Press Releases
Aug 19

Liquidity Services, Inc. Announces Third Quarter 2007 Financial Results

– Revenue of $52.5 Million up 36% – Gross Merchandise Volume (GMV)
of $62.3 Million up 34% – Adjusted Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA) of $5.8 Million up 46% –

WASHINGTON–(BUSINESS WIRE)–Aug. 1, 2007–Liquidity Services,
Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com) today reported its
financial results for its fiscal third quarter ended June 30, 2007
(Q3-07). Liquidity Services, Inc. is a leading online auction
marketplace for wholesale, surplus and salvage assets.

Liquidity Services, Inc. (LSI or the Company) reported record
consolidated Q3-07 revenue of $52.5 million, representing a growth
rate of approximately 36% when compared to the prior year’s comparable
period, and record adjusted EBITDA of $5.8 million, representing a
growth rate of approximately 46% when compared to the prior year’s
comparable period. LSI also reported record GMV of $62.3 million for
Q3-07, representing a growth rate of approximately 34% when compared
to the prior year’s comparable period. GMV is the total sales volume
of all merchandise sold through our marketplaces during a given
period.

Net income in Q3-07 was a record $3.1 million or $0.11 diluted
earnings per share. Adjusted net income in Q3-07 was a record $3.4
million, representing a growth rate of approximately 34% when compared
to the prior year’s comparable period, or $0.12 adjusted diluted
earnings per share, representing a growth rate of approximately 33%
when compared to the prior year’s comparable period.

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 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.

The Company’s ability to create liquid marketplaces for wholesale,
surplus and salvage assets generates a continuous flow of goods from
its corporate and government sellers. This flow of goods in turn
attracts an increasing number of professional buyers to the
marketplaces.

“Q3 was another strong quarter for LSI as growth in our commercial
business accelerated and our scrap business with the Department of
Defense (DoD) continued to post impressive gains,” said Bill Angrick,
Chairman and CEO of LSI. “Our performance during the quarter reflected
solid execution of our business strategy as our commercial business
grew approximately 126% over the prior year period. Our commercial GMV
has grown more than three-fold during the past seven quarters and
represents the largest segment of our business at approximately 47% of
GMV during Q3. Our scrap business with the Department of Defense
(DoD), which grew approximately 54% over the prior year period, also
contributed to strong growth in GMV and Adjusted EBITDA during the
quarter. We believe Q3-07 results demonstrate that large corporations
are increasingly relying on our online platform and service offerings
to realize greater returns and efficiencies in the tracking and sale
of surplus and salvage assets. Our business development activity
remains strong and we continue to test and develop capabilities to
meet the long term needs of our clients and to support a much larger
commercial business. Our buyer marketplace continues to deliver strong
results for our sellers as we averaged over 5 auction participants per
completed transaction during Q3.”

Business Outlook

The following forward-looking statements are based on current
business trends and our current operating environment, including (i)
the reengineering of certain business and inventory processes in our
Surplus business with the Department of Defense (DoD), which has
resulted in a slowdown of property received by the DoD, (ii) our
expectation that there will be a modest increase in the flow of goods
received by the DoD over the next quarter; (iii) our belief that we
have yet to realize the full potential of recent significant
investments in new distribution centers, personnel, and value-added
services necessary to support a much larger commercial business in the
future, which has resulted in less than our target profitability; (iv)
our expectation that we will experience a seasonal slow down in supply
from several of our historical commercial sellers during the next
quarter; (v) our expectation that we will not continue the sale of
certain products during the next quarter following the completion of a
pilot program, because we were not able to come to satisfactory terms
with the client; and (vi) the acquisition of STR Inc., which closed on
October 16, 2006. Our results may be materially affected by changes in
business trends and our operating environment, as well as by other
factors, including investments we expect to make in our 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 20% up to 22%. 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 earned
$1.0 million under this incentive feature for the 12 months ended June
30, 2007 and we recorded this amount in the quarter ended June 30,
2007. We are eligible to receive this incentive in each year of the
term of the Scrap contract. In addition, there are incentive features
in our Surplus contract that allow us to earn up to an additional 5.5%
of the profit sharing distribution above our new base rate of 25%,
which began December 1, 2006. For the purposes of providing guidance
regarding our projected financial results for fiscal year 2007, we
have assumed that we will not receive any of the Surplus contract
incentive payments, as the period we would be eligible to record such
incentive may not occur until fiscal year 2008.

Our guidance adjusts EBITDA and Diluted EPS for the effects of the
adoption of FAS 123R, which we estimate to be approximately $525,000
to $575,000 for the fourth quarter of fiscal year 2007.

GMV – We expect GMV for fiscal year 2007 to range from $232
million to $234 million. We expect GMV for Q4-07 to range from $57
million to $59 million.

