Press Releases
Aug 11

Liquidity Services, Inc. Announces First Quarter Fiscal Year 2010 Financial Results

– First quarter revenue of $65.3 million up 17% – GMV of $93.6 million up 14% – Adjusted EBITDA of $8.4 million up 303% – Adjusted EPS of $0.14 up 368%WASHINGTON, Feb 04, 2010 (BUSINESS WIRE) — Liquidity Services, Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com)
today reported its financial results for its first quarter of fiscal
year 2010 (Q1-10) ended December 31, 2009. Liquidity Services, Inc.
provides business and government clients and buying customers
transparent, innovative and effective online marketplaces and integrated
services for surplus assets.

Liquidity Services, Inc. (LSI or the Company) reported consolidated
Q1-10 revenue of $65.3 million, an increase of approximately 17% from
the prior year’s comparable period. Adjusted EBITDA for Q1-10 was $8.4
million, an increase of approximately 303% from the prior year’s
comparable period. Q1-10 GMV, the total sales volume of all merchandise
sold through the Company’s marketplaces, was $93.6 million, an increase
of approximately 14% from the prior year’s comparable period.

Net income in Q1-10 was $2.9 million or $0.11 diluted earnings per
share. Adjusted net income in Q1-10 was $3.9 million or $0.14 diluted
earnings per share, an increase of approximately 358% and 368%,
respectively, from the prior year’s comparable period.

“LSI reported strong results in Q1-10 with GMV, adjusted EBITDA and
adjusted diluted earnings per share all exceeding our guidance range.
This progress is a result of our team’s focus over the past year on
driving operational efficiencies and superior service to our clients and
buying customers. By continuing to provide corporate and government
clients the most innovative and efficient e-commerce model for surplus
assets we are gaining market share, building a stronger business and
having a positive impact on our client’s environmental sustainability
initiatives.” said Bill Angrick, Chairman and CEO of LSI. GMV growth
during the quarter was driven by: (i) our U.S. commercial business,
which was up 20% as a result of new programs started with Fortune 500
retailers during the September 30th quarter and higher volume
within existing accounts; (ii) our municipal government business, which
was up 21%, as our GovDeals.com marketplace continues to attract state
and local government agencies by delivering higher net returns for their
surplus assets; and (iii) 34% growth in our scrap business due to better
than expected property mix, volume and pricing. Adjusted EBITDA
benefited from improved net recovery rates and operating leverage within
our business.

“Our buyer marketplace continues to deliver strong results for our
sellers as we ended the quarter with approximately 1,255,000 registered
buyers, which is up approximately 20% over the prior year period,
illustrating that our marketplace continues to be attractive to buyers
in a difficult economy. We continue to make solid progress in our U.K.
business, where during the last two quarters we have replaced a
significant amount of the GMV lost due to the restructuring of our U.K.
business’s largest client, while at the same time making significant
investments in systems and processes, which we expect will return the
business to profitability by the end of the fiscal year,” stated Angrick.

Business Outlook

While we are pleased with our recent progress, our overall outlook
remains cautious due to the economic environment and its impact on the
retail supply chain. We are in a period of economic uncertainty and
unprecedented market volatility which makes it more difficult for us to
forecast business trends and the timing of selected new seller programs,
resulting in a wider than usual guidance range. In the short term, we
believe changes in consumer spending patterns may reduce 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 marketplaces, (ii) as
corporations and public sector agencies focus on reducing costs,
improving transparency 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 and demonstrated financial
strength, we expect our seller base to increase. As we improve operating
efficiencies and service, we expect our competitive position to
strengthen.

The following forward looking statements reflect the following trends
and assumptions for the next quarter and FY 2010:

(i)

stabilized commodity prices in our scrap business compared to the
declining prices of fiscal year 2009;

(ii)

stabilized average sales prices realized in our commercial, state
and local government marketplaces compared to the declining
average prices of fiscal year 2009;

(iii)

an effective income tax rate of 46%;

(iv)

improved operations and service levels in our commercial business,
which we expect will continue to improve margins during the fiscal
year; and

(v)

our expectation that we will achieve less than optimal results in
our U.K. business in the near term as we replace the lost volume
from one of our major U.K. clients, which restructured their
business.

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 2010 that we will again
receive this incentive payment.

GMV – We expect GMV for fiscal
year 2010 to range from $360 million to $400 million. We expect GMV for
Q2-10 to range from $85 million to $95 million.

Adjusted EBITDA – We expect
Adjusted EBITDA for fiscal year 2010 to range from $26 million to $30
million. We expect Adjusted EBITDA for Q2-10 to range from $6.5 million
to $8.5 million.

