Press Releases
Aug 13

Liquidity Services Announces First Quarter Fiscal Year 2016 Financial Results

– First Quarter Revenue of $65.9 million – GMV of $151.4 million –
Adjusted EBITDA of ($3.3) million

– Long Term Commercial Growth Strategy Remains the Priority

WASHINGTON–(BUSINESS WIRE)–Feb. 4, 2016–
Liquidity Services (NASDAQ:LQDT; www.liquidityservices.com),
a global solution provider in the reverse supply chain with the world’s
largest marketplace for business surplus, today reported that gross
merchandise volume (GMV) for the quarter ended December 31, 2015 was
$151.4 million, a decrease of 38.3% from the prior year’s comparable
period. Revenue for the quarter was $65.9 million, adjusted EBITDA,
which excludes stock-based compensation, acquisition costs, impairment
of goodwill and long-lived assets, business realignment expenses, and
gains or losses from business dispositions, was ($3.3) million and
adjusted net income was ($3.5) million or ($0.11) adjusted diluted
earnings per share. Q1-16 results were within the company’s guidance
range for GMV and below the company’s guidance range for adjusted EBITDA
and adjusted EPS, primarily related to our DoD business which
experienced continued declines in property values under our Scrap
contract, lower volumes received under our Surplus contract, and lower
margins related to the transition of our Surplus contract to the new
contract terms.

“As we commence fiscal year 2016, our focus remains on the long term
growth of our commercial business and building the most innovative
services and capabilities in the global reverse supply chain industry in
response to what our customers want and need to improve their own
performance,” said Bill Angrick, chairman and chief executive officer of
Liquidity Services. “Our Q1 results were dampened by lower commodity
prices which have adversely affected the pricing and volume of
transactions in our DoD and capital assets marketplaces. However, we
continue to expand our commercial and municipal government client base
as our marketplace and integrated services are highly relevant to
organizations seeking to manage total supply chain costs in the current
business climate. We also continued to make progress on the design and
build of our LiquidityOne platform to provide customers the next
generation of cloud based marketplace, analytics and returns management
solutions. We are testing our new product and service capabilities with
customers and are excited by the initial feedback and the new
opportunities we are uncovering to grow our business over the long term.”

Q1-16 results were led by our state and municipal government
marketplace, which achieved double-digit GMV growth. We also continue to
grow our client base and signed over 200 new government clients and 33
new industrial capital asset clients in the quarter. Our retail business
performed slightly below expectations during the quarter related to
timing of expenses for products that we received and processed during
the quarter but were not available for sale on our marketplace during
the quarter. Our retail business continues to strengthen with new client
programs ramping up in Q2-16, including the increasing adoption of our
returns management services. We continue to see unfavorable industry and
pricing trends in our energy and DoD scrap property verticals, which
have impacted pricing and transaction volume during the quarter. We
exited Q1-16 in a strong financial position with $85.5 million in cash
and a debt free balance sheet, not including the significant cash
benefit from our recent sale of the Jacobs Trading business. The sale
generated a tax loss that is expected to result in a $33.5 million cash
benefit from prior year income taxes and a $7 million cash benefit for
2015.

Comparative financial results reflect the sale of our Jacobs Trading
subsidiary, the significant downturn in commodity prices which have
reduced prices and volume in our DoD scrap and energy marketplaces and
increased spending in our LiquidityOne investment program. Our
Q1-16 revenue and adjusted EBITDA decreased 47.4% and 119.2%,
respectively, from the prior year’s comparable period, and adjusted net
income and adjusted diluted earnings per share decreased 130.6% and
130.0%, respectively, from the prior year’s comparable period. Net GAAP
loss for Q1-16 was $5.2 million, which resulted in a $0.17 diluted loss
per share based on 30.5 million diluted shares outstanding. Q1-FY16
adjusted net income and adjusted EPS tax rate was 29.3%. We would expect
our future years’ tax rate to range between 30% to 40%.

Business Outlook

In the near term it remains difficult to forecast the sales and margins
of our business, as our DoD business has seen significant changes in the
volume and mix of property we handle and a decline in scrap metals
pricing which has reduced sales values and increased costs. We are also
operating under an extension of the wind-down period of our prior DoD
Surplus contract which reflects the more favorable pricing terms of that
contract for merchandise received during the wind-down period. As we
transition to the new Surplus contract during FY-16, we will receive and
sell merchandise under both the old and new Surplus contracts.

