $9.4 million. Segment gross profit as a percentage of total revenue remained relatively consistent between the periods.
RSCG. Revenue from our RSCG reportable segment increased 4.6%, or $7.3 million due to a 3.0%, or $6.9 million, increase in GMV as it continues to diversify its client programs, sales channels, and its distribution network. Segment gross profit decreased by 1.3%, or $0.9 million, impacted by certain client returns management programs which provided fewer higher value products than in prior years, including for some of our low touch services. As a result, segment gross profit as a percentage of total revenue decreased by 2.3%.
CAG. Revenue from the CAG reportable segment increased by 7.4%, or $2.9 million due to a 18.9%, or $30.1 million, increase in GMV driven by increasing opportunities to obtain and sell inventory under our purchase model, and strong consignment sales in the energy and heavy equipment categories, partially offset by strong prior year consignment sales in the industrial category. Revenues did not increase at the same rate as GMV due to increases in the mix of transactions conducted with partner organizations. Segment gross profit decreased 0.7%, or $0.2 million. Segment gross profit as a percentage of total revenue decreased 5.6% due to inherent variations in the mix of assets sourced and sold by the CAG segment in any given period, including increased international purchase transaction activity, some of which had lower than average margins due to incremental costs from COVID-19 related delays in conducting cross-border transactions. Further, challenged global supply chains are experiencing heightened disruptions from the Russian invasion of Ukraine and its impacts on international trade and energy markets, COVID-19 and other disruptions, which could limit the volume of assets made available for sale in any period.
Machinio. Revenue from our Machinio reportable segment increased 26.4%, or $2.5 million, due to an increase in subscription activity through a greater number of subscribers and increased pricing. As a result of the increase in revenues, segment gross profit increased 27.6%, or $2.5 million.
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Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
| Year Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | $ Change | % Change | ||||||||||||
| Purchase revenues | $ | 151,271 | $ | 146,151 | $ | 5,120 | 3.5 | % | |||||||
| Consignment and other fee revenues | 128,779 | 111,380 | 17,399 | 15.6 | % | ||||||||||
| Total revenues | 280,050 | 257,531 | 22,519 | 8.7 | % | ||||||||||
| Costs and expenses from operations: | |||||||||||||||
| Cost of goods sold (excludes depreciation and amortization) | 119,407 | 107,678 | 11,729 | 10.9 | % | ||||||||||
| Technology and operations | 55,522 | 47,673 | 7,849 | 16.5 | % | ||||||||||
| Sales and marketing | 43,224 | 37,635 | 5,589 | 14.9 | % | ||||||||||
| General and administrative | 28,282 | 28,938 | (656) | (2.3) | % | ||||||||||
| Depreciation and amortization | 10,322 | 6,969 | 3,353 | 48.1 | % | ||||||||||
| Fair value adjustment of acquisition earn-outs | (24,500) | — | (24,500) | NM | |||||||||||
| Other operating expenses, net | 388 | 1,470 | (1,082) | (73.6) | % | ||||||||||
| Total costs and expenses | 232,645 | 230,363 | 2,282 | 1.0 | % | ||||||||||
| Income (loss) from operations | 47,405 | 27,168 | 20,237 | 74.5 | % | ||||||||||
| Interest and other income, net | (248) | (411) | 163 | (39.7) | % | ||||||||||
| Income (loss) before income taxes | 47,653 | 27,579 | 20,074 | 72.8 | % | ||||||||||
| Provision (benefit) for income taxes | 7,329 | (23,370) | 30,699 | NM | |||||||||||
| Net income (loss) | $ | 40,324 | $ | 50,949 | $ | (10,625) | (20.9) | % |
NM = not meaningful
Total revenues. Total consolidated revenue increased $22.5 million, or 8.7%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $11.7 million, or 10.9%, which changed at a higher rate than Revenue primarily due to an increase in purchase transactions at CAG and RSCG, which also contained a more favorable mix of higher value returned products in the prior year.
