Press Releases
Aug 18

Liquidity Services, Inc. Announces First Quarter 2015 Financial Results

– First Quarter Revenue of $125.1 million up 2.6% – GMV of $ 245.3
million up 4.6% – Adjusted EBITDA of $17.0 million down 15.0%

-Transition of Key Programs Weighs on Short Term Outlook, While
Investments in Liquidity One Transformation Program and Long Term
Commercial Growth Strategy Remain the Priority

WASHINGTON–(BUSINESS WIRE)–Feb. 5, 2015–
Liquidity Services, Inc. (NASDAQ:LQDT; www.liquidityservices.com)
today reported its financial results for its first quarter of fiscal
year 2015 (Q1-FY15) ended December 31, 2014. Liquidity Services is a
global solution provider in the reverse supply chain with the world’s
largest marketplace for business surplus.

Liquidity Services, Inc. (Liquidity Services or the Company) reported
consolidated Q1-FY15 revenue of $125.1 million, an increase of
approximately 2.6% from the prior year’s comparable period. Adjusted
EBITDA, which excludes stock-based compensation, acquisition costs
including changes in acquisition earn out payment estimates, and
impairment of goodwill and long-lived assets, for Q1-FY15 was $17.0
million, a decrease of approximately 15% from the prior year’s
comparable period. Q1-FY15 GMV, the total sales volume of all
merchandise sold through the Company’s marketplaces, was $245.3 million,
an increase of 4.6% from the prior year’s comparable period.

During Q1-FY15, Liquidity Services recorded an impairment of goodwill
and long-lived assets of $96.2 million. The impairment charge resulted
from: (i) the termination of the Walmart contract associated with the
Jacob’s Trading acquisition; and (ii) the Company’s recent trading value.

Net loss in Q1-FY15 was $64.1 million or $2.14 diluted earnings per
share. Adjusted net income, which excludes stock-based compensation,
acquisition costs including changes in acquisition earn out payment
estimates, and impairment of goodwill and long-lived assets – net of
tax, in Q1-FY15 was $11.3 million or $0.38 adjusted diluted earnings per
share based on 29.9 million fully diluted shares outstanding, an
increase of approximately 8.5% and 18.8%, respectively, from the prior
year’s comparable period. Q1-FY15 Adjusted Net Income and Adjusted EPS
benefited from our 24.6% tax rate due to the tax benefit realized from
goodwill impairment. We would expect our future tax rate to range
between 38% to 40%.

“Given the transition of our legacy businesses with the DoD and Walmart,
we are pleased with our Q1 results which were well above our guidance on
both the top and bottom line led by a strong quarter in our commercial
capital assets group which performed above expectations during a
seasonally high quarter,” said Bill Angrick, chairman and chief
executive officer of Liquidity Services. “During the quarter, our
commercial sales team signed over 40 new clients and client programs,
demonstrating the strong market demand for our proven, scalable reverse
supply chain solution which is the focus of our long term growth
strategy and investment program. During the balance of FY-15, we will
continue to execute our Liquidity One transformation plan to
drive long term value for our clients, employees, and shareholders. We
anticipate that the transition of legacy programs with selected clients
coupled with our heavy investment in IT, product development and
marketing initiatives will dampen our growth and earnings results in the
near-term.”

Business Outlook

It is difficult for us to forecast the sales and margins of our business
in FY-15 while we are awaiting the final specifications and timing of
the work we will be performing under the new DoD surplus contract. In
addition, our DoD business has seen significant changes in the volume
and mix of property we handle, which has reduced sales values and
increased costs. Global economic conditions have improved, however our
overall outlook remains cautious regarding our commercial capital assets
business due to volatility in capital spending patterns and
macroeconomic trends. Our retail supply chain business has seen
significant changes in consumer spending habits, lower product price
points, and continued lack of innovation, resulting in decreased
spending and pricing in the secondary market. In some cases, the mix of
property received under selected retail client programs is
unpredictable, resulting in margin pressure and actions on our part to
improve the terms under which we do business. Lastly, we plan to further
allocate management time and resources to accomplish our Liquidity One
transformation program which may result in reduced productivity and
growth during FY-15 that is difficult to forecast.