Adjusted EBITDA – We expect Adjusted EBITDA for fiscal year 2007
to range from $18.8 million to $19.0 million. We expect Adjusted
EBITDA for Q4-07 to range from $4.2 million to $4.4 million.

Adjusted Diluted EPS – We estimate Adjusted Earnings Per Diluted
Share for fiscal year 2007 to be $0.40. In Q4-07, we estimate Adjusted
Earnings Per Diluted Share to be $0.09.

We plan to provide specific guidance for fiscal year 2008 during
our next earnings announcement, which will be subsequent to the
conclusion of our fiscal year end September 30, 2007. We expect GMV
and Adjusted EBITDA will increase approximately 25% and 30%,
respectively, for fiscal year 2008.

Key Q3-07 Operating Metrics

Registered Buyers — At the end of Q3-07, registered buyers
totaled approximately 649,000, representing a 33% increase over the
approximately 489,000 registered buyers at the end of Q3-06.

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 287,000 in Q3-07, an approximately 10% increase over the
approximately 261,000 auction participants in Q3-06.

Completed Transactions — Completed transactions increased to
approximately 54,000, an approximately 7% increase for Q3-07 from the
approximately 50,000 completed transactions in Q3-06. In addition, we
experienced a 25% increase in the average value of our transactions,
over the same period, resulting from product mix, lotting and
merchandising strategies, and buyer demand.

GMV and Revenue Mix — GMV and revenue continue to diversify due
to the continued rapid growth in our commercial and scrap businesses.
As a result, the percentage of GMV and revenue derived from the DoD
Surplus Contract (under which our revenue is based on the
profit-sharing model) has decreased to 25.3% and 30.0%, respectively,
versus 46.4% and 55.9%, respectively, in the prior year period. The
percentage of GMV and revenue derived from our commercial marketplaces
business, which includes the acquired STR business and our
Liquidation.com marketplace, increased to 46.6% and 35.1%,
respectively, from 27.5% and 10.7%, respectively, in the prior year
period. The table below summarizes the GMV and revenue from the
Company’s two significant contracts with the DoD (Surplus and Scrap),
and our commercial and international businesses.

                        GMV Mix
--------------------------------------------------------
                                                         Q3-07  Q3-06
                                                         ------ ------
Profit-Sharing Model:
  Surplus                                                 25.3%  46.4%
  Scrap                                                   24.6%  21.3%
                                                         ------ ------
    Total Profit Sharing                                  49.9%  67.7%

Commercial Marketplaces:
  Consignment Model                                       23.1%  25.2%
  Purchase Model                                          23.5%   2.3%
                                                         ------ ------
    Total Commercial Marketplaces                         46.6%  27.5%

International and Other                                    3.5%   4.8%
                                                         ------ ------
    Total                                                100.0% 100.0%
                                                         ====== ======
                      Revenue Mix
--------------------------------------------------------
                                                          Q3-07  Q3-06
                                                         ------ ------
Profit-Sharing Model:
  Surplus                                                 30.0%  55.9%
  Scrap                                                   29.2%  25.7%
                                                         ------ ------
    Total Profit Sharing                                  59.2%  81.6%

Commercial Marketplaces:
  Consignment Model                                        7.2%   8.0%
  Purchase Model                                          27.9%   2.7%
                                                         ------ ------
    Total Commercial Marketplaces                         35.1%  10.7%

International and Other                                    5.7%   7.7%
                                                         ------ ------
    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 income
and expense 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 compensation expense.

                                 Three Months Ended Nine Months Ended
                                      June 30,           June 30,
                                 ------------------ ------------------
                                    2007      2006     2007     2006
                                 ----------- ------ ---------- -------
                                      (in thousands) (unaudited)
Net income                           $ 3,053 $2,355    $ 7,840 $ 5,751
Interest expense (income) and
 other expense (income), net            (475)  (454)    (1,624)    120
Provision for income taxes             2,134  1,416      5,422   3,654
Amortization of contract
 intangibles                             203    203        610     610
Depreciation and amortization            355    179        935     501
                                 ----------- ------ ---------- -------

EBITDA                                 5,270  3,699     13,183  10,636
Stock compensation expense               526    263      1,409     324
                                 ----------- ------ ---------- -------

Adjusted EBITDA                      $ 5,796 $3,962    $14,592 $10,960
                                 =========== ====== ========== =======

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       Nine Months Ended
                              June 30,                June 30,
                       ----------------------- -----------------------
                          2007        2006        2007        2006
                       ----------- ----------- ----------- -----------
                       (Unaudited) (Dollars in thousands, except per
                                         share data)
Net income             $     3,053 $     2,355 $     7,840 $     5,751
Stock compensation
 expense (net of tax)          310         158         831         194
                       ----------- ----------- ----------- -----------