Technology and operations expenses. Technology and operations expenses increased $7.8 million, or 16.5%, as we are increasing our technology and operations functions to continue our growth, including RSCG's expansion of its distribution network, and launching AllSurplus Deals as a new marketplace offering consumers deals for curbside pickup.
Sales and marketing expenses. Sales and marketing expenses increased $5.6 million, or 14.9%, as we are increasing our sales and marketing functions to continue our growth, including promotional efforts to expand our market share in key verticals, and to promote new business initiatives including our AllSurplus Deals consumer marketplace.
General and administrative expenses. General and administrative expenses decreased $0.7 million, or 2.3%, primarily due to changes in expected attainment of certain variable compensation targets, and partially offset by increased corporate support costs to support the anticipated growth resulting from the increases in our technology, operations, sales and marketing functions.
Depreciation and amortization. Depreciation and amortization expense increased $3.4 million, or 48.1%, primarily due to the increase in intangible assets following our acquisition of Bid4Assets on November 1, 2021.
Fair value adjustment of acquisition earn-outs. Fair value adjustment of acquisition earn-outs reflects a $24.5 million non-cash gain due to a reduction in the fair value of the Bid4Assets earn-out liability during the year ended September 30, 2022. See Note 13 - Fair Value Measurement for further information.
Interest and other income, net. Interest and other income, net increased $0.2 million, due to the effect of rising interest rates on our cash, cash equivalent and short-term investment holdings.
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Provision (benefit) for income taxes. Provision (benefit) for income taxes increased $30.7 million to an expense of $7.3 million from a benefit of $23.4 million due to the $27.9 million release of our valuation allowance on U.S. deferred tax assets during the fiscal year ended September 30, 2021, and $2.8 million of state and foreign income tax expense. The Company's effective tax was 15.4% for the twelve months ended September 30, 2022. The 2022 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the impact of foreign, state, and local income taxes and permanent adjustments, the most significant of which was the exclusion of the $24.5 million non-cash gain from the fair-market value adjustment of the Bid4Assets acquisition earn-out liability.
Year Ended September 30, 2021 Compared to Year Ended September 30, 2020
Segment Results
GovDeals. Revenue from our GovDeals segment increased 51.1%, or $16.8 million, due to a 53.0%, or $172.7 million, increase in GMV from adding new sellers and increasing volumes with existing sellers across several key categories, including transportation and real estate, and an increase in recovery rates on assets sold, driven by our growing buyer base, automated asset promotion tools, and favorable macroeconomic factors in certain asset categories, such as transportation assets. The fiscal year ended September 30, 2020 also contained the negative impact of the economic restrictions put in place at the onset of the COVID-19 pandemic. As a result of the increase in revenues, segment gross profit increased 53.1%, or $16.3 million, and segment gross profit margin increased from 93.6% to 94.9%.
RSCG. Revenue from our RSCG segment increased 16.3%, or $22.3 million due to a 26.3%, or $47.8 million, increase in GMV driven by growing volumes within existing seller accounts and launching new programs with large and mid-sized and large retailers looking to capitalize on the secular growth in online retail. Revenues did not increase at the same rate as GMV due to an increase in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, segment gross profit increased 29.8%, or $14.8 million. Segment gross profit margin increased from 36.4% to 40.7% due to an increase in the mix of transactions conducted under the consignment model and improved recovery rates on assets sold.
CAG. Revenue from the CAG segment increased by 34.5%, or $10.2 million due to a 41.2%, or $46.4 million increase in GMV due to continued growth of our industrial and heavy equipment categories, increases in purchase transactions across the EMEA and Asia-Pacific regions, and increased use of the consignment model internationally. Revenues did not increase at the same rate as GMV due to increases in transactions using partner organizations and in the mix of transactions conducted under the consignment model. As a result of the increase in revenues, segment gross profit increased 29.1%, or $6.6 million. Segment gross profit margin decreased from 77.0% to 74.0%.
Machinio. Revenue from our Machinio segment increased 32.5%, or $2.3 million, due to an increase in subscription activity. As a result of the increase in revenues, segment gross profit increased 32.0%, or $2.2 million.
