Welcome to the fourth quarter 2008 Liquidity Services, Inc. earnings conference call. My name is [Letrice] and I will be your coordinator for today’s conference. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this call. (Operator Instructions) At this time I would like to hand the presentation over to your host for today’s call, Ms. Julie Davis, Director of Investor Relations.

Welcome to Liquidity Services, Inc.’s earnings release conference call for the fiscal year 2008 and the three months ending September 30, 2008. During this call we will refer to Liquidity Services, Inc. as LSI. Presenting today are Bill Angrick, our Chairman and Chief Executive Officer, and Jim Rallo, our Treasurer and Chief Financial Officer. This conference call is also being broadcast through the Internet and is available through the Investor Relations section of the Liquidity Services, Inc. website. Before we begin I’d like to remind you that matters discussed on this call contain forward-looking statements that involve risks and uncertainties concerning LSI’s expected financial performance as well as LSI’s strategic and operational plans. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today and you should not rely on them as representing our views in the future and we undertake no obligation to update these statements after this call. Please refer to our SEC filings as well as our current earnings release posted a few minutes ago on our website for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our website. To supplement the company’s consolidated financial statements presented in accordance with GAAP we used certain non-GAAP measures. These non-GAAP measures include EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS. We believe these non-GAAP measures provide useful information to both management and investors. These measures however should not be considered a substitute for or superior to GAAP results. A reconciliation of all non-GAAP measures included in this conference call to the nearest GAAP measures can be found in the financial tables included in the press release. We also use certain supplemental operating data as a measure of certain components of operating performance which we also believe is useful for management and investors. This supplemental operating data includes GMV and should not be considered a substitute or superior to GAAP results. At this time I’d like to turn the presentation over to our CEO Bill Angrick.

Welcome to our Q4 earnings call. I’ll begin this session by reviewing our Q4 financial performance and then provide an overview of our business. Next I will outline our major initiatives for the new fiscal year. Finally I will offer a perspective regarding the current economic environment as it relates to our business outlook and then turn it over to Jim for more details on the quarter and an outlook for the upcoming fiscal year. Our Q4 results were ahead of guidance for both GMV and adjusted EBITDA. Adjusted EPS was a penny lower than guidance principally due to a higher effective tax rate and lower interest income. Specifically Q4 GMV was $99.7 million up 72% over last year, and excluding our acquired GovDeals and Geneva group businesses, GMV was up 29% over last year. Q4 adjusted EBITDA was $7.1 million up 22% over last year and Q4 adjusted EPS was $0.12. We continue to demonstrate financial strength by generating cash from operating activities of approximately $29 million during the year and $12.4 million during Q4 against Q4 capital expenditures of only $400,000. We ended the quarter with $63 million in cash and zero long-term debt. Overall LSI delivered strong results during Q4 capping another record year for LSI as we grew GMV in all major areas of our business and continued to scale our buyer base nicely. The following are highlights from Q4: Our surplus business GMV was up 31% over last year, our scrap business GMV was up 48% over last year, our commercial business GMV was up 27% over last year driven by strong GMV growth in the consignment model which was up approximately 80% in Q4 over last year. Our GovDeals GMV was up 37% over the last year as we continued to expand our presence…

The company continues to experience strong top line growth as the amount of gross merchandise volume or GMV increased $41.6 million or 71.7% to $99.7 million for the three months ended September 30, 2008 from $58.1 million for the three months ended September 30, 2007 primarily due to one, our investment in the sales and marketing organization which resulted in a 27.2% growth in our commercial market place and generated 26.4% of our revenue and 32.1% of our GMV for the three months ended September 30, 2008. Our DOD scrap business which generated 29.6% of our revenue and 20.9% of our GMV for the three months ended September 30, 2008 grew 52.2%. Our DOD surplus business which generated 32.2% of our revenue and 22.8% of our GMV for the three months ended September 30, 2008 grew 30.6%. The acquisition of GovDeals completed on January 1, 2008 generated 2% of our revenue and 17.9% of our GMV for the three months ended September 30, 2008 and lastly the acquisition of Geneva completed on May 1, 2008 generated 6% of our revenue and 4.2% of our GMV for the three months ended September 30, 2008. Revenue increased $18.7 million or 36.2% to $70.4 million for the three months ended September 30, 2008 from $51.7 million for the three months ended September 30, 2007 primarily due to the items driving GMV growth. Cost of goods sold excluding amortization increased $6.4 million or 46.8% to $20.2 million for the three months ended September 30, 2008 from $13.8 million for the three months ended September 30, 2007. As a percentage of revenue cost of goods sold excluding amortization increased to 28.7% from 26.6%. These increases are primarily due to one, our products mix shift which resulted in lower margins during the three months ended September…

(Operator Instructions) Our first question comes from Jason Brenner - RBC Capital Markets.

