Press Releases
Aug 16

Liquidity Services, Inc. Announces First Quarter Fiscal Year 2009 Financial Results

– Revenue of $55.6 million down 6% – Gross Merchandise Volume (GMV) of $82.1 million up 21% – Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.1 million down 60% –

WASHINGTON–(BUSINESS WIRE)–
Liquidity Services, Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com)
today reported its financial results for its fiscal first quarter
(Q1-09) ended December 31, 2008. Liquidity Services, Inc. is a leading
online auction marketplace for wholesale surplus and salvage assets.

Liquidity Services, Inc. (LSI or the Company) reported consolidated
Q1-09 revenue of $55.6 million, a decrease of approximately 6% over the
prior year’s comparable period. Adjusted EBITDA for Q1-09 was $2.1
million, a decrease of approximately 60% over the prior year’s
comparable period. Q1-09 GMV, the total sales volume of all merchandise
sold through the Company’s marketplaces, was $82.1 million, a growth
rate of approximately 21% over the prior year’s comparable period.

Net income in Q1-09 was $2.1 thousand or $0.00 diluted earnings per
share. Adjusted net income in Q1-09 was $0.8 million, or $0.03 adjusted
diluted earnings per share.

“Q1-09 was a challenging quarter for LSI as the economic downturn
severely impacted our operating results. Our scrap business declined 45%
from the prior year due to a decrease in commodity prices. Margins in
our commercial business were impacted by aggressive in-store discounting
by retailers, which reduced the volumes and prices of goods in the
secondary marketplace. We also cleared our remaining aged inventory to
ramp up new programs with commercial clients and close our Las Vegas
facility due to overlap with our two California distributions centers,”
said Bill Angrick, Chairman and CEO of LSI. “However, despite these
challenges, LSI grew consolidated GMV by 21% over the prior year’s
comparable period. Our surplus business GMV grew approximately 17% over
the prior year’s comparable period. Going forward, our new Surplus
Contract will benefit from the terms of a recent contract modification
which reduces our inventory cost by approximately 45%. During Q1-09, our
commercial business GMV grew approximately 5% over the prior year period
driven by a 37% increase in GMV from our consignment model, despite a
weak October and November in which we saw retail clients freeze
shipments and slash prices of first quality goods in the store. Our
GovDeals business GMV was up 22% versus the prior year and added $15.6
million in consignment GMV for the first quarter. Our buyer marketplace
continues to deliver strong results for our sellers as we ended the
quarter with over 1,045,000 registered buyers, which is up approximately
44% over the prior year period, including the addition of 46,000 new
registered buyers in the first quarter. Transaction volume was up 71%
over the prior year period illustrating that our marketplace is
increasingly attractive to buyers in a down economy.”

Business Outlook

We are in a period of economic uncertainty and unprecedented market
volatility which makes it difficult for us to forecast business trends,
resulting in a wider than usual guidance range. In the short term, we
believe changes in consumer spending patterns may impact the overall
supply of goods in the reverse supply chain and the volume and value of
goods sold in our commercial marketplace. In the longer term, we expect
our business 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 marketplace, (ii) as
corporations and public sector agencies are focused on reducing costs
and improving 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 and demonstrated financial strength
we expect our competitive position to strengthen.

The following forward looking statements reflect the following trends
and assumptions for the next quarter and FY 2009:

  (i)   reduced commodity prices which will continue to result in decreases
to the GMV and profit realized in our scrap business compared to
fiscal year 2008;
(ii) lower average sales prices realized in our commercial, state and
local government marketplaces compared to fiscal year 2008;
(iii) new business rules under our new DoD Surplus Contract, which will
remove selected items from the product pool that we historically
handled and sold, resulting in lower GMV in our surplus business;
(iv) upfront costs associated with launching our new DoD Surplus
Contract, including the hiring of new staff and the opening of two
new warehouses totaling 665,000 square feet in Columbus, Ohio and
Oklahoma City, Oklahoma;
(v) our expectation that we will not achieve normalized sales volume in
our Surplus business until the third quarter of fiscal 2009, as a
result of the delayed start by the DoD of our new Surplus Contract
until this month;
(vi) an approximately 45% reduction in our inventory cost under the new
Surplus Contract per the terms of our recent contract modification
with the DoD;
(vii) the continued sale throughout fiscal year 2009 of property issued,
prior to December 18, 2008, under our original Surplus Contract;
(viii) improved operations and service levels in our commercial business
which we expect will improve margins during the last three quarters
of fiscal year 2009; and
(ix)

an increase in our expected effective income tax rate from 43% to
46% as a result of non-deductible stock based compensation costs
increasing in proportion to our U.S. based taxable income.