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Consolidated Results
The following table sets forth, for the periods indicated, our operating results (dollars in thousands):
| Year Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 | 2020 | $ Change | % Change | ||||||||||||
| Purchase revenues | $ | 146,151 | $ | 127,580 | $ | 18,571 | 14.6 | % | |||||||
| Consignment and other fee revenues | 111,380 | 78,360 | 33,020 | 42.1 | |||||||||||
| Total revenues | 257,531 | 205,940 | 51,591 | 25.1 | |||||||||||
| Costs and expenses from operations: | |||||||||||||||
| Cost of goods sold (excludes depreciation and amortization) | 107,678 | 96,016 | 11,662 | 12.1 | |||||||||||
| Technology and operations | 47,673 | 42,158 | 5,515 | 13.1 | |||||||||||
| Sales and marketing | 37,635 | 35,629 | 2,006 | 5.6 | |||||||||||
| General and administrative | 28,938 | 29,166 | (228) | (0.8) | |||||||||||
| Depreciation and amortization | 6,969 | 6,290 | 679 | 10.8 | |||||||||||
| Fair value adjustment of acquisition earn-outs | — | 200 | (200) | NM | |||||||||||
| Other operating expenses, net | 1,470 | 378 | 1,092 | 288.9 | |||||||||||
| Total costs and expenses | 230,363 | 209,837 | 20,526 | 9.8 | |||||||||||
| Income (loss) from operations | 27,168 | (3,897) | 31,065 | NM | |||||||||||
| Interest and other income, net | (411) | (924) | 513 | (55.5) | |||||||||||
| Income (loss) before income taxes | 27,579 | (2,973) | 30,552 | NM | |||||||||||
| (Benefit) provision for income taxes | (23,370) | 801 | (24,171) | NM | |||||||||||
| Net income (loss) | $ | 50,949 | $ | (3,774) | $ | 54,723 | NM |
NM = not meaningful
Revenue. Total consolidated revenue increased $51.6 million, or 25.1%. Refer to the discussion of Segment Results above for discussion of the decrease in revenue.
Cost of goods sold (excludes depreciation and amortization). Cost of goods sold increased $11.7 million, or 12.1%, which changed at a lower rate than revenue primarily due to lower cost of sales associated with purchase transactions, which benefited from higher recovery rates during the period, and an increase in the mix of transactions conducted under the consignment model.
Technology and operations. Technology and operations expenses increased $5.5 million, or 13.1%, to support the increased transaction volumes in the RSCG and CAG segments.
Sales and marketing. Sales and marketing expenses increased $2.0 million, or 5.6%, primarily due to increase in marketing expenses to promote our consolidated marketplace and expand market share in key verticals.
General and administrative. General and administrative expenses were consistent between the year ended September 30, 2021 and 2020.
Depreciation and amortization. Depreciation and amortization expense increased $0.7 million, or 10.8%, due to an increase in amortization of capitalized software related to the continued development and enhancement of our marketplace platform and tools.
Interest and other income, net. Interest and other income, net increased $0.5 million due the effect of changes in foreign exchange rates.
(Benefit) provision for income taxes. (Benefit) provision for income taxes decreased $24.2 million to a benefit of $23.4 million from an expense of $0.8 million due to a release of $27.9 million of valuation allowance netted against $3.3 million deferred tax expense and $1.2 million state and foreign income taxes. The Company's effective income tax rate was (84.7%) for the twelve months ended September 30, 2021. The 2021 effective tax rate differed from the statutory federal rate of 21.0% primarily as a result of the release of the valuation allowance on deferred tax assets and the impact of foreign, state, and local taxes and permanent tax adjustments.
