Liquidity Services, Inc. (NASDAQ: LQDT), a global solutions provider in the reverse supply chain with leading online marketplaces for surplus assets, today announced the preliminary results of the live auction bidding events held by the U.S. Defense Logistics Agency (DLA) on April 1-2, 2014 to purchase, manage and sell surplus assets of the U.S. Department of Defense (DoD).
As announced on April 1, 2014, the Company remains the apparent high bidder for the non-rolling stock surplus contract with a bid equal to 4.35% of the DoD’s original acquisition value (OAV). The non-rolling stock surplus contract has a base term of two years with four one-year renewal options.
Following the bidding event on April 2, 2014 for the DoD rolling stock contract, Liquidity Services announced that it withdrew from the live auction bidding for this contract. Bidding reached a level that Liquidity Services determined would be economically unsustainable under the terms of the new contract, jeopardizing the high level of service it has historically provided the agency client. Final contract awards are subject to a protest period and a pre-award survey by the DoD regarding the bidder’s ability to satisfactorily perform the work in accordance with their technical proposal submitted in step-one of the solicitation.“Liquidity Services’ longstanding philosophy is to focus on opportunities that leverage our strengths to provide value to our clients and which deliver attractive returns on our effort and investment,” said Bill Angrick, Chairman and Chief Executive Officer of Liquidity Services. “We are excited with the prospect of continuing our 14 year relationship with the DLA to sell surplus non-rolling stock assets which builds on our experience selling over 240 million surplus items for the DoD since 2001.” Financial Discussion Because the contracting process is not complete, the Company cannot at this time provide a revised forecast on future financial results. However, based on the unofficial April 1-2 bid results, the price for the non-rolling stock contract is expected to increase from 1.8% to 4.35% of OAV, resulting in significantly higher Cost of Goods Sold (COGS) in fiscal year 2015 and beyond. Additionally, the Company expects to cease the sale of DoD rolling stock under the new contract, which has historically accounted for approximately 30-35% of the overall GMV for the current DoD surplus contract, resulting in lower GMV in future periods. Together, this will require a material reset of the Company’s EBITDA forecast in fiscal year 2015.