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Liquidity Services, Inc. Announces First Quarter Fiscal Year 2013 Financial Results



  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
$18.1 million 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
julie.davis@liquidityservicesinc.com
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