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Non-GAAP Financial Measures
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA. Non-GAAP EBITDA is a supplemental non-GAAP financial measure and is equal to Net income (loss) plus Interest and other expense (income), net excluding the non-service components of net periodic pension (benefit); Provision (benefit) for income taxes; and Depreciation and amortization. Interest and other expense (income), net, can include non-operating gains and losses, such as from foreign currency fluctuations. Our definition of Non-GAAP Adjusted EBITDA differs from Non-GAAP EBITDA because we further adjust Non-GAAP EBITDA for stock-based compensation expense, acquisition costs such as transaction expenses and changes in earn out estimates, business realignment expense, deferred revenue purchase accounting adjustments, and goodwill and long-lived asset impairment.
We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are useful to an investor in evaluating our performance for the following reasons:
•Depreciation and amortization expense primarily relates to property and equipment and the amortization of intangible assets. These expenses are non-cash charges that have fluctuated significantly in the past. As a result, we believe that adding back these non-cash charges is useful in evaluating the operating performance of our business on a consistent basis from year-to-year.
•As a result of varying federal and state income tax rates, we believe that presenting a financial measure that adjusts for provision for income taxes is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
•The authoritative guidance for stock-based compensation requires all share-based payments to employees, including grants of employee stock options, restricted stock and stock appreciation rights to be recognized in the income statement based on their estimated fair values over the requisite vesting period. We believe adjusting for this stock-based compensation expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year to year.
•The authoritative guidance related to business combinations requires the initial recognition of contingent consideration at fair value with subsequent changes in fair value recorded through the Consolidated Statements of Operations and disallows the capitalization of transaction costs. We believe adjusting for these acquisition related expenses is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year.
•We believe adjusting for business realignment expense is useful to investors when evaluating the operating performance of our business on a consistent basis from year-to-year, as these expenses are outside our ordinary course of business.
•We believe isolating non-cash charges, such as amortization and depreciation, and other items, such as impairment costs incurred outside our ordinary course of business, provides additional information about our cost structure, and, over time, helps track our performance.
•We believe Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA are important indicators of our operational strength and the performance of our business because they provide a link between profitability and operating cash flow.
•We also believe that analysts and investors use Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as supplemental measures to evaluate the overall operating performance of companies in our industry.
Our management uses Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA:
•as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis as they remove the impact of items not directly resulting from our core operations;
•for planning purposes, including the preparation of our internal annual operating budget;
•to allocate resources to enhance the financial performance of our business;
•to evaluate the effectiveness of our operational strategies; and
•to evaluate our capacity to fund capital expenditures and expand our business.
Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA as calculated by us are not necessarily comparable to similarly titled measures used by other companies. In addition, Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA: (a) do not represent net income (loss) or cash flows from operating activities as defined by GAAP; (b) are not necessarily indicative of cash available to fund our cash flow needs; and (c) should not be considered as alternatives to net income (loss), income (loss) from operations, cash provided by (used in) operating activities or our other financial information as determined under GAAP.
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We prepare Non-GAAP Adjusted EBITDA by eliminating from Non-GAAP EBITDA the impact of items that we do not consider indicative of our core operating performance. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. As an analytical tool, Non-GAAP Adjusted EBITDA is subject to all of the limitations applicable to Non-GAAP EBITDA. Our presentation of Non-GAAP Adjusted EBITDA should not be construed as an implication that our future results will be unaffected by unusual or non-recurring items.
The table below reconciles Net income (loss) to Non-GAAP EBITDA and Non-GAAP Adjusted EBITDA for the periods presented.
| Year ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | |||||||||
| Net income (loss) | $ | 40,324 | $ | 50,949 | $ | (3,774) | |||||
| Interest and other expense (income), net(1) | 126 | (76) | (577) | ||||||||
| Provision (benefit) for income taxes | 7,329 | (23,370) | 801 | ||||||||
| Depreciation and amortization | 10,322 | 6,969 | 6,290 | ||||||||
| Non-GAAP EBITDA | $ | 58,101 | $ | 34,472 | $ | 2,740 | |||||
| Stock compensation expense | 8,482 | 6,947 | 5,660 | ||||||||
| Acquisition costs and impairment of goodwill and long-lived assets(2) | 473 | 1,464 | 5 | ||||||||
| Business realignment expenses(2,3) | 191 | 5 | 405 | ||||||||
| Fair value adjustments to acquisition earn-outs | (24,500) | — | 200 | ||||||||
| Deferred revenue purchase accounting adjustment | — | — | 3 | ||||||||
| Non-GAAP Adjusted EBITDA | $ | 42,747 | $ | 42,888 | $ | 9,013 |
(1) Interest and other expense (income), net excludes non-services pension and other postretirement benefit expense.
