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

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

  – Third quarter revenue of $124.2 million up 2% – Gross Merchandise Volume
  (GMV) of $230.3 million up 2% – Adjusted Earnings Before Interest, Taxes,
 Depreciation and Amortization (EBITDA) of $26.4 million down 21% – Adjusted
                            EPS of $0.44 down 21%

Business Wire

WASHINGTON -- August 6, 2013

Liquidity Services, Inc. (NASDAQ: LQDT; www.liquidityservicesinc.com) today
reported its financial results for its third quarter of fiscal year 2013
(Q3-13) ended June 30, 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 Q3-13 revenue of $124.2 million, an increase of approximately 2%
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 Q3-13 was $26.4 million, a decrease of
approximately 21% from the prior year’s comparable period. Q3-13 GMV, the
total sales volume of all merchandise sold through the Company’s marketplaces,
was $230.3 million, an increase of approximately 2% from the prior year’s
comparable period.

Net income in Q3-13 was $11.3 million or $0.35 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 Q3-13 was $14.3 million or $0.44 adjusted
diluted earnings per share based on 32.5 million fully diluted shares
outstanding, a decrease of approximately 24% and 21%, respectively, from the
prior year’s comparable period.

“Q3-FY13 results were in line with our pre-announced guidance range. We
continue to make important investments in our sales and marketing organization
to expand awareness of Liquidity Services as the trusted provider of choice in
our industry which will drive our future growth. We have made good progress
with the integration of our GoIndustry acquisition, which is now operating at
near breakeven. Overall margins in our business remain strong as adjusted
EBITDA margins increased to 11.5% in the third quarter from 11.3% in the
second quarter primarily as a result of sharper focus and streamlined
operations,” said Bill Angrick, Chairman and CEO of Liquidity Services. “Our
year-over-year results were impacted by delays in new programs, weaker volumes
and pricing in the consumer electronics category and the continued
repositioning of our GoIndustry marketplace to focus on the key global Fortune
1000 relationships that we expect will drive sustained profitable growth in
this business.”

“We remain focused on executing our long term growth strategy to achieve $2
billion in GMV by fiscal year 2016. Fundamentally, we are confident in our
competitive position and our ability to achieve attractive organic growth over
the next several years driven by our strong client service and continued
investments in innovation. However, in the short term, results have been less
predictable and pressured due to significant integration efforts and the
timing of new large commercial programs coming on line,” continued Angrick.

Business Outlook

While general economic conditions have improved, our overall outlook remains
cautious due to the volatility in the macro environment. The retail vertical
of our business has seen significant changes in consumer spending habits in
certain categories, such as electronics, which has been affected by increases
in payroll taxes, continued high unemployment, and reduced innovation in the
sector resulting in decreased spending. 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:

        
(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;
            continued lower than prior year product flows from existing client
(iv)        programs in our retail goods marketplaces, particularly in our
            consumer electronics vertical;
(v)         an effective income tax rate of 40%; 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. We earned
approximately $1,265,000 under this incentive feature for the 12 months ended
June 30, 2013, and we recorded this amount in the quarter ended June 30, 2013.

GMV – We expect GMV for fiscal year 2013 to range from $925 million to $950
million. We expect GMV for Q4-13 to range from $200 million to $225 million.

Adjusted EBITDA – We expect Adjusted EBITDA for fiscal year 2013 to range from
$104 million to $106 million. We expect Adjusted EBITDA for Q4-13 to range
from $24.0 million to $26.0 million.

Adjusted Diluted EPS – We estimate Adjusted Earnings Per Diluted Share for
fiscal year 2013 to range from $1.72 to $1.76. In Q4-13, we estimate Adjusted
Earnings Per Diluted Share to be $0.39 to $0.43. 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 for Q4-13.

Key Q3-13 Operating Metrics

Registered Buyers — At the end of Q3-13, registered buyers totaled
approximately 2,360,000, representing a 34% increase over the approximately
1,764,000 registered buyers at the end of Q3-12.

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 623,000 in Q3-13, an approximately
16% increase over the approximately 537,000 auction participants in Q3-12.

Completed Transactions — Completed transactions increased to approximately
130,000, an approximately 3% increase for Q3-13 from the approximately 126,000
completed transactions in Q3-12.

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 Q3-13 decreased to 21.9% compared to 23.7% in the prior
year period. The table below summarizes GMV and revenue by pricing model.