In the longer term, we expect our business to continue to benefit from
the following trends: (i) as consumers trade down and seek greater
value, we anticipate stronger buyer demand for the surplus merchandise
sold in our marketplaces; (ii) as corporations and public sector
agencies focus on reducing costs, improving transparency, compliance and
working capital flows by outsourcing reverse supply chain activities, we
expect our seller base to increase; and (iii) as corporations and public
sector agencies increasingly prefer service providers with a proven
track record, innovative scalable solutions and the ability to make a
strategic impact in the reverse supply chain, we expect our seller base
to increase.

The following forward-looking statements reflect trends and assumptions
for the second quarter FY 2015:

 
(i)     stable commodity prices in our scrap business;
(ii) stable average sales prices realized in our commercial capital
assets marketplaces;
(iii) improved margins in our commercial capital assets marketplaces;
(iv) an effective income tax rate of 24.6%; and
(v) improved operations and service levels in our retail goods
marketplaces.
 

GMV – We expect GMV for Q2-15 to range from
$175 million to $200 million.

Adjusted EBITDA –We expect Adjusted EBITDA
for Q2-15 to range from $4.0 million to $6.0 million.

Adjusted Diluted EPS – We estimate Adjusted
Earnings Per Diluted Share for Q2-15 to range from $0.05 to $0.10. This
guidance assumes that we have an average fully diluted number of shares
outstanding for the quarter of 29.8 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 2014.

Key Q1-FY15 Operating Metrics

Registered Buyers — At the end of Q1-FY15,
registered buyers totaled approximately 2,646,000, representing an 7.1%
increase over the approximately 2,471,000 registered buyers at the end
of Q1-14.

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), increased to approximately 631,000 in Q1-FY15, an approximately
5% increase over the approximately 603,000 auction participants in Q1-14.

Completed Transactions — Completed
transactions increased to approximately 146,000, an approximately 13%
increase for Q1-FY15 from the approximately 129,000 completed
transactions in Q1-14.

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

 

GMV Mix

     

Q1-
FY15

    Q1-14
Profit-Sharing Model:    
Scrap Contract 7.3%     8.3%
Total Profit Sharing 7.3% 8.3%
Consignment Model:
GovDeals 18.5% 16.4%
Commercial 41.1%     44.3%
Total Consignment 59.6% 60.7%
Purchase Model:
Commercial 19.8% 18.3%
Surplus Contract 13.3%     12.7%
Total Purchase 33.1% 31.0%
       
Total 100.0%     100.0%
 

Revenue Mix

 

Q1-
FY15

    Q1-14
Profit-Sharing Model:
Scrap Contract 14.3%     16.0%
Total Profit Sharing 14.3% 16.0%
Consignment Model:
GovDeals 3.8% 3.2%
Commercial 12.1%     13.7%
Total Consignment 15.9% 16.9%
Purchase Model:
Commercial 38.1% 36.1%
Surplus Contract 26.0%     24.5%
Total Purchase 64.1% 60.6%
 
Other 5.7%     6.5%
Total 100.0%     100.0%
 

Liquidity Services, Inc.
Reconciliation
of GAAP to Non-GAAP Measures

EBITDA and Adjusted EBITDA. EBITDA
is a supplemental non-GAAP financial measure and is equal to net (loss)
income plus interest and other expense, net; (benefit) provision 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 expense,
acquisition costs including changes in earn out estimates, and
impairment of goodwill and long-lived assets.