(2) Acquisition costs and impairment of goodwill and long-lived assets, as well as Business realignment expenses, are components of Other operating expenses, net on the Consolidated Statements of Operations.
(3) Business realignment expense includes the amounts accounted for as exit costs under ASC 420, Exit or Disposal Cost Obligations, and the related impacts of business realignment actions subject to other accounting guidance.
Liquidity and Capital Resources
Our operational cash needs primarily relate to working capital, including staffing costs, technology expenses, leases of real estate and equipment used in our operations, and capital used for inventory purchases, which we have funded through existing cash balances and cash generated from operations. From time to time, we may use our capital resources for other activities, such as contract start-up costs, joint ventures, share repurchases and acquisitions. As of September 30, 2022, we had $96.1 million in cash and cash equivalents, which we believe is sufficient to meet the Company’s anticipated cash needs one year from issuance of these financial statements.
Capital Expenditures
Our capital expenditures consist primarily of capitalized software, warehouse equipment, computers and purchased software, office equipment, furniture and fixtures, and leasehold improvements. The timing and volume of such capital expenditures in the future will be affected by the addition of new sellers or buyers or expansion of existing seller or buyer relationships. We intend to fund those expenditures primarily from our existing cash balances and operating cash flows. Our capital expenditures for the year ended September 30, 2022 were $8.1 million. As of September 30, 2022, we had no significant outstanding commitments for capital expenditures.
Our future capital requirements will depend on many factors including our rate of revenue growth, the timing and extent of spending to support development efforts, the expansion of sales and marketing activities, the development and deployment of new marketplaces, the introduction of new value-added services and the costs to establish additional distribution centers. We may seek to enter agreements with respect to potential investments in, or acquisitions of, complementary businesses, products or technologies, which could also require us to seek additional equity or debt financing. The sale of additional equity securities or convertible debt securities would result in additional dilution to our stockholders. Additional debt would result in increased interest expense and could result in covenants that would restrict our operations. There is no assurance that such financing, if required, will be available in amounts or on terms acceptable to us, if at all.
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Credit Agreement
The Company maintains a $25.0 million Credit Agreement due March 31, 2024 (Credit Agreement). The Company may draw upon the Credit Agreement for general corporate purposes. Repayments of any borrowings under the Credit Agreement shall become available for redraw at any time by the Company. The interest rate on borrowings under the Credit Agreement is a variable rate per annum equal to the Daily Simple Secured Overnight Financing Rate (SOFR) in effect plus a margin ranging from 1.25% to 1.75%. Interest is payable monthly. During the year ended September 30, 2022, the Company did not make any draws under the Credit Agreement. As of September 30, 2022, the Company had no outstanding indebtedness under the Credit Agreement and our borrowing availability was $25.0 million.
The obligations under the Credit Agreement are unconditionally guaranteed by us and each of our existing and subsequently acquired or organized domestic subsidiaries and secured on a first priority basis by a security interest (subject to permitted liens) in substantially all assets owned by us, and each of our other domestic subsidiaries, subject to limited exceptions. The Credit Agreement contains certain financial and non-financial restrictive covenants including, among others, the requirement to maintain a minimum level of earnings before interest, income taxes, depreciation and amortization (EBITDA). The Credit Agreement contains a number of affirmative and restrictive covenants including limitations on mergers, consolidations and dissolutions, investments and acquisitions, indebtedness and liens, and dividends and other restricted payments. As of September 30, 2022, the Company was in full compliance with the terms and conditions of the Credit Agreement.
Working Capital Management
Most of our sales are recorded subsequent to receipt of payment authorization, utilizing credit cards, wire transfers, and PayPal, an Internet based payment system, as methods of payments. As a result, we are not subject to significant collection risk, as goods are generally not shipped before payment is received.