GMV Mix
                       Q3-13   Q3-12
Profit-Sharing Model:          
Scrap Contract          7.9%    8.8%
Total Profit Sharing    7.9%     8.8%
Consignment Model:
GovDeals                19.8%    16.8%
Commercial              37.8%   36.8%
Total Consignment       57.6%    53.6%
Purchase Model:
Commercial              20.5%    22.7%
Surplus Contract        14.0%   14.9%
Total Purchase          34.5%    37.6%
                               
Total                   100.0%  100.0%

Revenue Mix
                        Q3-13   Q3-12
Profit-Sharing Model:
Scrap Contract          14.7%   16.3%
Total Profit Sharing    14.7%    16.3%
Consignment Model:
GovDeals                3.8%     2.9%
Commercial              10.6%   10.1%
Total Consignment       14.4%    13.0%
Purchase Model:
Commercial              39.7%    42.9%
Surplus Contract        25.9%   27.8%
Total Purchase          65.6%    70.7%
                                 
Other                   5.3%    —
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          Nine Months
                                 Ended June 30,        Ended June 30,
                                 2013      2012       2013        2012
                                 (in thousands) (unaudited)
Net income                       $ 11,288   $ 14,863   $ 30,695     $ 42,751
Interest and other expense         56         517        (772   )     1,625
(income), net
Provision for income taxes         7,525      9,909      20,822       29,025
Amortization of contract           2,407      2,020      7,023        6,059
intangibles
Depreciation and amortization     1,984     1,477     5,952      4,508  
                                                                    
EBITDA                            23,260    28,786    63,720     83,968 
Stock compensation expense         2,927      3,537      10,229       8,655
Acquisition costs                 239       1,109     5,826      (5,562 )
                                                                    
Adjusted EBITDA                  $ 26,426   $ 33,432   $ 79,775    $ 87,061 
                                                                             

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 June 30,   Nine Months Ended June 30,
                   2013          2012           2013          2012
                   (Unaudited) (Dollars in thousands, except per share data)
Net income         $ 11,288       $ 14,863       $ 30,695       $ 42,751
Stock
compensation         1,756          2,122          6,137          5,193
expense (net of
tax)
Amortization of
contract             1,090          1,090          3,269          3,269
intangibles (net
of tax)
Acquisition
costs (net of       143           665           3,496         (3,337     )
tax)
                                                                
Adjusted net       $ 14,277       $ 18,740       $ 43,597       $ 47,876     
income
                                                                
Adjusted basic
earnings per       $ 0.45         $ 0.60         $ 1.38         $ 1.55       
common share
                                                                
Adjusted diluted
earnings per       $ 0.44         $ 0.56         $ 1.34         $ 1.46       
common share
                                                                
Basic weighted
average shares      31,651,061    31,140,261    31,565,109    30,791,297 
outstanding
                                                                
Diluted weighted
average shares      32,540,187    33,183,165    32,642,046    32,781,370 
outstanding
                                                                

Conference Call

The Company will host a conference call to discuss fiscal third quarter 2013
results at 8:00 a.m. Eastern Time tomorrow. Investors and other interested
parties may access the teleconference by dialing 866-202-0886 or 617-213-8841
and providing the participant pass code 42835180. 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 September 7,
2013 at 11:59 p.m. ET. An audio replay of the teleconference will also be
available until September 6, 2013 at 11:59 p.m. ET. To listen to the replay,
dial 888-286-8010 or 617-801-6888 and provide pass code 74058780. Both replays
will be available starting at 12:30 p.m. tomorrow.

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, and Jacobs Trading, 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
$3.8 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)

                                                  June 30,     September 30,
                                                   2013          2012
Assets                                             (Unaudited)
Current assets:
Cash and cash equivalents                          $ 63,327      $   104,782
Accounts receivable, net of allowance for
doubtful accounts of $1,005 and $1,248 at June       22,821          16,226
30, 2013 and September 30, 2012, respectively
Inventory                                            27,710          20,669
Prepaid and deferred taxes                           17,752          16,927
Prepaid expenses and other current assets           5,737         3,973
Total current assets                                 137,347         162,577
Property and equipment, net                          10,289          10,382
Intangible assets, net                               31,097          34,204
Goodwill                                             209,357         185,771
Other assets                                        7,667         7,474
Total assets                                       $ 395,757    $   400,408
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable                                   $ 12,281      $   9,997
Accrued expenses and other current liabilities       30,165          36,569
Profit-sharing distributions payable                 2,813           4,041
Current portion of acquisition earn out payables     —               14,511
Customer payables                                    28,039          34,265
Current portion of note payable                     —             10,000
Total current liabilities                            73,298          109,383
Acquisition earn out payables                        18,299          —
Note payable, net of current portion                 —               32,000
Deferred taxes and other long-term liabilities      9,221         9,022
Total liabilities                                    100,818         150,405
Stockholders’ equity:
Common stock, $0.001 par value; 120,000,000
shares authorized; 31,693,239 shares issued and      31              31
outstanding at June 30, 2013; 31,138,111 shares
issued and outstanding at September 30, 2012
Additional paid-in capital                           200,059         182,361
Accumulated other comprehensive income               (2,211  )       1,246
Retained earnings                                   97,060        66,365
Total stockholders’ equity                          294,939       250,003
Total liabilities and stockholders’ equity         $ 395,757    $   400,408
                                                                     


Liquidity Services,Inc. and Subsidiaries
Consolidated Statements of Operations
(Dollars in Thousands, Except Share and Per Share Data)

                Three Months Ended               Nine Months Ended
                 June 30,                          June 30,
                 2013            2012             2013            2012
                 
Revenue          $ 99,673         $ 105,601        $ 307,202        $ 313,405
Fee revenue       24,526         15,672         69,526         39,624     
Total revenue      124,199          121,273          376,728          353,029
                                                                    
