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

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

    – Second quarter record revenue of $130.3 million up 4% – Record Gross
 Merchandise Volume (GMV) of $259.1 million up 19% - Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA) of $29.2 million down
                      6% – Adjusted EPS of $0.48 down 8%

Business Wire

WASHINGTON -- May 2, 2013

Liquidity Services, Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com) today
reported its financial results for its second quarter of fiscal year 2013
(Q2-13) ended March 31, 2013. 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 Q2-13 record revenue of $130.3 million, an increase of
approximately 4% 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 Q2-13 was $29.2
million, a decrease of approximately 6% from the prior year’s comparable
period. Q2-13 GMV, the total sales volume of all merchandise sold through the
Company’s marketplaces, was a record $259.1 million, an increase of
approximately 19% from the prior year’s comparable period.

Net income in Q2-13 was $12.7 million or $0.39 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 Q2-13 was $15.6 million or $0.48 adjusted
diluted earnings per share based on 32.3 million fully diluted shares
outstanding, a decrease of approximately 9% and 8%, respectively, from the
prior year’s comparable period.

“Liquidity Services generated solid results during Q2-FY13 as we expanded
adjusted EBITDA margins in our core business and continued to deliver a high
level of service to large commercial and government clients in managing 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 e-commerce platform, investing in our sales and marketing
organization and integrating our recent acquisitions of NESA and GoIndustry.
We made significant progress this quarter integrating GoIndustry, including
the award of several new client engagements, and anticipate that we will exit
this fiscal year with GoIndustry operating profitably, while enhancing our
strategic plan of serving global capital asset clients. We believe these
important investments uniquely address the needs of the Fortune 1000 and
public sector agencies and position us well to drive shareholder value over
the next five years.”

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 continued 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
innovation for our proprietary e-commerce marketplaces to support further
expansion and integration of our existing and recently acquired businesses. 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)       improved margins in our GoIndustry marketplace as we continue to
            integrate the acquisition and complete our restructuring plans;
(iv)        continued lower than historical growth rates in product flows from
            existing client programs in our retail goods marketplaces;
(v)         an effective income tax rate of 41%; and
(vi)        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.

GMV – We expect GMV for fiscal year 2013 to range from $1.025 billion to $1.1
billion, which is unchanged from our previous guidance range. We expect GMV
for Q3-13 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 unchanged from our previous guidance
range. We expect Adjusted EBITDA for Q3-13 to range from $29.0 million to
$32.0 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 unchanged from our
previous guidance range. In Q3-13, we estimate Adjusted Earnings Per Diluted
Share to be $0.49 to $0.54. This guidance assumes that we have an average
fully diluted number of shares outstanding for the year of 32.7 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 Q2-13 Operating Metrics

Registered Buyers — At the end of Q2-13, registered buyers totaled
approximately 2,307,000, representing a 35% increase over the approximately
1,711,000 registered buyers at the end of Q2-12.

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 643,000 in Q2-13, an approximately
14% increase over the approximately 564,000 auction participants in Q2-12.

Completed Transactions — Completed transactions increased to approximately
138,000, an approximately 8% increase for Q2-13 from the approximately 128,000
completed transactions in Q2-12.

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 Q2-13 decreased to 21.3% compared to 24.3% in the prior
year period. The table below summarizes GMV and revenue by pricing model.


GMV Mix
                        Q2-13    Q2-12
Profit-Sharing Model:             
Scrap Contract            6.8   %  8.8   %
Total Profit Sharing      6.8   %   8.8   %
Consignment Model:
GovDeals                  14.0  %   16.9  %
Commercial                45.1  %  31.8  %
Total Consignment         59.1  %   48.7  %
Purchase Model:
Commercial                19.6  %   27.0  %
Surplus Contract          14.5  %  15.5  %
Total Purchase            34.1  %   42.5  %
                                  
Total                     100.0 %  100.0 %

Revenue Mix
                          Q2-13    Q2-12
Profit-Sharing Model:
Scrap Contract            13.6  %  15.3  %
Total Profit Sharing      13.6  %   15.3  %
Consignment Model:
GovDeals                  2.7   %   2.6   %
Commercial                12.2  %  8.2   %
Total Consignment         14.9  %   10.8  %
Purchase Model:
Commercial                39.0  %   47.5  %
Surplus Contract          28.9  %  26.4  %
Total Purchase            67.9  %   73.9  %
                                    
