Press Releases
Nov 17

Liquidity Services Announces Second Quarter Fiscal Year 2016 Financial Results

– Second Quarter Revenue of $86.9 million – GMV of $153.0 million –
Adjusted EBITDA of $2.9 million

– Long Term Commercial Growth Strategy Remains the Priority

WASHINGTON–(BUSINESS WIRE)–May 5, 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 March 31, 2016 was $153.0
million, a decrease of 19.2% from the prior year’s comparable period.
Revenue for the quarter was $86.9 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 $2.9 million and adjusted net
income was $1.1 million or $0.04 adjusted diluted earnings per share.
Net GAAP loss for Q2-16 was $0.85 million, which resulted in a $0.03
diluted loss per share based on weighted average of 30.6 million diluted
shares outstanding. Q2-16 results were within the company’s guidance
range for GMV and above the company’s guidance range for adjusted EBITDA
and adjusted EPS, primarily due to better than expected margins in our
DoD, state and municipal government and retail marketplaces as more
clients utilized our value added services and we expanded with key
client accounts ahead of our expectations.

“Our team remains focused on building a better future for how assets are
managed, valued and sold in the reverse supply chain which translates
into a significant business opportunity. We are achieving this by making
investments in new data driven services, expansion of our buyer base and
development of an innovative e-commerce platform to elevate the
convenience and value we provide our customers,” said Bill Angrick,
chairman and chief executive officer of Liquidity Services. “Our Q2
results demonstrated that we are achieving initial success and benefits
from our transformation efforts over the past 18 months to expand our
service offering for organizations seeking to extract more value from
their supply chains. During the quarter, our commercial marketplaces
signed over 30 new accounts, including new and expanded industrial and
retail vertical relationships, valuation projects and new returns and
asset management services. We also made progress on the build out of our
new LiquidityOne platform as we completed initial testing of our
first release candidate. We are moving forward with the next phase of
development and anticipate increasing our investment in this area as we
prepare to launch our initial marketplace on the new platform in the
fourth quarter.”

Q2-16 results were led by our industrial manufacturing and state and
municipal government marketplaces which achieved double digit top line
growth as we penetrated existing accounts and added new accounts in new
geographies. However, we still face headwinds as both the scrap and
energy verticals remain depressed with lower volumes and pricing, and
industrial sellers face continued uncertainty which has affected the
timing of certain client projects. Additionally, future results will be
uneven due to the transition to our new Surplus and Scrap contracts, and
ongoing investment in our LiquidityOne transformation initiative.

We exited Q2-16 in a strong financial position with $117.5 million in
cash and a debt free balance sheet, reflecting the cash benefit from our
sale of Jacobs Trading which generated a tax loss for which we have
received tax refunds of $35.1 million and expect to receive an
additional $1.4 million in state refunds in fiscal year 2017.

Comparative financial results reflect the sale of Jacobs Trading, 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 Q2-16 revenue and
adjusted EBITDA decreased 15.6% and 66.6% respectively, from the prior
year’s comparable period, and adjusted net income and adjusted diluted
earnings per share decreased 54.6% and 55.5%, respectively, from the
prior year’s comparable period. The tax rate used to calculate Q2-16
adjusted net income and adjusted EPS was 28.6%. We 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 marketplace 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, which
will be in effect through January 2017. 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 12 months we will maintain the ‘as-is’ business
supported by legacy systems while investing in the development of an
integrated global business and new marketplace platform under our LiquidityOne
transformation initiative. Our costs during this transition process will
be elevated as we further allocate management time and resources to
educate employees and implement new ways of conducting our business. We
expect to have periods of uneven financial performance as we execute our
strategy. However, we will emerge from this transformation as a much
more scalable organization with new capabilities focused on growth
opportunities in the global supply chain.

Our FY-16 outlook remains cautious due to the changing mix and volume of
supply in our DoD and commercial business mentioned above, in part due
to lower commodity prices and macro weakness in the energy sector. While
we anticipate an increase in 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 industrial and retail client programs
are unpredictable, resulting in changing supply and margins 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 Q3-16:

(i)   increased investment spending under our LiquidityOne transformation
initiative;
(ii) increased cost of sales under our new DoD 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 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 contract.
 

GMV – We expect GMV for Q3-16 to range from
$150 million to $175 million.

Adjusted EBITDA –We expect Adjusted EBITDA
for Q3-16 to range from ($3.5) million to ($1.0) million.

Adjusted Diluted EPS – We estimate Adjusted
Earnings Per Diluted Share for Q3-16 to range from ($0.13) to ($0.07).
This guidance assumes that we have diluted weighted average number of
shares outstanding for the quarter of 30.6 million and that we will not
repurchase shares available under the share repurchase program. The
Company’s Board of Directors approved the repurchase of an additional
$5.0 million in shares raising the current amount approved for
repurchase up to $10.1 million.

Our third quarter guidance adjusts EBITDA and Diluted EPS for stock
based compensation costs, which we estimate to be approximately $2.5
million to $3.0 million. These stock based compensation costs are lower
than fiscal year 2015.