Costs and
expenses:
Cost of goods
sold               49,977           49,187           147,045          147,497
(excluding
amortization)
Profit-sharing     8,649            10,245           27,002           34,117
distributions
Technology and     21,851           15,943           66,800           47,528
operations
Sales and          10,127           7,364            30,428           20,809
marketing
General and        10,096           8,639            35,907           24,672
administrative
Amortization
of contract        2,407            2,020            7,023            6,059
intangibles
Depreciation
and                1,984            1,477            5,952            4,508
amortization
Acquisition       239            1,109          5,826          (5,562     )
costs
                                                                    
Total costs       105,330        95,984         325,983        279,628    
and expenses
                                                                    
Income from        18,869           25,289           50,745           73,401
operations
Interest and
other             (56        )    (517       )    772            (1,625     )
(expense)
income, net
                                                                    
Income before
provision for      18,813           24,772           51,517           71,776
income taxes
Provision for     (7,525     )    (9,909     )    (20,822    )    (29,025    )
income taxes
                                                                    
Net income       $ 11,288        $ 14,863        $ 30,695        $ 42,751     
Basic earnings
per common       $ 0.36          $ 0.48          $ 0.97          $ 1.39       
share
Diluted
earnings per     $ 0.35          $ 0.45          $ 0.94          $ 1.30       
common share
                                                                    
Basic weighted
average shares    31,651,061     31,140,261     31,565,109     30,791,297 
outstanding
Diluted
weighted          32,540,187     33,183,165     32,642,046     32,781,370 
average shares
outstanding
                                                                    


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

                     Three Months Ended June 30,  Nine Months Ended June 30,
                      2013           2012         2013          2012
Operating                                                       
activities
Net income            $  11,288       $ 14,863      $  30,695      $ 42,751
Adjustments to
reconcile net
income to net cash
provided by
operating
activities:
Depreciation and         4,391          3,497          12,975        10,567
amortization
Gain on early
extinguishment of        —              —              (1,000  )     —
debt
Stock compensation       2,927          3,537          10,229        8,655
expense
Inventory allowance      (376    )      (736    )      (1,109  )     (776    )
Doubtful accounts        (136    )      (88     )      (243    )     (217    )
Incremental tax
benefit from             (698    )      (5,850  )      (6,074  )     (15,188 )
exercise of common
stock options
Changes in
operating assets
and liabilities:
Accounts receivable      (4,461  )      (495    )      (6,352  )     (1,066  )
Inventory                (2,153  )      (2,040  )      (5,932  )     (4,515  )
Prepaid expenses         5,259          237            3,292         13,513
and other assets
Accounts payable         1,518          (10,020 )      2,284         (5,929  )
Accrued expenses         (2,589  )      3,367          (8,608  )     5,912
and other
Profit-sharing
distributions            (1,501  )      (3,179  )      (1,228  )     (4,329  )
payable
Customer payables        (6,812  )      (2,393  )      (6,226  )     (167    )
Acquisition earn         91             41             (6,077  )     (10,068 )
out payables
Other liabilities       (339    )     (39     )     199         128     
Net cash provided
by operating             6,409          702            16,825        39,271
activities
Investing
activities
Increase in
goodwill and
intangibles and          (21     )      (23     )      (14,719 )     (80,063 )
cash paid for
acquisitions
Purchases of
property and            (1,388  )     (769    )     (3,909  )    (2,828  )
equipment
Net cash used in
investing                (1,409  )      (792    )      (18,628 )     (82,891 )
activities
Financing
activities
Repurchases of           —              (29,999 )      —             (29,999 )
common stock
Repayment of notes       —              —              (39,000 )     —
payable
Payment of
acquisition              —              —              (8,185  )     —
contingent
liabilities
Proceeds from
exercise of common       890            4,071          1,394         14,022
stock options (net
of tax)
Incremental tax
benefit from            698          5,850        6,074       15,188  
exercise of common
stock options
                                                                   
Net cash provided
by (used in)             1,588          (20,078 )      (39,717 )     (789    )
financing
activities
Effect of exchange
rate differences on     (459    )     (5      )     65          (21     )
cash and cash
equivalents
                                                                   
Net increase
(decrease) in cash       6,129          (20,173 )      (41,455 )     (44,430 )
and cash
equivalents
Cash and cash
equivalents at          57,198       104,832      104,782     129,089 
beginning of the
period
                                                                   
Cash and cash
equivalents at end    $  63,327      $ 84,659     $  63,327     $ 84,659  
of period
Supplemental
disclosure of cash
flow information
Cash paid for         $  1,728        $ 9,316       $  12,221      $ 11,761
income taxes
Cash paid for            6              12             2,029         52
interest
Note payable issued
in connection with       —              —              —             40,000
acquisition
Contingent purchase      —              —              23,146        1,196
price accrued
                                                                             

Contact:

Liquidity Services, Inc.
Julie Davis
Director of Investor Relations
202-558-6234
julie.davis@liquidityservicesinc.com
 
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