Other                     3.6   %  —     
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 and other expense (income),
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          Six Months
                                 Ended March 31,       Ended March 31,
                                 2013      2012       2013         2012
                                 (in thousands)          (unaudited)
Net income                       $ 12,698   $ 18,762     $ 19,407   $ 27,888
Interest and other expense         96         583          (828   )   1,108
(income), net
Provision for income taxes         8,824      12,508       13,296     19,116
Amortization of contract           2,407      2,020        4,617      4,039
intangibles
Depreciation and amortization     1,980     1,505       3,967     3,031
                                                                             
EBITDA                            26,005    35,378      40,459    55,182
Stock compensation expense         2,935      2,493        7,302      5,118
Acquisition costs                 212       (6,989 )   5,588     (6,671 )
                                                                             
Adjusted EBITDA                  $ 29,152   $ 30,882     $ 53,349   $ 53,629
                                                                             

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 March 31,   Six Months Ended March 31,
                  2013           2012           2013          2012
                  (Unaudited) (Dollars in thousands, except per share data)
Net income        $  12,698       $ 18,762       $ 19,407       $ 27,888
Stock
compensation         1,732          1,496          4,352          3,037
expense (net
of tax)
Amortization
of contract          1,072          1,090          2,162          2,155
intangibles
(net of tax)
Acquisition
costs (net of       124           (4,193     )  3,350         (3,958     )
tax)
                                                                             
Adjusted net      $  15,626       $ 17,155       $ 29,271       $ 29,122
income
                                                                             
Adjusted
basic             $  0.50         $ 0.56         $ 0.93         $ 0.95
earnings per
common share
                                                                             
Adjusted
diluted           $  0.48         $ 0.52         $ 0.89         $ 0.89
earnings per
common share
                                                                             
Basic
weighted
average             31,561,412    30,840,322    31,522,133    30,616,816
shares
outstanding
                                                                             
Diluted
weighted
average             32,331,686    32,778,428    32,692,975    32,580,473
shares
outstanding
                                                                             

Conference Call

The Company will host a conference call to discuss fiscal second quarter 2013
results at 10:30 a.m. Eastern Time today. Investors and other interested
parties may access the teleconference by dialing 800-295-4740 or 617-614-3925
and providing the participant pass code 40750116. 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 June 1, 2013 at
11:59 p.m. ET. An audio replay of the teleconference will also be available
until June 1, 2013 at 11:59 p.m. ET. To listen to the replay, dial
888-286-8010 or 617-801-6888 and provide pass code 25753158. 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 Wal-Mart 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)

                                                            
                                                 March 31,      September 30,
                                                 2013            2012
Assets                                           (Unaudited)
Current assets:
Cash and cash equivalents                        $ 57,198        $   104,782
Accounts receivable, net of allowance for
doubtful accounts of $1,141 and $1,248 at          18,224            16,226
March 31, 2013 and September 30, 2012,
respectively
Inventory                                          25,181            20,669
Prepaid and deferred taxes                         22,194            16,927
Prepaid expenses and other current assets         5,884           3,973
Total current assets                               128,681           162,577
Property and equipment, net                        10,331            10,382
Intangible assets, net                             34,089            34,204
Goodwill                                           210,207           185,771
Other assets                                      7,639           7,474
Total assets                                     $ 390,947      $   400,408
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable                                 $ 10,763        $   9,997
Accrued expenses and other current                 32,753            36,569
liabilities
Profit-sharing distributions payable               4,314             4,041
Current portion of acquisition earn out            —                 14,511
payables
Customer payables                                  34,851            34,265
Current portion of note payable                   —               10,000
Total current liabilities                          82,681            109,383
Acquisition earn out payables                      18,207            —
Note payable, net of current portion               —                 32,000
Deferred taxes and other long-term                9,561           9,022
liabilities
Total liabilities                                  110,449           150,405
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000
shares authorized; 31,597,378 shares issued
and outstanding at March 31, 2013;                 31                31
31,138,111 shares issued and outstanding at
September 30, 2012
Additional paid-in capital                         195,543           182,361
Accumulated other comprehensive income             (848    )         1,246
Retained earnings                                 85,772          66,365
Total stockholders’ equity                        280,498         250,003
Total liabilities and stockholders’ equity       $ 390,947      $   400,408
                                                                 


Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Data)
                
                                                                             
                  Three Months Ended March 31,   Six Months Ended March 31,
                  2013            2012           2013           2012
                                                                             
Revenue           $  106,199      $ 112,165      $ 207,528      $ 208,389
Fee revenue         24,125        13,559        45,001        23,366
Total revenue        130,324        125,724        252,529        231,755
                                                                             