The COVID-19 pandemic has caused the Company's GMV and revenues to fluctuate, and the Company initially implemented cost control measures to protect against the uncertainties created by the severe economic restrictions in its initial phases. From a cash flow perspective, the Company employed working capital management practices, primarily in the form of temporary extensions to vendor payment terms, and also experienced accumulation in its payables to sellers balance due to COVID-19 restrictions, which continue to be a factor in certain countries, causing some buyer delays in their ability to pick up purchased assets. The Company is prepared to reimplement these measures should it face conditions consistent with the initial phases of the COVID-19 pandemic.
We expect to continue to invest in enhancements to our e-commerce technology platform, marketplace capabilities and tools for data-driven product recommendations, omni-channel behavioral marketing, expanded analytics, and buyer/seller payment optimization.
We intend to indefinitely reinvest the earnings of our foreign subsidiaries outside the United States. As a result, we did not record a provision for deferred U.S. tax expense on the $8.6 million of undistributed foreign earnings as of September 30, 2022. As of September 30, 2022, and September 30, 2021, $20.3 million and $22.4 million, respectively, of cash and cash equivalents was held outside of the U.S.
Other Uses of Capital Resources
Bid4Assets, Inc. Acquisition. On November 1, 2021, the Company purchased all of the issued and outstanding shares of stock of Bid4Assets. Bid4Assets is a leading online marketplace focused on conducting real property auctions for the government, including tax foreclosure sales and sheriff's sales. Our investment through the acquisition of Bid4Assets will support continued growth in the GovDeals reportable segment, particularly in our real estate vertical.
The preliminary acquisition date fair value of the consideration transferred to the former shareholders of Bid4Assets was approximately $42.7 million consisting of $14.7 million in cash (net of working capital adjustments totaling $0.3 million) and earn-out consideration with a preliminary fair value of approximately $28.0 million. As part of the acquisition of Bid4Assets, former shareholders of Bid4Assets are eligible to receive earn-out consideration of up to $37.5 million in cash. See Note 3 - Bid4Assets Acquisition for further information.
During the twelve months ended September 30, 2022, the fair value of the earn-out liability was reduced by $24.5 million to $0.0 million, due to a decline in the auction events and transactions that are expected to be completed during the earn-out period ending December 31, 2022, which included extended timelines to advance legislation that allows for online auctions of foreclosed real estate in certain target markets, and other client specific delays in bringing foreclosed real estate to auction. These changes resulted from events occurring subsequent to the November 1, 2021, acquisition date and therefore, were not known nor knowable at that time.
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Share Repurchases. From time to time, we have been authorized to repurchase issued and outstanding shares of our common stock under a share repurchase program approved by our Board of Directors. Share repurchases may be made through open market purchases, privately negotiated transactions or otherwise, at times and in such amounts as management deems appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, corporate and regulatory requirements and other market conditions. The repurchase program may be discontinued or suspended at any time and will be funded using our available cash.
The Company had no remaining share repurchase authorization as of September 30, 2021. On December 6, 2021, the Company's Board of Directors authorized a new stock repurchase plan of up to $20 million of the Company's outstanding shares of common stock through December 31, 2023. The Company repurchased 1,159,066 shares for $20.0 million during the six months ended March 31, 2022.
On May 13, 2022, the Company's Board of Directors authorized the May 2022 Repurchase Plan. The Company repurchased 408,211 shares for $5.4 million during the three months ended June 30, 2022. As of September 30, 2022, the Company may repurchase an additional $6.6 million of shares under the May 2022 Repurchase Plan.
On December 6, 2022, the Company's Board of Directors authorized the repurchase of up to an additional $8.4 million of the Company's outstanding shares of common stock through December 31, 2024.
Off-Balance Sheet Arrangements. We do not have any transactions, agreements or other contractual arrangements that could be considered material off-balance sheet arrangements.