First, what are you assuming in your guidance for commodity prices in 2009? Is it just flat from these lower levels than we’ve seen? Second, can you talk a little bit more about what products exactly are coming out of the new surplus contract and can you quantify that at all? What was its contribution last year?

I’ll take the first question which is on the scrap contract. We have basically assumed flat commodity pricing from where we are today. Again remember our scrap business is 100% delivery business meaning we don’t have speculators in our market place. Our prices have seen a significant drop, not in line with I would say the overall commodities drop but certainly a significant percentage. So we’re basing our assumptions on really what we’re seeing in recent months. As far as your second question I’m going to turn that over to Bill.

With regard to the new surplus contract, the policy position for some time now has been to review carefully property that moves through the supply chain. To the degree that items have a dual use application to support certain military equipment, whether or not that military equipment is somewhat innocuous such as a truck or marine equipment, even material handling equipment, that dual use application would be deemed a characteristic to remove the item. This would represent about 20% of the volume that we’ve historically sold. Having said that, it’s important for us to recognize that under the new terms of this contract we LSI bear the cost of receiving, transporting and storing items as they’re brought to the public market place. So in some cases the items that are removed relieve us of certain processing, handling and storage costs which we’ve also factored into our guidance.

Our next question comes from Colin Sebastian - Lazard Capital Markets.

Perhaps you can quantify the incremental costs of making the upgrades and changes to the commercial market place for 2009 and whether this is the primary change from your prior guidance. Secondly, on the commercial side I was wondering if you could clarify a bit what the trends are in that market place. You mentioned obviously a little bit of a headwind right now but given the retail environment, maybe how that plays out over the course of the year in the March quarter as retailers sort through excess merchandise?

I’ll take your first question as far as the commercial market place costs. We have built those costs into our guidance for next year. We do expect to see actually increasing margin improvement in our commercial business over the next year. As far as the specific amount of the costs, we’re not really prepared to discuss those in detail. I think the biggest part of your question was around what has changed in our guidance from August 1. Really the only changes in our guidance from August 1 are around the scrap business. If you go back several months, the commodities market place had not tanked the way it has in the last couple of months. What we’re seeing again in our market place is a significant drop. That drop is not in line with I’ll say the commodity market place’s drop because as I was answering Jason’s question earlier, our market is correlated to commodity pricing but we don’t see the same level of volatility. That being said, we expect the scrap business to be at least 30% lower next year than it is this year and that decrease is solely related to pricing in the market place. I think the second question related to what are we seeing in terms of trends in the broad retail supply chain market place, I think it’s fair to say that there are cross currents in that market place. Clearly in October there was a sort of state of shock I think by a lot of folks trying to assess how will this global, financial liquidity crisis impact their business. I think retailers in some cases just simply put as much product as they could on the store floor even deeply discounting product that was sort of aberrational to prior behavior. What…

Are you factoring in any M&A activity in your guidance?

No.

In terms of the purchase model, obviously that is not a big driver of growth. But are you being shown a lot of deals, and if you are buying inventory maybe you could describe the type of merchandise that it is and what safeguards you have in place to ensure a more profitable disposition of those goods?

