Liquidity Services, Inc. Announces First Quarter Fiscal Year 2013 Financial Results – First quarter revenue of $122.2 million up 15% – Gross Merchandise Volume (GMV) of $233.4 million up 30% – Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) of $24.2 million up 6% – Adjusted EPS of $0.41 up 11% – Business Wire WASHINGTON -- January 31, 2013 Liquidity Services, Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com) today reported its financial results for its first quarter of fiscal year 2013 (Q1-13) ended December 31, 2012. 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. (Liquidity Services or the Company) reported consolidated Q1-13 revenue of $122.2 million, an increase of approximately 15% from the prior year’s comparable period. Adjusted EBITDA, which excludes stock based compensation and acquisition costs including changes in acquisition earn out payment estimates, for Q1-13 was $24.2 million, an increase of approximately 6% from the prior year’s comparable period. Q1-13 GMV, the total sales volume of all merchandise sold through the Company’s marketplaces, was $233.4 million, an increase of approximately 30% from the prior year’s comparable period. Net income in Q1-13 was $6.7 million or $0.20 diluted earnings per share. Adjusted net income, which excludes stock based compensation, acquisition costs including changes in acquisition earn out payment estimates and amortization of contract-related intangible assets associated with the Jacobs Trading acquisition – net of tax, in Q1-13 was $13.6 million or $0.41 adjusted diluted earnings per share based on 33.1 million fully diluted shares outstanding, an increase of approximately 15% and 11%, respectively, from the prior year’s comparable period. “Liquidity Services generated strong adjusted EBITDA and EPS results during Q1-FY13 as we expanded margins in our core business due to operating leverage and as we continued to benefit from large commercial and government clients placing their trust in us to handle more of their excess inventory and high value capital asset sales,” said Bill Angrick, Chairman and CEO of Liquidity Services. “We remain focused on executing our long term growth strategy to achieve $2 billion in GMV by fiscal year 2016. During the quarter, we continued to advance our multi-year investment efforts in upgrading our ecommerce platform, investing in our sales and marketing organization and integrating our recent acquisitions of NESA and GoIndustry which have expanded our operations to Canada, Europe and the Asia Pacific regions. While the pace of integrating our GoIndustry acquisition is currently slower than expected and will require more investment, particularly in the Asia Pacific region, our expanded breadth of services, industry expertise and geographic coverage has been well received by our clients and has strengthened our competitive position in the reverse supply chain market. We believe these important investments uniquely address the client needs of Fortune 500 retailers, manufacturers and public sector agencies and position us well for long term profitable growth and market leadership.” Business Outlook While economic conditions have improved, our overall outlook remains cautious due to the volatility in the macro environment including instability arising from the fiscal cliff and debt ceiling negotiations and their potential impact on the retail and industrial supply chains and GDP growth. Additionally, we plan to further invest in our technology infrastructure and product roadmap to support further expansion and integration of our existing and recently acquired businesses and online marketplaces. 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 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 technology solutions and demonstrated financial strength, we expect our seller base to increase. The following forward looking statements reflect trends and assumptions for the next quarter and FY 2013: (i) stable commodity prices in our scrap business; (ii) stable average sales prices realized in our capital assets marketplaces; (iii) an effective income tax rate of 40%; and (iv) improved operations and service levels in our retail goods marketplaces. Our Scrap Contract with the Department of Defense (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 30^th 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 2013 that we will again receive this incentive payment. In addition, our guidance has been adjusted to reflect: Reduced GMV and earnings versus our previous expectation from our GoIndustry business as we implement restructuring initiatives and investments totaling several million dollars, to fully integrate GoIndustry into Liquidity Services. This is a change in our (1) expectation for GoIndustry operations from our previous fiscal year 2013 guidance. We believe this investment is required to fully realize the synergies available across the Company’s buyer marketplaces and clients and to position us for profitable growth and market leadership within the $100 billion global market for capital assets; and Reduced GMV versus our previous expectation from our Liquidation.com marketplace due to lower than expected product (2) flows from existing clients and slower than expected ramp-up in product flows from new clients and programs. We anticipate normalized flows from new clients and programs sometime during the third and the fourth quarter of FY13. GMV – We expect GMV for fiscal year 2013 to range from $1.025 billion to $1.1 billion, which is a decrease from our previous guidance range of $1.1 billion to $1.2 billion. We expect GMV for Q2-13 to range from $250 million to $275 million. Adjusted EBITDA – We expect Adjusted EBITDA for fiscal year 2013 to range from $115 million to $121 million, which is a decrease from our previous guidance of $123 million to $133 million. We expect Adjusted EBITDA for Q2-13 to range from $28.0 million to $30.0 million. Adjusted Diluted EPS – We estimate Adjusted Earnings Per Diluted Share for fiscal year 2013 to range from $1.90 to $2.02, which is a decrease from our previous guidance of $2.05 to $2.23. In Q2-13, we estimate Adjusted Earnings Per Diluted Share to be $0.46 to $0.50. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of 33.4 million, and that we will not repurchase shares with the approximately $18.1million yet to be expended under the share repurchase program. Our guidance adjusts EBITDA and Diluted EPS for (i) acquisition costs including transaction costs and changes in earn out estimates; (ii) amortization of contract related intangible assets of $33.3 million from our acquisition of Jacobs Trading; and (iii) for stock based compensation costs, which we estimate to be approximately $3.0 million to $3.5 million per quarter for fiscal year 2013. These stock based compensation costs are consistent with fiscal year 2012. Key Q1-13 Operating Metrics Registered Buyers — At the end of Q1-13, registered buyers totaled approximately 2,240,000, representing a 36% increase over the approximately 1,641,000 registered buyers at the end of Q1-12. 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 566,000 in Q1-13, an approximately 29% increase over the approximately 438,000 auction participants in Q1-12. Completed Transactions — Completed transactions increased to approximately 129,000, an approximately 21% increase for Q1-13 from the approximately 107,000 completed transactions in Q1-12. GMV and Revenue Mix — GMV continues to diversify due to the continued growth in our commercial business and state and local government business (the GovDeals.com marketplace). As a result, the percentage of GMV derived from our DoD Contracts during Q1-13 decreased to 21.0% compared to 28.2% in the prior year period. The table below summarizes GMV and revenue by pricing model. GMV Mix Q1-13 Q1-12 Profit-Sharing Model: Scrap Contract 6.6 % 11.8 % Total Profit Sharing 6.6 % 11.8 % Consignment Model: GovDeals 12.6 % 13.9 % Commercial 45.0 % 31.5 % Total Consignment 57.6 % 45.4 % Purchase Model: Commercial 21.4 % 26.4 % Surplus Contract 14.4 % 16.4 % Total Purchase 35.8 % 42.8 % Total 100.0 % 100.0 % Revenue Mix Q1-13 Q1-12 Profit-Sharing Model: Scrap Contract 12.5 % 20.0 % Total Profit Sharing 12.5 % 20.0 % Consignment Model: GovDeals 2.4 % 2.3 % Commercial 12.3 % 7.0 % Total Consignment 14.7 % 9.3 % Purchase Model: Commercial 42.9 % 44.6 % Surplus Contract 27.5 % 26.1 % Total Purchase 70.4 % 70.7 % Other 2.4 % — 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 interest expense and other (income) expense, net; 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, and acquisition costs including changes in earn out estimates. Three Months Ended December 31, 2012 2011 (In thousands) (Unaudited) Net income $ 6,709 $ 9,126 Interest expense and other (income) expense, (924 ) 525 net Provision for income taxes 4,472 6,609 Amortization of contract intangibles 2,210 2,020 Depreciation and amortization 1,987 1,526 EBITDA 14,454 19,806 Stock compensation expense 4,367 2,625 Acquisition costs 5,376 318 Adjusted EBITDA $ 24,197 $ 22,749 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, amortization of contract-related intangible assets associated with the Jacobs Trading acquisition and acquisition costs including changes in earn out estimates. Adjusted basic and diluted earnings per share are determined using Adjusted Net Income. Three Months Ended December 31, 2012 2011 (Dollars in thousands, except per share data) (Unaudited) Net income $ 6,709 $ 9,126 Stock compensation expense (net of tax) 2,620 1,523 Amortization of contract intangibles (net 1,090 1,054 of tax) Acquisition costs (net of tax) 3,226 184 Adjusted net income $ 13,645 $ 11,887 Adjusted basic earnings per common share $ 0.43 $ 0.39 Adjusted diluted earnings per common $ 0.41 $ 0.37 share Basic weighted average shares outstanding 31,482,853 30,393,309 Diluted weighted average shares 33,054,264 32,382,518 outstanding Conference Call The Company will host a conference call to discuss fiscal first quarter 2013 results at 10:30 a.m. Eastern Time today. Investors and other interested parties may access the teleconference by dialing 866-713-8567 or 617-597-5326 and providing the participant pass code 55758425. 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 2, 2013 at 11:59 p.m. ET. An audio replay of the teleconference will also be available until March 2, 2013 at 11:59 p.m. ET. To listen to the replay, dial 888-286-8010 or 617-801-6888 and provide pass code 36221612. Both replays will be available starting at 12:30 p.m. today. 