Liquidity Services (LQDT) Tops Q4 EPS by 7c

Liquidity Services (NASDAQ: LQDT) reported Q4 EPS of $0.07, $0.07 better than the analyst estimate of $0.00. Revenue for the quarter came in at $79.3 million versus the consensus estimate of $81.12 million.

Business Outlook

In the near term it remains difficult to forecast the sales and margins of our business, as our DoD business has seen significant changes in the volume and mix of property we handle which has reduced sales values and increased costs. Our new surplus contract with the DoD commenced operations in October and is still undergoing contract negotiations. We are also operating an extension of the wind-down period of our prior DoD contract which will maintain the pricing terms of that contract for those volumes. As we transition the contracts, the product mix and volume we receive and sell under each contract will include a mix of both the old and new surplus contracts during FY-16.

During the next 18 months our organization is responsible for maintaining the ‘as-is’ business while investing in the development of an integrated global business and marketplace platform. Our costs during this transition process will be elevated and we will also face a drag on productivity as we teach and implement new ways of doing business. We will have uneven periods of financial performance as we execute our strategy. However, what will emerge will be a much more scalable and capable organization that is able to focus entirely on growth activities in the global reverse supply chain.

Our FY-16 outlook remains cautious due to the changing mix and volume of supply in our DoD and commercial business, in part due to lower commodity prices and macro weakness in the energy and industrial sectors. While we anticipate a benefit to earnings in FY-16 compared to FY-15 from the sale of the Jacobs Trading business, client engagements and the mix of property received under select retail client programs are unpredictable. We also plan to further allocate management time and resources to accomplish our LiquidityOne transformation program, which may result in reduced productivity and growth that is difficult to forecast. We anticipate incremental spending in Q1-16 for LiquidityOne to be approximately $1 million to $2 million, with project spending levels varying quarterly.

In the longer term, we expect our business to benefit from: (i) innovative new service capabilities and more efficient business operations from our LiquidityOne investment program; (ii) improved monetization of our buyer base through the deployment of our new integrated marketplace system and data warehouse; (iii) increased outsourcing of reverse supply chain activities in response to our new model and the rise of e-commerce and sustainability programs; and (iv) increased brand recognition as a market leader due to our proven track record, innovative scalable solutions and the ability to make a strategic impact in the reverse supply chain.

The following forward-looking statements reflect trends and assumptions for Q1-16:

For earnings history and earnings-related data on Liquidity Services (LQDT) click here.

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