Adjusted Diluted EPS – We estimate
Adjusted Earnings Per Diluted Share for fiscal year 2010 to range from
$0.40 to $0.48. In Q2-10, we estimate Adjusted Earnings Per Diluted
Share to be $0.10 to $0.14. This guidance reflects the recent impact of
our stock repurchase program under which we repurchased 511,082 shares
for approximately $5.1 million, during the prior quarter, however it
does not assume that we will continue to repurchase shares under the
program. On February 2, 2010, the Company’s Board of Directors approved
an additional $10.0 million for the share repurchase program. The
Company had $1.0 million remaining in the share repurchase program from
the original authorization on December 2, 2008, resulting in $11.0
million currently available.

Our guidance adjusts EBITDA and Diluted EPS for the effects of
stock-based compensation, which we estimate to be approximately $2.0
million to $2.5 million per quarter for the remaining three quarters of
fiscal year 2010. The Company expects its trend of increasing
stock-based compensation costs to moderate in fiscal year 2011.

Key Q1-10 Operating Metrics

Registered Buyers — At the end of
Q1-10, registered buyers totaled approximately 1,255,000, representing a
20% increase over the approximately 1,045,000 registered buyers at the
end of Q1-09.

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 541,000 in Q1-10, an approximately 10%
increase over the approximately 492,000 auction participants in Q1-09.

Completed Transactions — Completed
transactions increased to approximately 126,000, an approximately 17%
increase for Q1-10 from the approximately 108,000 completed transactions
in Q1-09.

GMV and Revenue Mix — GMV and
revenue continue to diversify due to the continued growth in our U.S.
commercial business and state and local government business (the
GovDeals.com marketplace). As a result, the percentage of GMV and
revenue derived from our DoD Contracts during Q1-10 decreased to 36.6%
and 52.4%, respectively, compared to 38.1% and 56.2%, respectively, in
the prior year period. The table below summarizes GMV and revenue by
pricing model.

GMV Mix

Q1-10 Q1-09
Profit-Sharing Model:
Original Surplus Contract 2.3 % 24.5 %
Scrap 15.5 % 13.2 %
Total Profit Sharing 17.8 % 37.7 %
Consignment Model:
GovDeals 20.1 % 19.0 %
Commercial – US 16.5 % 21.1 %
Total Consignment 36.6 % 40.1 %
Purchase Model:
Commercial – US 21.9 % 15.3 %
New Surplus Contract 18.8 % 0.4 %
Commercial – International 3.6 % 4.8 %
Total Purchase 44.3 % 20.5 %
Other 1.3 % 1.7 %
Total 100.0 % 100.0 %

Revenue Mix

Q1-10 Q1-09
Profit-Sharing Model:
Original Surplus Contract 3.2 % 36.1 %
Scrap 22.2 % 19.5 %
Total Profit Sharing 25.5 % 55.6 %
Consignment Model:
GovDeals 2.5 % 2.1 %
Commercial – US 6.2 % 8.6 %
Total Consignment 8.7 % 10.7 %
Purchase Model:
Commercial – US 31.3 % 22.5 %
New Surplus Contract 26.9 % 0.6 %
Commercial – International 5.2 % 7.1 %
Total Purchase 63.4 % 30.2 %
Other 2.4 % 3.5 %
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
income less (a) interest (expense) income and other income, net; plus
(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,
2009 2008
(In thousands)
(Unaudited)
Net income $ 2,940 $ 2
Interest expense (income) and other income, net 14 (236 )
Provision for income taxes 2,631 2
Amortization of contract intangibles 203 203
Depreciation and amortization 911 639
EBITDA 6,699 610
Stock compensation expense 1,736 1,483
Adjusted EBITDA $ 8,435 $ 2,093

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-based compensation expense. Adjusted basic and
diluted earnings per share are determined using Adjusted Net Income.

Three Months Ended

December 31,

2009 2008
(Dollars in thousands,

except per share data)

(Unaudited)
Net income $ 2,940 $ 2
Stock compensation expense (net of tax) 937 845
Adjusted net income $ 3,877 $ 847
Adjusted basic earnings per common share $ .14 $ .03
Adjusted diluted earnings per common share $ .14 $ .03
Basic weighted average shares outstanding 27,539,308 28,026,296
Diluted weighted average shares outstanding 27,673,241 28,026,296

Conference Call

The Company will host a conference call to discuss the first quarter
fiscal year 2010 results at 5 p.m. Eastern Time today. Investors and
other interested parties may access the teleconference by dialing
800-435-1261 or 617-614-4076 and providing the participant pass code
48889389. A live web cast of the conference call will be provided on the
Company’s investor relations website at http://www.liquidityservicesinc.com.
An archive of the web cast will be available on the Company’s website
for 30 calendar days ending March 4, 2010 at 11:59 p.m. ET. An audio
replay of the teleconference will also be available until March 4, 2010
at 11:59 p.m. ET. To listen to the replay, dial 888-286-8010 or
617-801-6888 and provide pass code 93421864. Both replays will be
available starting at 8:00 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, 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 and expected future effective tax rates. 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
any acquired companies 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, online
auction environment offering over 500 product categories. The Company’s
marketplaces provide professional buyers access to a global, organized
supply of surplus and salvage assets presented with customer focused
information including digital images and other relevant product
information along with services to efficiently complete the transaction.
Additionally, LSI enables its corporate and government sellers to
enhance their financial return on excess assets by providing liquid
marketplaces and value-added services that integrate sales and
marketing, logistics and transaction settlement 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 specialty equipment. 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,
which 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,