Costs and
expenses:
Cost of goods
sold (excluding      49,946         55,024         97,068         98,310
amortization)
Profit-sharing       9,942          11,385         18,352         23,872
distributions
Technology and       22,407         15,802         44,954         31,585
operations
Sales and            9,973          6,909          20,301         13,445
marketing
General and          11,839         8,215          25,807         16,032
administrative
Amortization of
contract             2,407          2,020          4,617          4,039
intangibles
Depreciation
and                  1,980          1,505          3,967          3,031
amortization
Acquisition         212           (6,989     )  5,588         (6,671     )
costs
                                                                             
Total costs and     108,706       93,871        220,654       183,643
expenses
                                                                             
Income from          21,618         31,853         31,875         48,112
operations
Interest and
other (expense)     (96        )  (583       )  828           (1,108     )
income, net
                                                                             
Income before
provision for        21,522         31,270         32,703         47,004
income taxes
Provision for       (8,824     )  (12,508    )  (13,296    )  (19,116    )
income taxes
                                                                             
Net income        $  12,698       $ 18,762       $ 19,407       $ 27,888
Basic earnings
per common        $  0.40         $ 0.61         $ 0.62         $ 0.91
share
Diluted
earnings per      $  0.39         $ 0.57         $ 0.59         $ 0.85
common share
                                                                             
Basic weighted
average shares      31,561,412    30,840,322    31,522,133    30,616,816
outstanding
Diluted
weighted            32,331,686    32,778,428    32,692,975    32,580,473
average shares
outstanding
                                                                             


Liquidity Services, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In Thousands)


                     Three Months Ended March    Six Months Ended March 31,
                      31,
                     2013         2012         2013          2012
Operating
activities
Net income            $  12,698     $  18,762     $  19,407      $  27,888
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and         4,387         3,524         8,584          7,070
amortization
Gain on early
extinguishment of        —             —             (1,000   )     —
debt
Stock compensation       2,935         2,493         7,302          5,118
expense
Provision (benefit)
for inventory            —             7             (733     )     (40      )
allowance
Provision (benefit)
for doubtful             14            82            (107     )     (129     )
accounts
Incremental tax
benefit from             (371    )     (4,449   )    (5,376   )     (9,338   )
exercise of common
stock options
Changes in
operating assets
and liabilities:
Accounts receivable      1,286         (2,311   )    (1,891   )     (571     )
Inventory                (3,267  )     766           (3,779   )     (2,475   )
Prepaid expenses         (3,508  )     6,397         (1,967   )     13,276
and other assets
Accounts payable         (579    )     6,405         766            4,091
Accrued expenses         (1,043  )     7,404         (6,019   )     2,545
and other
Profit-sharing
distributions            806           (191     )    273            (1,150   )
payable
Customer payables        (256    )     (1,856   )    586            2,226
Acquisition earn         (2,050  )     (10,109  )    (6,168   )     (10,109  )
out payables
Other liabilities       (429    )    (544     )   538           167
                                                                             
Net cash provided
by operating             10,623        26,380        10,416         38,569
activities
Investing
activities
Increase in
goodwill and
intangibles and          (14     )     (22      )    (14,698  )     (80,040  )
cash paid for
acquisitions
Purchases of
property and            (624    )    (883     )   (2,521   )    (2,059   )
equipment
                                                                             
Net cash used in
provided by              (638    )     (905     )    (17,219  )     (82,099  )
investing
activities
Financing
activities
Repayment of notes       —             —             (39,000  )     —
payable
Payment of
acquisition              —             —             (8,185   )     —
contingent
liabilities
Proceeds from
exercise of common       295           5,941         504            9,951
stock options (net
of tax)
Incremental tax
benefit from            371          4,449        5,376         9,338
exercise of common
stock options
                                                                             
Net cash provided
by (used in)             666           10,390        (41,305  )     19,289
financing
activities
Effect of exchange
rate differences on     655          (17      )   524           (16      )
cash and cash
equivalents
                                                                             
Net increase
(decrease) in cash       11,306        35,848        (47,584  )     (24,257  )
and cash
equivalents
Cash and cash
equivalents at          45,892       68,984       104,782       129,089
beginning of the
period
                                                                             
Cash and cash
equivalents at end    $  57,198     $  104,832    $  57,198      $  104,832
of period
Supplemental
disclosure of cash
flow information
Cash paid for         $  10,399     $  2,366      $  10,493      $  2,445
income taxes
Cash paid for            12            32            2,023          40
interest
Note payable issued
in connection with       —             —             —              40,000
acquisition
Contingent purchase      —             —             23,146         8,185
price accrued
                                                                             

Contact:

Liquidity Services, Inc.
James M. Rallo, 202-467-6868
CFO & Treasurer
jim.rallo@liquidityservicesinc.com
 
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