During the next 15 months our organization is responsible for
maintaining the ‘as-is’ business supported by legacy systems while
investing in the development of an integrated global business and new
marketplace platform. Our costs during this transition process will be
elevated and we will also face a drag on productivity as we teach and
implement new ways of doing business. We will have periods of uneven
financial performance as we execute our strategy. However, we will
emerge from this transformation as a much more scalable and capable
organization that is able to focus entirely on growth activities in the
global reverse supply chain. We also plan to further allocate management
time and resources to accomplish our LiquidityOne transformation
program, which may result in reduced productivity and growth that is
difficult to forecast.

Our FY-16 outlook remains cautious due to the changing mix and volume of
supply in our DoD and commercial business, in part due to lower
commodity prices and macro weakness in the energy sector. While we
anticipate a benefit to earnings in FY-16 compared to FY-15 from the
sale of the Jacobs Trading business, client engagements and the mix of
property received under select retail client programs are unpredictable,
resulting in lower supply and lower per unit prices in certain
categories.

In the longer term, we expect our business to benefit from: (i)
innovative new service capabilities and more efficient business
operations from our LiquidityOne investment program; (ii)
improved monetization of our buyer base through the deployment of our
new integrated marketplace system and data warehouse; (iii) increased
outsourcing of reverse supply chain activities in response to our new
model and the rise of e-commerce and sustainability programs; and (iv)
increased brand recognition as a market leader due to our proven track
record, innovative scalable solutions and the ability to make a
strategic impact in the reverse supply chain.

The following forward-looking statements reflect trends and assumptions
for Q2-16:

 
(i) increased investment spending under our LiquidityOne transformation
initiative;
(ii) increased costs in our DoD business, including due to the
commencement of operations under our new Surplus contract;
(iii) steady results and year-over-year growth from our state and local
government sector marketplace;
(iv) lower than average sales prices and margins realized in our energy
marketplace;
(v) variability in the timing of large asset sales in our commercial
capital assets marketplaces related to both underwritten and
consignment programs;
(vi) lower volume in our retail goods marketplaces, including as a result
of the disposition of Jacobs Trading; and
(vii) soft commodity prices affecting our Scrap business.
 

GMV – We expect GMV for Q2-16 to range from
$140 million to $160 million.

Adjusted EBITDA –We expect Adjusted EBITDA
for Q2-16 to range from ($3.0) million to $2.0 million.

Adjusted Diluted EPS – We estimate Adjusted
Earnings Per Diluted Share for Q2-16 to range from ($0.11) to zero. This
guidance assumes that we have an average diluted number of shares
outstanding for the quarter of 30.5 million and that we will not
repurchase shares with the approximately $5.1 million yet to be expended
under the share repurchase program.

Our second quarter guidance adjusts EBITDA and Diluted EPS for stock
based compensation costs, which we estimate to be approximately $3.5
million to $4.0 million. These stock based compensation costs are
consistent with fiscal year 2015.

Key Q1 FY16 Operating Metrics

Registered Buyers — At the end of Q1-16,
registered buyers totaled approximately 2,875,000, representing an
approximately 9% increase over the approximately 2,646,000 registered
buyers at the end of Q1-15.

Auction Participants — Auction
participants, defined as registered buyers who have bid in an auction
during the period (a registered buyer who bids in more than one auction
is counted as an auction participant in each auction in which he or she
bids), decreased to approximately 561,000 in Q1-16, an approximately 11%
decrease from the approximately 631,000 auction participants in Q1-15.

Completed Transactions — Completed
transactions decreased to approximately 133,000, an approximately 9%
decrease for Q1-16 from the approximately 146,000 completed transactions
in Q1-15.

GMV and Revenue Mix —The table below
summarizes GMV and revenue by pricing model.

