Liquidity Services, Inc. Announces Third Quarter 2008 Financial Results

Business Wire, August 4, 2008

- Revenue of $71.5 million up 36% - Gross Merchandise Volume (GMV) of $104.2 million up 67% - Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $8.2 million up 41% -

WASHINGTON -- Liquidity Services, Inc. (NASDAQ:LQDT; www.liquidityservicesinc.com) today reported its financial results for its fiscal third quarter ended June 30, 2008 (Q3-08). Liquidity Services, Inc. (LSI or the Company) is a leading online auction marketplace for wholesale, surplus and salvage assets.

The Company reported record consolidated Q3-08 revenue of $71.5 million, a growth rate of approximately 36% over the prior year. Adjusted EBITDA for Q3-08 was a record $8.2 million, a growth rate of approximately 41% over the prior year. Q3-08 GMV, the total sales volume of all merchandise sold through the Company's marketplaces during a given period, was a record $104.2 million, a growth rate of approximately 67% over the prior year.

Net income in Q3-08 was $3.8 million or $0.14 diluted earnings per share. Adjusted net income in Q3-08 was a record $4.5 million or $0.16 adjusted diluted earnings per share, a growth rate of approximately 33% over the prior year.

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

"Q3-08 was a record quarter for LSI as we grew GMV in all major areas of our business and completed the acquisition of Geneva in May," said Bill Angrick, Chairman and CEO of LSI. "Despite a weakening economy, LSI grew consolidated GMV by 67% over the prior year period, or 29% excluding the acquired GovDeals and Geneva businesses, and generated cash from operating activities of approximately $5.5 million during the quarter. Our surplus business GMV grew approximately 35% over the prior year period and our scrap business GMV grew approximately 51% over the prior year period and 27% sequentially. Our commercial business GMV grew approximately 18% over the prior period driven by strong GMV growth in the consignment model, which was up 18% sequentially during the quarter and 28% over the prior year, while our purchase model was consistent over the same periods. The GovDeals acquisition added $20.9 million in consignment GMV for the quarter, significantly ahead of plan. Our business development activity remains strong, exemplified by the closing of the Geneva Group acquisition, which strengthens our position in the European commercial marketplace. Our buyer marketplace continues to deliver strong results for our sellers as we ended the quarter with over 948,000 registered buyers, which is up approximately 46% over the prior year period, including the addition of a record 56,000 new registered buyers in the third quarter."

Business Outlook

The following forward-looking statements assume that current business trends and our operating environment continue, including (i) improvement in margins and product mix in our commercial business, (ii) continued improvement in inventory turnover within our commercial marketplace, (iii) start-up costs associated with the opening of our new distribution center in Bentonville, Arkansas, (iv) a seasonal slow down in the fourth quarter, and (v) our belief that we have yet to realize the full potential of our distribution center network, personnel, and value-added services necessary to support a much larger commercial business in the future, which has resulted in less than our target profitability. Our results may be materially affected by changes in business trends and our operating environment, as well as by other factors, including investments we expect to make in our infrastructure and value-added services to support new business in both commercial and public sector markets.

Our Scrap Contract with the DoD includes an incentive feature, which can increase the amount of profit sharing distribution we receive from 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 30th of each year. We earned $1.4 million under this incentive feature for the 12 months ended June 30, 2008 and we recorded this amount in the quarter ended June 30, 2008. We are eligible to receive this incentive in each year of the term of the Scrap contract.

Under our Surplus contract there are incentive features that allow us to earn up to an additional 4.5% of the profit sharing distribution above our base rate of 26%. This incentive is measured quarterly during fiscal year 2008. For the purposes of providing guidance regarding our projected financial results for the next quarter and fiscal year 2008, we have assumed that we will receive a portion of the Surplus Contract incentive payments.

Our guidance adjusts EBITDA and Diluted EPS for the effects of the adoption of FAS 123(R), which we estimate to be approximately $1.2 million to $1.4 million for the fourth quarter of fiscal year 2008.