Key Q2 FY16 Operating Metrics

Registered Buyers — At the end of Q2-16,
registered buyers totaled approximately 2,923,000, representing an
approximately 9% increase over the approximately 2,688,000 registered
buyers at the end of Q2-15.

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 636,000 in Q2-16, an approximately 1%
decrease from the approximately 640,000 auction participants in Q2-15.

Completed Transactions — Completed
transactions increased to approximately 153,000, an approximately 5%
increase for Q2-16 from the approximately 146,000 completed transactions
in Q2-15.

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

   

GMV Mix

  Q2-16     Q2-15
Consignment Model:    
GovDeals 32.4% 23.8%
Commercial 23.8%     30.9%

Total Consignment

56.2% 54.7%
Purchase Model:
Commercial 24.7% 23.2%
Surplus Contract 14.3%     14.1%
Total Purchase 39.0% 37.3%
 
Other: 4.8%     8.0%
Total 100.0%     100.0%
 

Revenue Mix

Q2-16     Q2-15
Consignment Model:
GovDeals 6.1% 4.5%
Commercial 11.4%     10.0%
Total Consignment 17.5% 14.5%
Purchase Model:
Commercial 42.8% 40.3%
Surplus Contract 25.1%     26.0%

Total Purchase

67.9% 66.3%
 
Other: 14.6%     19.2%
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 March 31,

Six Months
Ended March 31,

2016   2015 2016   2015
(In thousands)
(unaudited)
Net (loss) income $(850) $ 1,381   $(6,047 )   $(62,735)
Interest and other (income) expense, net (390) 39 (451) 77
(Benefit) provision for income taxes (267) 2,391 (2,421 ) (18,527 )
Amortization of contract intangibles 1,211
Depreciation and amortization 1,660 1,994 3,332 3,986
 
EBITDA 153 5,805 (5,587 ) (75,988)
Stock compensation expense 2,724 2,810 5,144 5,412

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

39 96,238
 
Adjusted EBITDA $2,877 $8,615 $(404) $25,662
 

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. Adjusted basic and diluted
earnings per share are determined using Adjusted Net Income. For Q2-16,
the tax rate used to tax effect these stock compensation expense,
amortization of contract intangibles and acquisition costs items is our
current tax rate of 28.6%.

     
Three Months Ended March 31, Six Months Ended March 31,
2016 2015 2016   2015
(Unaudited) (Dollars in thousands, except per share data)
 
Net (loss) income $ (850 ) $ 1,381 $ (6,047 ) $ (62,735 )
Stock compensation expense (net of tax) 1,945 1,029 3,673 4,178
Amortization of contract intangibles (net of tax) 935
Acquisition costs (net of tax)       28   74,296
 
Adjusted net income (loss) $ 1,095 $ 2,410 $ (2,346 ) $ $16,674
 
Adjusted basic earnings per common share $ 0.04 $ 0.08 $ (0.08 ) $ $0.56
 
Adjusted diluted earnings per common share $ 0.04 $ 0.08 $ (0.08 ) $ $0.56
 
Basic weighted average shares outstanding   30,594,940   29,998,324   30,542,520   29,957,298
 
Diluted weighted average shares outstanding   30,594,940   29,988,324   30,542,520   29,957,298
 

Conference Call

The Company will host a conference call to discuss the second 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 83603772. 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 May 4, 2017 at 11:59 p.m. ET. An audio replay of the
teleconference will also be available until May 12, 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 83603772. 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 generally accepted accounting principles (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 GAAP, 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 GAAP, 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 initiative, the supply and mix of inventory under the DoD
Surplus Contracts, expected future commodity prices, expected sales
prices and margins in the Company’s energy marketplaces, 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 third 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; and 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)

 
  March 31,

 

 

September 30,

2016 2015
Assets (Unaudited)
Current assets:
Cash and cash equivalents $117,528 $ 95,465

Accounts receivable, net of allowance for doubtful accounts of
$557 and $471 at March 31, 2016
and September 30, 2015,
respectively

7,193 6,194
Inventory 32,186 25,510
Tax refund receivable 1,358 33,491
Prepaid and deferred taxes 11,642 19,903
Prepaid expenses and other current assets 6,819 7,826
Total current assets 176,726 188,389
Property and equipment, net 13,495 13,356
Intangible assets, net 3,319 4,051
Goodwill 64,421 64,073
Deferred long-term tax assets 13,830 5,871
Other assets 15,264 12,748
Total assets $ 287,055 $ 288,488
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 8,782 $9,500
Accrued expenses and other current liabilities 30,209 27,350
Profit-sharing distributions payable 1,503 2,512
Customer payables 27,762 29,802
Total current liabilities 68,256 69,164
Other long-term liabilities 3,221 3,322
Total liabilities 71,477 72,486
Stockholders’ equity:

Common stock, $0.001 par value; 120,000,000 shares authorized;
30,606,566 shares issued and
outstanding at March 31, 2016;
30,026,223 shares issued and outstanding at September 30, 2015