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 and Walmart 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, including NESA, Go-Industry, Jacobs Trading and Truckcenter.com, into our existing operations and our ability to realize any anticipated benefits of these or other acquisitions; and our ability to recognize any expected tax benefits as a result of closing our U.K. retail consumer goods 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 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 over $3.5 billion of surplus, returned and end-of-life assets, in over 500 product categories, including consumer goods, capital assets and industrial equipment. The Company is based in Washington, D.C. and has over 1,300 employees. Additional information can be found at: http://www.liquidityservicesinc.com. Liquidity Services, Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in Thousands) December 31, September 30, 2012 2012 Assets (Unaudited) Current assets: Cash and cash equivalents $ 45,892 $ 104,782 Accounts receivable, net of allowance for doubtful accounts of $1,127 and $1,248 at December 31, 2012 and September 30, 19,525 16,226 2012, respectively Inventory 21,914 20,669 Prepaid and deferred taxes 20,237 16,927 Prepaid expenses and other current assets 3,945 3,973 Total current assets 111,513 162,577 Property and equipment, net 11,118 10,382 Intangible assets, net 37,075 34,204 Goodwill 212,664 185,771 Other assets 7,656 7,474 Total assets $ 380,026 $ 400,408 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 11,342 $ 9,997 Accrued expenses and other current 33,797 36,569 liabilities Profit-sharing distributions payable 3,508 4,041 Current portion of acquisition earn out 2,207 14,511 payables Customer payables 35,108 34,265 Current portion of note payable — 10,000 Total current liabilities 85,962 109,383 Acquisition earn out payables 18,113 — Note payable, net of current portion — 32,000 Deferred taxes and other long-term 9,926 9,022 liabilities Total liabilities 114,001 150,405 Stockholders’ equity: Common stock, $0.001 par value; 120,000,000 shares authorized; 31,501,381 shares issued and outstanding at December 31, 2012; 31,138,111 shares issued and outstanding at 31 31 September 30, 2012 Additional paid-in capital 191,942 182,361 Accumulated other comprehensive income 978 1,246 Retained earnings 73,074 66,365 Total stockholders’ equity 266,025 250,003 Total liabilities and stockholders’ equity $ 380,026 $ 400,408 Liquidity Services, Inc. and Subsidiaries Consolidated Statements of Operations (Dollars in Thousands, Except Share and Per Share Data) Three Months Ended December 31, 2012 2011 Revenue $ 104,261 $ 95,896 Fee revenue 17,944 10,135 Total revenue 122,205 106,031 Costs and expenses: Cost of goods sold (excluding 47,122 43,285 amortization) Profit-sharing distributions 8,410 12,487 Technology and operations 22,547 15,783 Sales and marketing 10,328 6,535 General and administrative 13,968 7,817 Amortization of contract intangibles 2,210 2,020 Depreciation and amortization 1,987 1,526 Acquisition costs 5,376 318 Total costs and expenses 111,948 89,771 Income from operations 10,257 16,260 Interest expense and other income 924 (525 ) (expense), net Income before provision for income taxes 11,181 15,735 Provision for income taxes 4,472 6,609 Net income $ 6,709 $ 9,126 Basic earnings per common share $ 0.21 $ 0.30 Diluted earnings per common share $ 0.20 $ 0.28 Basic weighted average shares 31,482,853 30,393,309 outstanding Diluted weighted average shares 33,054,264 32,382,518 outstanding Liquidity Services, Inc. and Subsidiaries Consolidated Statements of Cash Flows (In Thousands) Three Months Ended December 31, 2012 2011 Operating activities Net income $ 6,709 $ 9,126 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,197 3,546 Gain on early extinguishment of debt (1,000 ) — Stock compensation expense 4,367 2,625 Provision for inventory allowance (733 ) (47 ) Provision for doubtful accounts (121 ) (211 ) Incremental tax benefit from exercise (5,005 ) (4,889 ) of common stock options Changes in operating assets and liabilities: Accounts receivable (3,177 ) 1,739 Inventory (512 ) (3,241 ) Prepaid expenses and other assets 1,541 6,880 Accounts payable 1,345 (2,314 ) Accrued expenses and other (4,976 ) (4,859 ) Profit-sharing distributions payable (533 ) (959 ) Customer payables 842 4,082 Acquisition earn out payables (4,118 ) — Other liabilities 967 711 Net cash (used in) provided by (207) 12,189 operating activities Investing activities Increase in goodwill and intangibles (14,684 ) (80,018 ) and cash paid for acquisitions Purchases of property and equipment (1,897 ) (1,176 ) Net cash used in investing activities (16,581 ) (81,194 ) Financing activities Repayment of notes payable (39,000 ) — Payment of acquisition contingent (8,185 ) — liabilities Proceeds from exercise of common stock 209 4,010 options (net of tax) Incremental tax benefit from exercise 5,005 4,889 of common stock options Net cash (used in) provided by (41,971 ) 8,899 financing activities Effect of exchange rate differences on (131 ) 1 cash and cash equivalents Net decrease in cash and cash (58,890 ) (60,105 ) equivalents Cash and cash equivalents at beginning 104,782 128,904 of period Cash and cash equivalents at end of $ 45,892 $ 68,799 period Supplemental disclosure of cash flow information Cash paid for income taxes $ 94 $ 79 Cash paid for interest 2,011 9 Note payable issued in connection with — 40,000 acquisition Contingent purchase price accrued 23,146 8,185 Contact: Liquidity Services, Inc. Julie Davis, 202-467-6868 ext. 2234 Director, Investor Relations email@example.com
Liquidity Services, Inc. Announces First Quarter Fiscal Year 2013 Financial Results
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