Our results may also be materially affected by changes in business
trends and our operating environment, and by other factors, such as,
investments in infrastructure and value-added services to support new
business in both commercial and public sector markets.

Our Scrap Contract with the DoD includes an incentive feature, which can
increase the amount of profit sharing distribution we receive from 23%
up to 25%. Payments under this incentive feature are based on the amount
of scrap we sell for the DoD to small businesses during the preceding 12
months as of June 30th of each year. We are eligible to
receive this incentive in each year of the term of the Scrap Contract
and have assumed for purposes of providing guidance regarding our
projected financial results for fiscal year 2009 that we will again
receive this incentive payment.

GMV – We expect GMV for fiscal
year 2009 to range from $355 million to $370 million. This is a decrease
from our prior guidance of $400 million to $420 million, primarily due
to an expected 50% decline in our scrap business, compared to 2008, as a
result of decreased commodity prices, and a reduced outlook in our
GovDeals and commercial businesses due to expected lower average sales
prices realized in our commercial and local government marketplaces. We
expect GMV for Q2-09 to range from $84 million to $88 million.

Adjusted EBITDA – We expect
Adjusted EBITDA for fiscal year 2009 to range from $22.5 million to
$26.5 million. Our Adjusted EBITDA guidance has not materially changed,
despite our reduced GMV guidance, due to expected improvements in
margins within our DoD surplus business in accordance with the revised
terms of our new Surplus Contract, and improved margins in our
commercial business due to operational and scale efficiencies visible in
our current business trends. We expect Adjusted EBITDA for Q2-09 to
range from $4.4 million to $5.1 million.

Adjusted Diluted EPS – We estimate
Adjusted Earnings Per Diluted Share for fiscal year 2009 to range from
$0.45 to $0.47. This guidance is unchanged. In Q2-09, we estimate
Adjusted Earnings Per Diluted Share to be $0.08 to $0.09. This guidance
does not reflect the impact of our stock repurchase program under which
we may repurchase up to $10 million of our outstanding shares of common
stock.

Our guidance adjusts EBITDA and Diluted EPS for the effects of FAS
123(R), which we estimate to be approximately $1.5 million to $1.6
million per quarter for the remaining three quarters of fiscal year 2009.

Key Q1-09 Operating Metrics

Registered Buyers — At the end of
Q1-09, registered buyers totaled approximately 1,045,000, representing a
44% increase over the approximately 724,000 registered buyers at the end
of Q1-08.

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 492,000 in Q1-09, an approximately 53%
increase over the approximately 323,000 auction participants in Q1-08.

Completed Transactions — Completed
transactions increased to approximately 108,000, an approximately 71%
increase for Q1-09 from the approximately 63,000 completed transactions
in Q1-08.

GMV and Revenue Mix — GMV and
revenue continue to diversify due to the continued growth in our
commercial business and the addition of GovDeals and Geneva. As a
result, the percentage of GMV and revenue derived from our DoD Contracts
(under which our revenue is based on the profit-sharing model) during
Q1-09 decreased to 38.1% and 56.2%, respectively, compared to 55.1% and
62.8%, respectively, in the prior year period. The table below
summarizes GMV and revenue by pricing model.