Adjusted net income    $     3,363 $     2,513 $     8,671 $     5,945
                       =========== =========== =========== ===========

Adjusted basic
 earnings per common
 share                 $      0.12 $      0.09 $      0.31 $      0.26
                       =========== =========== =========== ===========

Adjusted diluted
 earnings per common
 share                 $      0.12 $      0.09 $      0.31 $      0.23
                       =========== =========== =========== ===========

Basic weighted average
 shares outstanding     27,857,115  27,347,778  27,720,937  22,930,351
                       =========== =========== =========== ===========

Diluted weighted
 average shares
 outstanding            28,321,395  28,291,280  28,215,689  25,397,329
                       =========== =========== =========== ===========

Conference Call

The Company will host a conference call to discuss the fiscal
third quarter 2007 results at 5 p.m. Eastern Time today. Investors and
other interested parties may access the teleconference by dialing
(800) 573-4754 or (617) 224-4325 and providing the participant pass
code 60841357. 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 until September 3, 2007 at 11:59
p.m. ET. An audio replay of the teleconference will also be available
until September 3, 2007 at 11:59 p.m. ET. To listen to the replay,
dial (888) 286-8010 or (617) 801-6888 and provide pass code 78238344.
Both replays will be available starting at 7:00 p.m. on the day of the
call.

Non-GAAP Measures

To supplement the Company’s 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 because the
measures 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. LSI reviews
GMV because it provides a measure of the volume of goods being sold in
its marketplaces and thus the activity of those marketplaces. GMV and
our other supplemental operating data, 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 LSI
has 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

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; our
ability to successfully expand the supply of merchandise available for
sale on our online marketplaces and attract and retain active
professional buyers to purchase the merchandise. 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.

              Liquidity Services, Inc. and Subsidiaries
                     Consolidated Balance Sheets
                        (Dollars in Thousands)

                                              June 30,   September 30,
                                                2007         2006
                                             ----------- -------------
                                             (Unaudited)
Assets
Current assets:
  Cash and cash equivalents                   $   37,103   $    54,359
  Short-term investments                          18,988        12,289
  Accounts receivable, net of allowance for
   doubtful accounts of $200                       4,076         2,557
  Inventory                                       14,302         4,704
  Prepaid expenses and other current assets        3,467         2,002
                                             ----------- -------------
    Total current assets                          77,936        75,911
Property and equipment, net                        4,209         2,362
Intangible assets, net                             4,729         4,909
Goodwill                                          11,306         3,678
Other assets                                       2,254         1,178
                                             ----------- -------------
Total assets                                  $  100,434   $    88,038
                                             =========== =============
Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                            $    2,319   $     2,073
  Accrued expenses and other current
   liabilities                                     7,416         5,283
  Profit-sharing distributions payable             6,217         7,736
  Customer payables                                5,167         6,658
  Current portion of capital lease
   obligations and long-term debt                     23            79
                                             ----------- -------------
    Total current liabilities                     21,142        21,829
Capital lease obligations and long-term
 debt, net of current portion                         37            44
Other long-term liabilities                        1,476           413
                                             ----------- -------------
Total liabilities                                 22,655        22,286
Stockholders' equity:
  Common stock, $0.001 par value;
   120,000,000 shares authorized; 27,875,498
   and 27,584,608 shares issued and
   outstanding at June 30, 2007 and
   September 30, 2006, respectively                   28            27
  Additional paid-in capital                      59,946        55,964
  Accumulated other comprehensive income             452           247
  Retained earnings                               17,353         9,514
                                             ----------- -------------
    Total stockholders' equity                    77,779        65,752
                                             ----------- -------------
Total liabilities and stockholders' equity    $  100,434   $    88,038
                                             =========== =============
              Liquidity Services, Inc. and Subsidiaries
           Unaudited Consolidated Statements of Operations
            (Dollars in Thousands, Except Per Share Data)

                        Three Months Ended       Nine Months Ended
                             June 30,                 June 30,
                      ----------------------- ------------------------
                         2007        2006        2007         2006
                      ----------- ----------- ----------- ------------

Revenue               $    52,505 $    38,750 $   146,952 $   108,058
Costs and expenses:
  Cost of goods sold
   (excluding
   amortization)           13,441       3,442      33,601       8,405
  Profit-sharing
   distributions           17,409      20,534      53,869      59,423
  Technology and
   operations               8,125       5,321      24,365      14,115
  Sales and marketing       3,556       2,411       9,745       6,326
  General and
   administrative           4,704       3,343      12,189       9,153
  Amortization of
   contract
   intangibles                203         203         610         610
  Depreciation and
   amortization               355         179         935         501
                      ----------- ----------- ----------- -----------

    Total costs and
     expenses              47,793      35,433     135,314      98,533
                      ----------- ----------- ----------- -----------