GMV Mix
  Q1-16   Q1-15
Consignment Model:  
GovDeals 34.4% 18.5%
Commercial 32.5%   41.1%
Total Consignment 66.9% 59.6%
Purchase Model:
Commercial 14.0% 19.8%
Surplus Contract 13.5%   13.3%
Total Purchase 27.5% 33.1%
Other: 5.6%   7.3%
Total 100.0%   100.0%
 
Revenue Mix
Q1-16   Q1-15
Consignment Model:
GovDeals 8.2% 3.8%
Commercial 15.6%   12.1%
Total Consignment 23.8% 15.9%
Purchase Model:
Commercial 32.2% 38.1%
Surplus Contract 31.0%   26.0%
Total Purchase 63.2% 64.1%
 
Other: 13.0%   20.0%
Total 100.0%   100.0%

Liquidity Services

Reconciliation of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA. EBITDA
is a supplemental non-GAAP financial measure and is equal to net income
(loss) plus interest and other expense, net; provision (benefit) for
income taxes; amortization of contract intangibles; and depreciation and
amortization. Our definition of Adjusted EBITDA differs from EBITDA
because we further adjust EBITDA for stock-based compensation,
acquisition costs, impairment of goodwill and long-lived assets,
business realignment expenses, and gains or losses from business
dispositions.

 

    Three Months
Ended December 31,
2015 2014
(In thousands)
(Unaudited)
Net loss $ (5,197 ) $ ( 64,116 )
Interest (income) expense and other expense, net (60 ) 38
Benefit from income taxes (2,154 ) (20,918 )
Amortization of contract intangibles 1,211
Depreciation and amortization   1,672   1,992
EBITDA (5,739 ) (81,793 )

Stock compensation expense

2,420 2,602

Acquisition costs and related fair value adjustments and
 impairment
of goodwill and long-lived assets

  39   96,238
 
Adjusted EBITDA $ (3,280 ) $ 17,047
 

Adjusted Net Income and Adjusted Basic and Diluted
Earnings Per Share
. Adjusted net income is a supplemental
non-GAAP financial measure and is equal to net income (loss) plus tax
effected stock compensation expense, amortization of contract-related
intangible assets associated with the Jacobs Trading acquisition,
acquisition costs including changes in earn out estimates, and
impairment of goodwill and long-lived assets. For Q1 FY16, the tax rate
used to tax effect these items is our current rate of 29.3%. Adjusted
basic and diluted earnings per share are determined using Adjusted Net
Income.

    Three Months Ended

December 31,

 
2015   2014  

(Dollars in thousands,

except per share data)

(Unaudited)
Net loss $ (5,197 ) $ (64,116 )
Stock compensation expense (net of tax) 1,711 1,962
Amortization of contract intangibles (net of tax) 913

Acquisition costs and related fair value adjustments and
 impairment
of goodwill and long-lived assets (net of tax)

  28   72,563  
 
Adjusted net (loss) income $ (3,458 ) $ 11,322  
 
Adjusted basic (loss) earnings per common share $ (0.11 ) $ 0.38  
 
Adjusted diluted (loss) earnings per common share $ (0.11 ) $ 0.38  
 
Basic weighted average shares outstanding   30,490,670   29,926,273  
 
Diluted weighted average shares outstanding   30,490,670   29,926,273  
 

Conference Call

The Company will host a conference call to discuss the first quarter of
fiscal year 2016 results at 10:30 a.m. Eastern Time today. Investors and
other interested parties may access the teleconference by dialing (866)
840-8225 or (704) 908-0457 and providing conference identification
number 27324813. A live web cast of the conference call will be provided
on the Company’s investor relations website at http://investors.liquidityservices.com.
An archive of the web cast will be available on the Company’s website
until February 3, 2017 at 11:59 p.m. ET. An audio replay of the
teleconference will also be available until February 11, 2016 at 11:59
p.m. ET. To listen to the replay, dial (855) 859-2056 or (404) 537-3406
and provide conference identification number 27324813. Both replays will
be available starting at 1:30 p.m. ET on the day of the call.

Non-GAAP Measures

To supplement our consolidated financial statements presented in
accordance with GAAP, we use certain non-GAAP measures of certain
components of financial performance. These non-GAAP measures include
earnings before interest, taxes, depreciation and amortization (EBITDA),
Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings Per Share.
These non-GAAP measures are provided to enhance investors’ overall
understanding of our current financial performance and prospects for the
future. We use EBITDA and Adjusted EBITDA: (a) as measurements of
operating performance because they assist us in comparing our operating
performance on a consistent basis as they do not reflect the impact of
items not directly resulting from our core operations; (b) for planning
purposes, including the preparation of our internal annual operating
budget; (c) to allocate resources to enhance the financial performance
of our business; (d) to evaluate the effectiveness of our operational
strategies; and (e) to evaluate our capacity to fund capital
expenditures and expand our business.