GMV Mix

  Q1-09   Q1-08
Profit-Sharing Model:  
Surplus 24.9 % 25.9 %
Scrap 13.2 %   29.2 %
Total Profit Sharing 38.1 % 55.1 %
 
Consignment Model:
GovDeals 19.0 %
Commercial 21.1 %   18.7 %
Total Consignment 40.1 % 18.7 %
 
Purchase Model 15.3 % 23.4 %
International and Other 6.5 %   2.8 %
Total 100.0 %   100.0 %

Revenue Mix

Q1-09   Q1-08
Profit-Sharing Model:
Surplus 36.7 % 29.6 %
Scrap 19.5 %   33.2 %
Total Profit Sharing 56.2 % 62.8 %
 
Consignment Model:
GovDeals 2.1 %
Commercial 8.6 %   5.8 %
Total Consignment 10.7 % 5.8 %
 
Purchase Model 22.5 % 26.6 %
International and Other 10.6 %   4.8 %
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
income plus (a) interest expense (income) and other income, net;
(b) provision for income taxes; (c) amortization of contract
intangibles; and (d) depreciation and amortization. Our definition of
Adjusted EBITDA differs from EBITDA because we further adjust EBITDA for
stock based compensation expense.

  Three months
Ended December 31,
 
  2008       2007  
(In thousands)
(Unaudited)
Net income $ 2 $ 2,363
Interest expense (income) and other expense (income), net (236 ) (488 )
Provision for income taxes 2 1,642
Amortization of contract intangibles 203 203
Depreciation and amortization   639     388  
 
EBITDA 610 4,108
Stock compensation expense   1,483     1,111  
 
Adjusted EBITDA $ 2,093   $ 5,219  

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 plus
tax effected stock compensation expense. Adjusted basic and diluted
earnings per share are determined using Adjusted Net Income.

Three Months Ended

December 31,

2008     2007
(Dollars in thousands,

except per share data)

(Unaudited)
Net income $ 2 $ 2,363
Stock compensation expense (net of tax)   845   656
 
Adjusted net income $ 847 $ 3,019
 
Adjusted basic earnings per common share $ .03 $ .11
 
Adjusted diluted earnings per common share $ .03 $ .11
 
Basic weighted average shares outstanding   28,026,296   27,944,139
 
Diluted weighted average shares outstanding   28,026,296   28,107,692

Conference Call

The Company will host a conference call to discuss the first quarter
fiscal 2009 results at 5 p.m. Eastern Time today. Investors and other
interested parties may access the teleconference by dialing 800-891-3155
or 617-597-5527 and providing the participant pass code 69530243. A live
web cast of the conference call will be provided on the Company’s
investor relations website at http://www.liquidityservicesinc.com.
A replay of the web cast will be available on the Company’s website for
30 calendar days ending March 5, 2009 at 11:59 p.m. ET. An audio replay
of the teleconference will also be available until March 5, 2009 at
11:59 p.m. ET. To listen to the replay, dial 888-286-8010 or
617-801-6888 and provide pass code 43431865. Both replays will be
available starting at 7:00 p.m. 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 and 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 non-GAAP measures included in
this press release, to the most directly comparable GAAP measures, can
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. 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; and our ability to successfully complete the integration of
Geneva into our existing operations. 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 LSI

LSI enables buyers and sellers to transact in an efficient, automated
online auction environment. The Company’s marketplaces provide
professional buyers access to a global, organized supply of wholesale
surplus and salvage assets presented with digital images and other
relevant product information. Additionally, LSI enables its corporate
and government sellers to enhance their financial return on excess
assets by providing a liquid marketplace and value-added services that
are integrated into a single offering. The Company organizes its
products into categories across major industry verticals such as
consumer electronics, general merchandise, apparel, scientific
equipment, aerospace parts and equipment, technology hardware, and scrap
metals. The Company’s online auction marketplaces are www.liquidation.com,
www.govliquidation.com,
www.govdeals.com

and www.liquibiz.com.
LSI also operates a wholesale industry portal, www.goWholesale.com,
that connects advertisers with buyers seeking products for resale and
related business services.