 

 

     

Three Months
Ended December 31,

2014     2013
(In thousands)
(Unaudited)
Net (loss) income

($ 64,116)

 

$ 7,093
Interest and other expense, net 38 21
(Benefit) provision for income taxes

(20,918)

 

4,729
Amortization of contract intangibles 1,211 2,407
Depreciation and amortization 1,992 2,004
 
EBITDA

(81,793)

 

16,254
Stock compensation expense 2,602 3,659

Acquisition costs and related fair value adjustments and

impairment of goodwill and long-lived assets

96,238 95
 
Adjusted EBITDA $ 17,047 $ 20,008
 

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 (loss) income 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. Q1 Adjusted
Net Income and Adjusted EPS benefitted from our 24.6% tax rate due to
the tax benefit realized from goodwill impairment. We would expect our
future tax rate to range between 38% to 40%.

 
      Three Months Ended

December 31,

2014   2013

(Dollars in thousands,
except per share data)

(Unaudited)
Net (loss) income

($64,116)

 

$7,093
Stock compensation expense (net of tax) 1,962 2,195
Amortization of contract intangibles (net of tax) 913 1,090

Acquisition costs and related fair value adjustments and

impairment of goodwill and long-lived assets (net of tax)

72,563 57
 
Adjusted net income $11,322 $10,435
 
Adjusted basic earnings per common share $0.38 $0.32
 
Adjusted diluted earnings per common share $0.38 $0.32
 
Basic weighted average shares outstanding 29,926,273 32,143,064
 
Diluted weighted average shares outstanding 29,926,273 32,658,070
 

Conference Call

The Company will host a conference call to discuss the first quarter
fiscal year 2015 results at 10:30 a.m. Eastern Time today. Investors and
other interested parties may access the teleconference by dialing
877-280-4955 or 857-244-7312 and providing the participant pass code
60453029. A live web cast of the conference call will be provided on the
Company’s investor relations website at www.liquidityservices.com/investors.
An archive of the web cast will be available on the Company’s website
until February 5, 2016 at 11:59 p.m. ET. An audio replay of the
teleconference will also be available until February 12, 2015 at 11:59
p.m. ET. To listen to the replay, dial 888-286-8010 or 617-801-6888 and
provide pass code 60696669. Both replays will be available starting at
3:30 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, our proprietary e-commerce marketplace
platform, product development and marketing initiatives, the supply of
inventory under the DoD Surplus Contract, expected future
effective tax rates, and trends and assumptions about future periods,
including the second quarter FY 2015 and the full year FY 2015. 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; our
ability to recognize any expected tax benefits as a result of closing
our U.K. retail consumer goods operations; and the success of our
business realignment and Liquidity One 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, Inc.

Liquidity Services, Inc. (NASDAQ: LQDT) provides leading corporations,
public sector agencies, and buying customers the world’s most
transparent, innovative, and effective online marketplaces and
integrated services for surplus assets. On behalf of its clients,
Liquidity Services has completed the sale of approximately $5.4 billion
of surplus assets in over 500 product categories, including consumer
goods, capital assets, and industrial equipment. The company is
headquartered in Washington, D.C. with global locations across the
Americas, Europe, and Asia. Additional information can be found at: http://www.liquidityservices.com.

 

Liquidity Services, Inc. and Subsidiaries
Consolidated
Balance Sheets

(Dollars in Thousands)

 
      December 31,    

September 30,

2014 2014
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 74,222 $ 62,598

Accounts receivable, net of allowance for doubtful accounts of
$1,164 and $1,042 at December 31,

2014 and September 30, 2014, respectively

27,719 21,688
Inventory 62,888 78,478
Prepaid and deferred taxes 16,650 16,777
Prepaid expenses and other current assets   4,516     5,156  
Total current assets 185,995 184,697
Property and equipment, net 12,414 12,283
Intangible assets, net 4,262 17,099
Goodwill 122,640 209,656
Deferred long-term tax assets 28,305 6,160
Other assets   1,805     1,823  
Total assets $ 355,421   $ 431,718  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 15,135 $ 15,994
Accrued expenses and other current liabilities 36,951 44,484
Profit-sharing distributions payable 4,347 4,740
Customer payables   37,729     41,544  
Total current liabilities 94,162 106,762
Other long-term liabilities   7,512     7,973  
Total liabilities 101,674 114,735
Stockholders’ equity:

Common stock, $0.001 par value; 120,000,000 shares authorized;
29,954,755 shares issued and

outstanding at December 31, 2014; 29,668,150 shares issued and
outstanding at September 30, 2014

29 28
Additional paid-in capital 207,539 204,704
Accumulated other comprehensive (loss) income

(5,407

)

(3,451

)

Retained earnings   51,586     115,702  
Total stockholders’ equity   253,747     316,983  
Total liabilities and stockholders’ equity $ 355,421   $ 431,718  
 
 

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

Dollars in
Thousands, Except Share and Per Share Data)

 
      Three Months Ended December 31,
2014     2013
 
Revenue $ 98,163 $ 93,470
Fee revenue   26,980     28,478
Total revenue 125,143 121,948
 
Costs and expenses:
Cost of goods sold (excluding amortization) 54,315 47,710
Profit-sharing distributions 9,592 10,130
Technology and operations 26,878 25,621
Sales and marketing 10,385 9,831
General and administrative 9,528 12,307
Amortization of contract intangibles 1,211 2,407
Depreciation and amortization 1,992 2,004

Acquisition costs and related fair value

adjustments and impairment of goodwill and

long-lived assets

  96,238     95
 
Total costs and expenses   210,139     110,105
 
(Loss) income from operations

(84,996

)

11,843
Interest expense and other expense, net   38     21
 
(Loss) income before provision for income taxes

(85,034

)

11,822
(Benefit) provision for income taxes  

(20,918

)

  4,729
 
Net (loss) income

$

(64,116

)

$ 7,093
Basic earnings per common share

$

(2.14

)

$ 0.22
Diluted earnings per common share

$

(2.14

)

$ 0.22
 
Basic weighted average shares outstanding   29,926,273     32,143,064
Diluted weighted average shares outstanding   29,926,273     32,658,070
 
 

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

(Dollars In
Thousands)

 
      Three Months Ended December 31,
2014     2013
Operating activities
Net (loss) income

$

(64,116

)

$ 7,093
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 3,203 4,411
Stock compensation expense 2,602 3,659
(Benefit) provision for inventory allowance

(48

)

291
Provision (benefit) for doubtful accounts 121

(57

)

Deferred tax benefit

(22,145

)

Impairment of goodwill and long-lived assets 96,238
Incremental tax benefit from exercise of common stock options

(162

)

(2,882

)

Changes in operating assets and liabilities:
Accounts receivable 1,347

(4,460

)

Inventory 8,138

(6,801

)

Prepaid and deferred taxes 290 385
Prepaid expenses and other assets 658 2,790
Accounts payable

(859

)

4,050
Accrued expenses and other

(7,534

)

(2,681

)

Profit-sharing distributions payable

(392

)

159
Customer payables

(3,815

)

239
Acquisition earn out payables 89
Other liabilities  

(461

)

 

(1,343

)

Net cash provided by operating activities 13,065 4,942
Investing activities
Increase in intangibles

(3

)

Purchases of property and equipment  

(1,612

)

 

(2,678

)

Net cash used in investing activities

(1,615

)

(2,678

)

Financing activities
Proceeds from exercise of common stock options (net of tax) 71 469
Incremental tax benefit from exercise of common stock options   162     2,882  
Net cash provided by financing activities 233 3,351
Effect of exchange rate differences on cash and cash equivalents  

(59

)

  767  
Net increase in cash and cash equivalents 11,624 6,382
Cash and cash equivalents at beginning of period   62,598     95,109  
Cash and cash equivalents at end of period $ 74,222   $ 101,491  

Supplemental disclosure of cash flow information

Cash paid for income taxes $ 589 $ 1,461
 

Source: Liquidity Services, Inc.

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