We believe these non-GAAP measures provide useful information to both
management and investors by excluding certain expenses that may not be
indicative of our core operating measures. In addition, because we have
historically reported certain non-GAAP measures to investors, we believe
the inclusion of non-GAAP measures provides consistency in our financial
reporting. These measures should be considered in addition to financial
information prepared in accordance with generally accepted accounting
principles, but should not be considered a substitute for, or superior
to, GAAP results. A reconciliation of all historical non-GAAP measures
included in this press release, to the most directly comparable GAAP
measures, may be found in the financial tables included in this press
release.

Supplemental Operating Data

To supplement our consolidated financial statements presented in
accordance with GAAP, we use certain supplemental operating data as a
measure of certain components of operating performance. 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 and our
other supplemental operating data, including registered buyers, auction
participants and completed transactions, also provide a means to
evaluate the effectiveness of investments that we have made and continue
to make in the areas of customer support, value-added services, product
development, sales and marketing and operations. Therefore, we believe
this supplemental operating data provides useful information to both
management and investors. In addition, because we have historically
reported certain supplemental operating data to investors, we believe
the inclusion of this supplemental operating data provides consistency
in our financial reporting. This data should be considered in addition
to financial information prepared in accordance with generally accepted
accounting principles, but should not be considered a substitute for, or
superior to, GAAP results.

Forward-Looking Statements

This document contains forward-looking statements made pursuant to the
Private Securities Litigation Reform Act of 1995. 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
statements include, but are not limited to, statements regarding the
Company’s business outlook, plans to increase investments in technology
infrastructure, the Company’s proprietary e-commerce marketplace
platform, product development and marketing initiatives, the LiquidityOne
Transformation program, the supply and mix of inventory under the DoD
Surplus Contracts, expected future effective tax rates, expected future
tax benefits as a result of the sales of the Jacobs Trading business,
and trends and assumptions about future periods, including the second
quarter FY-16. 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 are a number of risks and uncertainties that could cause our
actual results to differ materially from the forward-looking statements
contained in this document. Important factors that could cause our
actual results to differ materially from those expressed as
forward-looking statements are set forth in our filings with the SEC
from time to time, and include, among others, our dependence on our
contracts with the DoD for a significant portion of our revenue and
profitability; our ability to successfully expand the supply of
merchandise available for sale on our online marketplaces; our ability
to attract and retain active professional buyers to purchase this
merchandise; the timing and success of upgrades to our technology
infrastructure; our ability to successfully complete the integration of
any acquired companies into our existing operations and our ability to
realize any anticipated benefits of these or other acquisitions; the
success of our business realignment and LiquidityOne integration
and enhancement initiative. 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.

About Liquidity Services

Liquidity Services is a global solution provider in the reverse supply
chain with the world’s largest marketplace for business surplus. We
partner with global Fortune 1000 corporations, middle market companies,
and government agencies to intelligently transform surplus assets and
inventory from a burden into a liquid opportunity that fuels the
achievement of strategic goals. Our superior service, unmatched scale,
and ability to deliver results enable us to forge trusted, long-term
relationships with over 8,000 clients worldwide. With nearly $6 billion
in completed transactions, and approximately 3 million buyers in almost
200 countries and territories, we are the proven leader in delivering
smart surplus solutions. Let us build a better future for your surplus.
Visit us at LiquidityServices.com.

 

Liquidity Services, Inc. and Subsidiaries

Consolidated Balance Sheets

(Dollars in Thousands)

   
December 31, September 30,
  2015 2015
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 85,452 $ 95,465

Accounts receivable, net of allowance for doubtful accounts of
$549 and $471 at December 31,
 2015 and September 30, 2015,
respectively