Liquidity Services, Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
 
December 31, September 30,
  2008   2008  
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 35,446 $ 51,954
Short-term investments 17,816 11,244
Accounts receivable, net of allowance for doubtful accounts of $570
and $519 at December 31, 2008 and September 30, 2008, respectively
2,531 4,658
Inventory 12,608 13,327
Prepaid expenses, deferred taxes and other current assets   8,688   7,653  
Total current assets 77,089 88,836
Property and equipment, net 4,865 4,730
Intangible assets, net 5,001 5,561
Goodwill 32,105 34,696
Other assets   3,466   3,344  
Total assets $ 122,526 $ 137,167  
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 6,218 $ 8,303
Accrued expenses and other current liabilities 7,716 10,314
Profit-sharing distributions payable 4,427 10,312
Customer payables 6,519 8,841
Current portion of long-term debt and capital lease obligations   23   22  
Total current liabilities 24,903 37,792
Long-term debt and capital lease obligations, net of current portion 38 44
Deferred taxes and other long-term liabilities   3,136   2,961  
Total liabilities 28,077 40,797
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized;
28,033,861 and 28,023,361 shares issued and outstanding at December
31, 2008 and September 30, 2008, respectively
28 28
Additional paid-in capital 67,517 65,973
Accumulated other comprehensive loss (5,184 ) (1,717 )
Retained earnings   32,088   32,086  
Total stockholders’ equity   94,449   96,370  
Total liabilities and stockholders’ equity $ 122,526 $ 137,167  
Liquidity Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
 
Three Months Ended December 31,
  2008       2007  
 
Revenue $ 55,642 $ 59,266
Costs and expenses:
Cost of goods sold (excluding amortization) 18,589 15,403
Profit-sharing distributions 14,339 20,806
Technology and operations 11,927 9,977
Sales and marketing 4,432 4,133
General and administrative 5,745 4,839
Amortization of contract intangibles 203 203
Depreciation and amortization   639     388  
 
Total costs and expenses   55,874     55,749  
 
(Loss) income from operations (232 ) 3,517
Interest income and other income, net   236     488  
 
Income before provision for income taxes 4 4,005
Provision for income taxes   (2 )   (1,642 )
 
Net income $ 2   $ 2,363  
 
Basic earnings per common share $ 0.00   $ 0.08  
 
Diluted earnings per common share $ 0.00   $ 0.08  
 
Basic weighted average shares outstanding   28,026,296     27,944,139  
 
Diluted weighted average shares outstanding   28,026,296     28,107,692  
Liquidity Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
 

Three Months Ended
December 31,

  2008       2007  
Operating activities
Net income $ 2 $ 2,363
Adjustments to reconcile net income to net cash (used in) provided
by operating activities:
Depreciation and amortization 842 591
Stock compensation expense 1,483 1,111
Provision for doubtful accounts 51 28
Changes in operating assets and liabilities:
Accounts receivable 2,077 2,423
Inventory 718 (1,096 )
Prepaid expenses and other assets (1,158 ) (274 )
Accounts payable (2,086 ) 1,510
Accrued expenses and other (2,597 ) (3,581 )
Profit-sharing distributions payable (5,885 ) 3,174
Customer payables (2,322 ) 965
Other liabilities   174     36  
 
Net cash (used in) provided by operating activities (8,701 ) 7,250
Investing activities
Purchases of short-term investments (9,460 ) (6,336 )
Proceeds from the sale of short-term investments 2,890 6,129
Increase in goodwill and intangibles (84 ) (12 )
Purchases of property and equipment   (647 )   (349 )
 
Net cash used in investing activities (7,301 ) (568 )
Financing activities
Principal repayments of capital lease obligations and debt (5 ) (44 )
Proceeds from exercise of common stock options and warrants (net of
tax)
52 49
Incremental tax benefit from exercise of common stock options   9      
 
Net cash provided by financing activities 56 5
Effect of exchange rate differences on cash and cash equivalents   (562 )   (118 )
 
Net (decrease) increase in cash and cash equivalents (16,508 ) 6,569
Cash and cash equivalents at beginning of period   51,954     39,954  
 
Cash and cash equivalents at end of period $ 35,446   $ 46,523  
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 805 $ 2,511
Cash paid for interest 17 1

Source: Liquidity Services, Inc.

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