29 29
Additional paid-in capital 215,672 210,712
Accumulated other comprehensive loss (4,963 ) (5,626 )
Retained earnings 4,840 10,887
Total stockholders’ equity 215,578 216,002
Total liabilities and stockholders’ equity $287,055 $ 288,488
 
 

Liquidity Services, Inc. and Subsidiaries
Unaudited
Consolidated Statements of Operations

(Dollars in
Thousands, Except Per Share Data)

 
  Three Months Ended March 31,   Six Months Ended March 31,
2016   2015 2016 2015
 
Revenue $ 66,423 $ 83,286 $ 116,608 $ 181,449
Fee revenue 20,455 19,657 36,145 46,637
Total revenue 86,878 102,943 152,753 228,086
 
Costs and expenses:
Cost of goods sold (excluding amortization) 39,927 42,661 66,810 96,976
Profit-sharing distributions 2,506 7,558 4,863 17,150
Technology and operations 24,678 24,747 47,486 51,625
Sales and marketing 9,148 10,798 18,608 21,183
General and administrative 10,466 11,374 20,534 20,902
Amortization of contract intangibles 1,211
Depreciation and amortization 1,660 1,994 3,332 3,986

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

39 96,238
 
Total costs and expenses 88,385 99,132 161,672 309,271
 
(Loss) income from operations (1,507) 3,811 (8,919 ) (81,185)
Interest and other income (expense), net 390 (39 ) 451 (77 )
 
(Loss) income before provision for income taxes (1,117) 3,772 (8,468 ) (81,262 )
Benefit (provision) for income taxes 267 (2,391 ) 2,421 18,527
 
Net (loss) income $ (850) $ 1,381 $ (6,047 ) $ (62,735)
Basic (loss) earnings per common share $ (0.03) $ 0.05 $ (0.20 ) $ (2.09)
Diluted (loss) earnings per common share $ (0.03) $ 0.05 $ (0.20 ) $ (2.09)
 
Basic weighted average shares outstanding 30,594,940 29,988,324 30,542,520 29,957,298
Diluted weighted average shares outstanding 30,594,940 29,988,324 30,542,520 29,957,298
 
 

Liquidity Services, Inc. and Subsidiaries
Unaudited
Consolidated Statements of Cash Flows

(Dollars In
Thousands)

 
    Three Months Ended March 31,   Six Months Ended March 31,
2016   2015 2016   2015
Operating activities  
Net income $ (850 ) $ 1,381 $(6,047 ) $ (62,735 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,660 1,994 3,332 5,197
Stock compensation expense 2,724 2,810 5,144 5,412
Benefit (provision) for inventory allowance 191 (2,415 ) 1,399 (2,463 )
Provision for doubtful accounts 8 1,084 86 1,205
Deferred tax benefit (2,421 ) (2,421 ) (22,145 )
Impairment of goodwill and long-lived assets 96,238
Incremental tax (loss) benefit from exercise of common stock options 165 98 213 (65 )
Changes in operating assets and liabilities:
Accounts receivable (1,162 ) 4,610 (1,085 ) 5,957
Inventory (4,923 ) 21,108 (8,075 ) 29,246
Prepaid and deferred taxes 37,065 874 34,641 1,164
Prepaid expenses and other assets (540 ) (476 ) (1,509 ) 182
Accounts payable (1,312 ) 551 (718 ) (308 )
Accrued expenses and other 4,936 (8,856 ) 2,866 (16,390 )
Profit-sharing distributions payable 161 677 (1,008 ) 285
Customer payables (2,623 ) (7,034 ) (2,040 ) (10,849 )
Other liabilities   (82 )   (526 )   (79 )   (987 )
Net cash provided by operating activities 32,997 15,880 24,699 28,944
Investing activities
Increase in intangibles (6 ) (6 ) (35 ) (9 )
Purchases of property and equipment   (1,295 )   (3,483 )   (2,723 )   (5,095 )
Net cash used in investing activities (1,301 ) (3,489 ) (2,758 ) (5,104 )
Financing activities
Proceeds from exercise of common stock options (net of tax) 36 107
Incremental tax (loss) benefit from exercise of common stock options   (165 )   (98 )   (213 )   65  
 
Net cash (used in) provided by financing activities (165 ) (62 ) (213 ) 172
Effect of exchange rate differences on cash and cash equivalents   545     (320 )   335     (379 )
 
Net increase in cash and cash equivalents 32,076 12,009 22,063 23,633
Cash and cash equivalents at beginning of the period   85,452     74,222     95,465     62,598  
 
Cash and cash equivalents at end of period $ 117,528   $ 86,231     $ 117,528   $ 86,231  
Supplemental disclosure of cash flow information
Cash (received) paid for income taxes, net $ (34,889 ) $ 1,864 $ (34,652 ) $ 2,453
 

Source: Liquidity Services

Liquidity Services
Julie Davis, 202-467-6868 ext. 2234
Senior
Director, Investor Relations
[email protected]