A couple of concepts to understand. One, 80% of our business today is consignment or profit sharing where we’re not taking title or subsequently taking title of the goods and about 20% is purchase. With regard to market trends it seems that more of our business is growing on the consignment side and I think folks have looked at this over 1 million buyers that we have and are very comfortable with efficient market pricing and perhaps more receptive than a year or two ago to selling goods on a consignment basis. That’s reflected in the mix of our pricing models. In terms of what is helping our commercial business and our margin opportunities in fiscal ’09 versus last year, we said openly we weren’t satisfied with our profitability levels in commercial and we’ve seen at least two things that have radically improved the opportunity on the commercial side. One is that we’ve had an operational focus and program that we mentioned in the opening remarks; a lean supply chain. That’s helping us improve the velocity and turnover of inventory. That’s now down to about 60 days in the commercial business. That’s down by almost 50% over a year ago. So as we’re selling goods rapidly and getting real-time pricing information, it’s very efficient for us to respond to any price fluctuation and go back to vendors and adjust rates. I think also up front we have introduced market rate adjustments in our purchase model relationships and contracts that help insulate us from wide fluctuation in the market place. Coming out of last year we discussed some apparel issues. We went back and renegotiated rates with certain purchase model clients. So structurally we’re on much better footing in terms of the underlying rate cards used and operational improvement exercise that will continue to increase our leverage as we move through the year which will help margins.

Our next question comes from Srinivas Anantha - Oppenheimer.

It looks like based on your comments the commercial seems to be a big opportunity for you guys there. Could you talk about some of the specific initiatives that have been taken, especially are you guys looking to partner with some of the national retailers out there? Secondarily, on margins I know you guys talked about improving margins on the commercial side. Could you just give us an idea about where the margins are today in the commercial segment and what does your guidance imply for 2009 for that particular segment?

Let me give you a couple ideas on the national retailer front. We’ve geared the entire business to be a best practice for Fortune 500 retailers. We have invested considerably over the last two to three years to develop a national distribution center network and more recently expanded that to be an international distribution network when you include the United Kingdom. In this environment we believe that national network which helps address logistics issues for national retailers is a very important competitive advantage. I think the other thing we mentioned since the time of our IPO and a little over two years we’ve tripled the GMV flowing through our market place. So national retailers feel comfortable that their incremental volume can be absorbed given the aggregate buyer base we have and the amount of liquidity we now have. That’s a very strong competitive advantage. I think also qualitatively we have a transparent balance sheet that these large public clients of ours can see and feel comfortable knowing that we are financially strong, viable, that we can invest together for multiyear and long-term programs, and have a partnership business attitude. So all those things play very well for us in terms of continuing to grow within Fortune 500 retailers’ space and the type of product that you see moving through the market place liquidiation.com is a good reflection of that. We’re targeting consumer electronics, apparel and accessories, do-it-yourself home improvement items, hand tools, lawn and garden items, we’ve had growth opportunity in house wares, and we talked about capital assets coming out of the retail supply chain as well because these retailers are all looking at this next couple of years and resizing their infrastructure and in many cases looking to us on the capital asset side to help them remove things that would be in deli departments or material handling equipment if they close or consolidate retail stores. I think there’s a stat out that says there will be 2,400 retail stores closed in calendar ’09 from Fortune 500 national retailers. That’s playing to our strength. In terms of operating leverage we know that we opened in the last two years in the range of four new distribution centers so in that timeframe you’re bearing the upfront cost of material handling, equipment, general management and staff that are new to the company and new to those facilities. So we’re not getting the leverage that one would have at scale in terms of the opportunity. We feel like it’s several percentage points flowing through our GMV and commercial market place.

Jim, just to clarify. Did you say the tax rate for next year was 43%?

That’s correct.

Our next question comes from Derek Brown - Cantor Fitzgerald.

I’d like to peel back the onion a little bit on your GMV guidance for fiscal ’09. The midpoint of that guidance implies a $50 million year-over-year uptick from what you generated in fiscal ’08. If I heard correctly, you talked about scrap being down in ’09 roughly 30%. If you sort of layer on top of that supply constraints in the surplus business, what gives you so much confidence that the other segments of business will be able to generate call it $75 million to roughly $100 million of incremental GMV from what they did in fiscal ’08?