2009 2009
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 23,140 $ 33,538
Short-term investments 38,181 30,616
Accounts receivable, net of allowance for doubtful accounts of $653
and $613 at December 31, 2009 and September 30, 2009, respectively
3,804 4,243
Inventory 17,615 14,280
Prepaid expenses, deferred taxes and other current assets 9,505 8,705
Total current assets 92,245 91,382
Property and equipment, net 6,677 6,147
Intangible assets, net 3,800 4,203
Goodwill 33,890 33,738
Other assets 3,133 3,118
Total assets $ 139,745 $ 138,588
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 5,604 $ 5,456
Accrued expenses and other current liabilities 17,499 14,740
Profit-sharing distributions payable 4,394 4,538
Customer payables 5,718 6,797
Current portion of capital lease obligations 57 56
Total current liabilities 33,272 31,587
Capital lease obligations, net of current portion 68 82
Deferred taxes and other long-term liabilities 2,872 2,937
Total liabilities 36,212 34,606
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000 shares authorized;
28,352,407 shares issued and 27,133,863 shares outstanding at
December 31, 2009; 28,271,983 shares issued and 27,564,521 shares
outstanding at September 30, 2009
27 28
Additional paid-in capital 75,452 73,641
Treasury stock, at cost (8,958 ) (3,874 )
Accumulated other comprehensive loss (3,733 ) (3,618 )
Retained earnings 40,745 37,805
Total stockholders’ equity 103,533 103,982
Total liabilities and stockholders’ equity $ 139,745 $ 138,588
Liquidity Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Operations
(Dollars in Thousands, Except Per Share Data)
Three Months Ended December 31,
2009 2008
Revenue $ 65,313 $ 55,642
Costs and expenses:
Cost of goods sold (excluding amortization) 26,950 18,589
Profit-sharing distributions 8,991 14,339
Technology and operations 12,086 11,927
Sales and marketing 4,647 4,432
General and administrative 5,940 5,745
Amortization of contract intangibles 203 203
Depreciation and amortization 911 639
Total costs and expenses 59,728 55,874
Income (loss) from operations 5,585 (232 )
Interest (expense) income and other income, net (14 ) 236
Income before provision for income taxes 5,571 4
Provision for income taxes (2,631 ) (2 )
Net income $ 2,940 $ 2
Basic earnings per common share $ 0.11 $ 0.00
Diluted earnings per common share $ 0.11 $ 0.00
Basic weighted average shares outstanding 27,539,308 28,026,296
Diluted weighted average shares outstanding 27,673,241 28,026,296
Liquidity Services, Inc. and Subsidiaries
Unaudited Consolidated Statements of Cash Flows
(In Thousands)
Three Months Ended December 31,
2009 2008
Operating activities
Net income $ 2,940 $ 2
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 1,114 842
Stock compensation expense 1,736 1,483
Provision for doubtful accounts 40 51
Changes in operating assets and liabilities:
Accounts receivable 399 2,077
Inventory (3,335 ) 718
Prepaid expenses and other assets (815 ) (1,158 )
Accounts payable 149 (2,086 )
Accrued expenses and other 2,758 (2,597 )
Profit-sharing distributions payable (145 ) (5,885 )
Customer payables (1,078 ) (2,322 )
Other liabilities (65 ) 174
Net cash provided by (used in) operating activities 3,698 (8,701 )
Investing activities
Purchases of short-term investments (18,147 ) (9,460 )
Proceeds from the sale of short-term investments 10,583 2,890
Increase in goodwill and intangibles (59 ) (84 )
Purchases of property and equipment (1,227 ) (647 )
Net cash used in investing activities (8,850 ) (7,301 )
Financing activities
Principal repayments of capital lease obligations and debt (14 ) (5 )
Repurchases of common stock (5,085 )
Proceeds from exercise of common stock options (net of tax) 76 52
Incremental tax benefit from exercise of common stock options 9
Net cash (used in) provided by financing activities (5,023 ) 56
Effect of exchange rate differences on cash and cash equivalents (223 ) (562 )
Net (decrease) in cash and cash equivalents (10,398 ) (16,508 )
Cash and cash equivalents at beginning of period 33,538 51,954
Cash and cash equivalents at end of period $ 23,140 $ 35,446
Supplemental disclosure of cash flow information
Cash paid for income taxes $ 463 $ 805
Cash paid for interest 4 17

SOURCE: Liquidity Services, Inc.

Liquidity Services, Inc.
Julie Davis
Director, Investor Relations
202.467.6868 ext. 2234
julie.davis@liquidityservicesinc.com