Changes in Cash Flows: 2022 Compared to 2021
Net cash provided by operating activities was $44.8 million and $65.4 million for the years ended September 30, 2022 and 2021, respectively. The $20.6 million decrease in cash provided by operating activities between periods was attributable to cash flows associated with a higher Accounts receivables balance of $5.4 million driven by the completion of a significant international industrial partner purchase transaction during the year ended September 30, 2022, as well as Accounts payable and Payables to sellers which together had a net decrease of $11.5 million due to reduced rates of change in the underlying transaction volumes during the current period. Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. As GovDeals real estate sales with settlement services increase through the integration with Bid4Assets, operating cash flow fluctuations from accounts payable and payables to sellers are expected to become more variable. The amount of cash received and settled will be substantially higher than our take rate on such transactions, and the timing of auction events, cash collection period, and payment of settlements relative to period end dates can potentially drive substantial cash movements to the extent the timing of such activities cross fiscal periods. There have been no other significant changes to the working capital requirements for the Company.
Net cash used in investing activities was $21.1 million for the year ended September 30, 2022, and $1.0 million for the year ended September 30, 2021. The $20.1 million increase in cash used in investing activities was driven by $11.2 million in cash paid at closing to acquire Bid4Assets on November 1, 2021, net of cash acquired (see Note 3 - Bid4Assets Acquisition for further information), a non-recurring collection of note receivable principal payments during the year ended September 30, 2021, totaling $4.3 million in connection with the JTC promissory note (see Note 2 - Summary of Significant Accounting Policies for further information), a $2.7 million increase in new property and equipment purchases from expansion of our distribution network, and $1.8 million in purchases of short-term investments.
Net cash used in financing activities was $31.9 million for the year ended September 30, 2022, and $34.7 million for the year ended September 30, 2021. The $2.7 million decrease in cash used by financing activities was primarily driven by $5.7 million of lower common stock repurchases in the current year and a $1.1 million decrease in taxes paid associated with net settlement of stock compensation awards. These were offset by an earn-out payment of $3.5 million in connect with the Bid4Assets acquisition.
Changes in Cash Flows: 2021 Compared to 2020
Net cash provided by operating activities was $65.4 million and $16.5 million for the year ended September 30, 2021 and 2020, respectively. The $48.9 million increase in cash provided by operations between periods was attributable to $33.2 million of higher net income as adjusted for non-cash items; changes in payables to sellers, driven by increasing transaction volumes; changes to accounts payable, accrued expenses and other liabilities driven by increasing transaction volumes and management of working capital; and partially offset by a $7.0 million increase in inventory driven by the continued growth in our RSCG and CAG segments. Our working capital accounts are subject to natural variations depending on the rate of change of our transaction volumes, the timing of cash receipts and payments, and variations in our transaction volumes related to settlements between our buyers and sellers. However, there have been no significant changes to the working capital requirements for the Company.
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Net cash provided by (used in) investing activities was $(1.0) million for the year ended September 30, 2021, and $28.6 million for the year ended September 30, 2020. The $29.7 million decrease in cash provided by investing activities was driven by a $30.0 million net impact of maturities of Short-term investments as the Company transitioned to using cash equivalent money market funds in its treasury strategy. This activity was partially offset by a $1.5 million increase in proceeds of principal payments from the JTC promissory note during the year ended September 30, 2021 due to receipt of $3.5 million from the First Amendment to the Forbearance Agreement with JTC as discussed in Note 2 - Summary of Significant Accounting Policies.
Net cash used in financing activities was $34.7 million for the year ended September 30, 2021, and $5.7 million for the year ended September 30, 2020. The $29.0 million increase in cash used by financing activities primarily driven by $27.2 million to repurchase common stock and a $3.3 million increase in taxes paid associated with net settlement of stock compensation awards, primarily from the vesting of awards with market conditions due to the achievement of increases in the Company's share price.
New Accounting Pronouncements
Information regarding our adoption of new accounting and reporting standards is discussed in Note 2 to the consolidated financial statements included in Part IV, Item 15(a)(1) of this Annual Report on Form 10-K.