Income from
 operations                 4,712       3,317      11,638       9,525
Interest income
 (expense) and other
 income, net                  475         454       1,624        (120)
                      ----------- ----------- ----------- -----------

Income before
 provision for income
 taxes                      5,187       3,771      13,262       9,405
Provision for income
 taxes                     (2,134)     (1,416)     (5,422)     (3,654)
                      ----------- ----------- ----------- -----------

Net income            $     3,053 $     2,355 $     7,840 $     5,751
                      =========== =========== =========== ===========

Basic earnings per
 common share         $      0.11 $      0.09 $      0.28 $      0.25
                      =========== =========== =========== ===========

Diluted earnings per
 common share         $      0.11 $      0.08 $      0.28 $      0.22
                      =========== =========== =========== ===========

Basic weighted
 average shares
 outstanding           27,857,115  27,347,778  27,720,937  22,930,351
                      =========== =========== =========== ===========

Diluted weighted
 average shares
 outstanding           28,321,395  29,291,280  28,215,689  25,397,329
                      =========== =========== =========== ===========
              Liquidity Services, Inc. and Subsidiaries
           Unaudited Consolidated Statements of Cash Flows
                            (In Thousands)

                                 Three Months Ended Nine Months Ended
                                      June 30,          June 30,
                                 ------------------ -----------------
                                    2007     2006     2007     2006
                                 ---------- ------- -------- ---------
Operating activities
Net income                         $  3,053 $ 2,355 $  7,840 $  5,751
Adjustments to reconcile net
 income to net cash provided by
 operating activities:
  Depreciation and amortization         558     382    1,545    1,111
  Stock compensation expense            526     262    1,409      324
  Amortization of debt discount          --      --       --       15
  Interest expense related to
   put warrant liability and
   debt issue costs                      --      --       --      315
  Provision (benefit) for
   doubtful accounts                     --      50       --      150
  Loss on early extinguishment
   of debt                               --      --       --      171
  Changes in operating assets
   and liabilities:
    Accounts receivable                (289)    (81)  (1,519)  (1,150)
    Inventory                        (2,510)   (302)  (7,821)    (853)
    Prepaid expenses and other
     assets                             492    (506)  (2,540)    (620)
    Accounts payable                 (1,145)    (86)     247      507
    Accrued expenses and other        2,387   2,267    2,101    5,344
    Profit-sharing distributions
     payable                         (4,175) (1,956)  (1,519)   2,604
    Customer payables                (2,527)   (396)  (1,566)     891
    Other long-term liabilities          14      16    1,062       49
                                 ---------- ------- -------- --------

Net cash (used in) provided by
 operating activities                (3,616)  2,005     (761)  14,609
Investing activities
Purchases of short-term
 investments                        (14,197) (5,242) (28,594) (13,663)
Proceeds from the sale of short-
 term investments                     5,421      --   21,887       --
Decrease (increase) in goodwill
 and intangibles                         27     (52)      12      (70)
Cash paid for acquisitions               --      --  (10,232)      --
Purchases of property and
 equipment                             (614)   (239)  (2,282)  (1,083)
                                 ---------- ------- -------- --------

Net cash used in investing
 activities                          (9,363) (5,533) (19,209) (14,816)
Financing activities
Proceeds from issuance of debt           10      --       10       47
Repayments of debt                       (5)     (4)     (13)  (4,410)
Principal repayments of capital
 lease obligations                       (4)    (36)     (61)    (107)
Proceeds from exercise of common
 stock options and warrants (net
 of tax)                                259      99      748      128
Incremental tax benefit from
 exercise of common stock
 options                                 81      --      781       --
Net proceeds from the issuance
 of common stock                       (282)    (28)   1,046   43,996
                                 ---------- ------- -------- --------

Net cash provided by financing
 activities                              59      31    2,511   39,654
Effect of exchange rate
 differences on cash and cash
 equivalents                             57     166      203      193
                                 ---------- ------- -------- --------

Net (decrease) increase in cash
 and cash equivalents               (12,863) (3,331) (17,256)  39,640
Cash and cash equivalents at
 beginning of the period             49,966  53,349   54,359   10,378
                                 ---------- ------- -------- --------

Cash and cash equivalents at end
 of period                         $ 37,103 $50,018 $ 37,103 $ 50,018
                                 ========== ======= ======== ========
Supplemental disclosure of cash
 flow information
Cash paid for income taxes         $    624 $ 1,160 $  5,584 $  3,248
Cash paid for interest             $      1 $     3 $      4 $    214

CONTACT: Liquidity Services, Inc.
Julie Davis, 202-467-6868 ext. 234
Director, Investor Relations
julie.davis@liquidityservicesinc.com

SOURCE: Liquidity Services, Inc.