6,039 6,194
Inventory 27,454 25,510
Tax refund receivable 33,491 33,491
Prepaid and deferred taxes 20,124 19,903
Prepaid expenses and other current assets   7,044   7,826
Total current assets 179,604 188,389
Property and equipment, net 13,485 13,356
Intangible assets, net 3,704 4,051
Goodwill 63,529 64,073
Deferred long-term tax assets 8,025 5,871
Other assets   14,499   12,748
Total assets $ 282,846 $ 288,488
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 10,094 $ 9,500
Accrued expenses and other current liabilities 25,267 27,350
Profit-sharing distributions payable 1,343 2,512
Customer payables   30,385   29,802
Total current liabilities 67,089 69,164
Other long-term liabilities   3,334   3,322
Total liabilities 70,423 72,486
Stockholders’ equity:

Common stock, $0.001 par value; 120,000,000 shares authorized;
30,552,286 shares issued and
 outstanding at December 31,
2015; 30,026,223 shares issued and outstanding at September 30,
 2015

29 29
Additional paid-in capital 213,087 210,712
Accumulated other comprehensive loss (6,383 ) (5,626 )
Retained earnings   5,690   10,887
Total stockholders’ equity   212,423   216,002
Total liabilities and stockholders’ equity $ 282,846 $ 288,488
 
   

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statements of Operations

(Dollars in Thousands, Except Per Share Data)

 
Three Months Ended December 31,
  2015   2014
 
Revenue $ 50,138 $ 98,163
Fee revenue   15,737   26,980
Total revenue 65,875 125,143
 
Costs and expenses:
Cost of goods sold (excluding amortization) 26,883 54,315
Profit-sharing distributions 2,357 9,592
Technology and operations 22,807 26,878
Sales and marketing 9,460 10,385
General and administrative 10,068 9,528
Amortization of contract intangibles 1,211
Depreciation and amortization 1,672 1,992

Acquisition costs and related fair value
 adjustments and
impairment of goodwill and
 long-lived assets

  39   96,238
 
Total costs and expenses   73,286   210,139
 
Loss from operations (7,411 ) (84,996 )
Interest (income) expense and other expense, net   (60 )   38
 
Loss before benefit from income taxes (7,351 ) (85,034 )
Benefit from income taxes   (2,154 )   (20,918 )
 
Net loss $ (5,197 ) $ (64,116 )
Basic loss per common share $ (0.17 ) $ (2.14 )
Diluted loss per common share $ (0.17 ) $ (2.14 )
 
Basic weighted average shares outstanding   30,490,670   29,926,273
Diluted weighted average shares outstanding   30,490,670   29,926,273
 
   

Liquidity Services, Inc. and Subsidiaries

Unaudited Consolidated Statements of Cash Flows

(In Thousands)

 
Three Months Ended December 31,
2015 2014
Operating activities
Net loss $ (5,197 ) $ (64,116 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,672 3,203
Stock compensation expense 2,420 2,602
Provision (benefit) for inventory allowance 1,208 (48 )
Provision for doubtful accounts 78 121
Deferred tax benefit (22,145 )
Impairment of goodwill and long-lived assets 96,238
Incremental tax benefit from exercise of common stock options 48 (163 )
Changes in operating assets and liabilities:
Accounts receivable 77 1,347
Inventory (3,152 ) 8,138
Prepaid and deferred taxes (2,424 ) 290
Prepaid expenses and other assets (969 ) 658
Accounts payable 594 (859 )
Accrued expenses and other (2,070 ) (7,534 )
Profit-sharing distributions payable (1,169 ) (392 )
Customer payables 583 (3,815 )
Other liabilities   3   (461 )
Net cash (used in) provided by operating activities (8,298 ) 13,064
Investing activities
Increase in intangibles (29 ) (3 )
Purchases of property and equipment   (1,428 )   (1,612 )
Net cash used in investing activities (1,457 ) (1,615 )
Financing activities
Proceeds from exercise of common stock options (net of tax) 71
Incremental tax benefit from exercise of common stock options   (48 )   163
Net cash (used in) provided by financing activities (48 ) 234
Effect of exchange rate differences on cash and cash equivalents   (210 )   (59 )
Net (decrease) increase in cash and cash equivalents (10,013 ) 11,624
Cash and cash equivalents at beginning of period   95,465   62,598
Cash and cash equivalents at end of period $ 85,452 $ 74,222

Supplemental disclosure of cash flow information

Cash paid for income taxes $ 237 $ 589

Source: Liquidity Services

Liquidity Services
Julie Davis, 202-467-6868 ext. 2234
Senior
Director, Investor Relations
julie.davis@liquidityservices.com