I’ll start and let Bill wrap up that question. First off is a good question. You have to look at it business-by-business. We feel confident that other than the DOD business we expect 20% to 30% growth depending on the geography or business unit that over fiscal year 2009. Now you’re right. We do expect scrap to be down about 30%. Scrap represented about 20% to 22% of our business for fiscal year 2008 so that is a significant hit but again we’re talking about 1/5 of the business. On the surplus side of the business we do expect that to be down but not significantly. The reason for that is because we’ve got a continuation of property that will be sold under that contract which was given to us just recently. That is a little bit of a change from our expectation in August. We did expect what we refer to as the CV2 or the original surplus contract property flow from that to really dry up in about January or the February timeframe. What happened was at the end of that contract there was a significant amount of property that came due and again was sort of delivered to us just recently. That opportunity for us has really staved off what I would say is the decline of the surplus business for next year although again we will see a small decrease in that business. You’re really looking at positive growth everywhere else. Now particularly your commercial question, I want to put the facts in context that you put there which are that we do not expect to see a decrease in supply next year from our sellers. In fact we see good opportunities for an increase in supply. The reference that Bill made in his comments really is a reflection of what I would say is almost a supply pause during this quarter that we’re in and the month of October. To be frank, I would say several of our clients almost had a shock to their system around this global financial crisis and many of their normal processes and procedures were halted as they tried to figure out how they were going to deal with the situation as far as consumer credit, holiday spending and so forth. We saw a delay in the receiving of property which affected our October numbers. I believe one of the analysts that covers us actually mentioned that in their report, and we have seen an uptick in November and December those two months obviously of the quarter have a fair amount of holidays in them. So when you get off to a bad start in October that’s going to make this quarter pretty tough. When you look at the guidance you’ll see a particularly tough quarter here in December. We expect that to pick up significantly in the March quarter and throughout the rest of the year.

The only thing I’d add is you have to take into account two acquisitions. GovDeals showed a nine month result in ’08 and Europe Geneva acquisition was a May acquisition. If you take the effect of those two acquisitions, you’ve got another $40 million roughly of GMV that was purely due to partial year.

Our final question comes from Gary Prestopino - Barrington Research.

I just want to make sure I’m right on this. The basic reduction in guidance is just strictly due to the scrap business and lower prices in scrap that you anticipate?

That’s correct. The biggest change from our expectations in the beginning of August was around the scrap contract. We have seen prices in our market place decrease significantly particularly in recent months, meaning October and November. Again our market place is probably a little bit of a lagger behind the pure commodities market places. There is a correlation of our pricing too to that market place. Although our volatility is less, we are going to move with commodity prices. So again we expect at least a 30% decrease next year in the scrap business.

Just in general, because I’ve got a lot of questions, the buyer demand and price realizations at auctions, people are somewhat concerned about if that demand going into a recession or in a recession is going to remain strong. Could you possibly address that?

We’ve been through this before. Maybe not to the same extreme but during 2002 through 2004, slow growth, live drop, discretionary spending. Our business grew 35% a year on the top line through that last recession. We’re a countercyclical business. When a lot of people have demand for less than wholesale priced goods, there’s immediate sort of rational economic behavior. People want to source those goods. We’re a very transparent destination market place that through a web browser people can find the goods that we sell. Since we’re an auction market place it is competition that drives who’s awarded that property. So that’s a favorable environment in terms of buyer demand. We also see that when there’s a shift in jobs a lot of people that are well trained, have technical engineering experience are laid off. They’re looking for other things to do to make ends meet in an economic downturn. So they are entrepreneurially interested in looking at opportunities around products they understand. A lot of the products that we bring to market can take advantage of skill sets where people are looking for something to do to generate income. So they’re sourcing from us and buying a pallet or truckload of goods, breaking it down, refurbishing and then selling it through an online store front or Amazon, eBay, what have you just to generate income. So that’s another reason why demand is a little bit more resilient in this market.

In this kind of market though do you see any haircut to your price realizations?

Well, we talked about scrap.

I know scrap but I’m talking about on the commercial side?

Commercial again is pretty efficient. Very high velocity. We haven’t seen any sort of major shift. There’s a natural dynamic property flow in the commercial business and technology and product obsolescence drive price more so than the cyclical downturn in the economy at this point. It’s much firmer on the commercial side than what we’ve seen in scrap.

There are no further questions in queue at this time. I would like to turn the call back over to Julie Davis for closing remarks.

We appreciate everyone’s participation. If you have any follow-up questions, please direct them to Jim Rallo or myself. Have a nice evening.

Thank you for your participation in today’s conference. This concludes the presentation. Have a great day.