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MCINTIRE INVESTMENT INSTITUTEAT THE UNIVERSITY OF VIRGINIA

(NASDAQ: LQDT)

Prepared by H. Masood, R. Rechkemmer, and J. Wulkan| Oct. 27, 2012

McIntire Investment Institute1

AGENDA


Recommendation

Business Overview

Market Misperceptions

Valuation

Catalysts

Conclusion

RECOMMENDATION


Strong growth will continue as company gains critical mass

Price Target: $64.16Upside: 63.4%

Misperception 1: DoD business on the decline

Catalyst 2: Earnings beats driven by network effect and acquisition synergies

Misperception 2: Viable competition in commercial sector

Catalyst 1: Favorable renewal of DoD contracts

BUSINESS OVERVIEW

Differentiated e-commerce auction marketplace for wholesale surplus and salvage assets

Integrated value-added services for a single offering that manages clients’ reverse supply chain

U.S. Retail Global CapitalAssets

U.S. Public Sector


FINANCIAL OVERVIEW

Price: $39.27 Avg Vol (3m): 715,584 ROE (ttm): 25.77%

Market Cap: $1.22B P/E (ttm): 25.70x Operating Margin: 18.3%

52w Range: $26.39 – 66.57 PEG: 0.74x Debt/Equity: 0.18x


REVERSE SUPPLY CHAIN

6 McIntire Investment Institute

SEGMENTAL BREAKDOWN


40.7%

55.8%

3.5%Revenue Breakdown

Commercial DoD State/Local

45.8%33.9%

20.3%

GMV Breakdown

Commercial DoD State/Local

MARKET POSITION


MISPERCEPTION 1: DOD BUSINESS ON THE DECLINE


1. CEO announced stock sale plan2. Off Wall Street:

a. DoD contract renewal in doubtb. Unfavorable terms in potential new contract

3. DoD September liquidations lighter than expected4. Bank of America downgrade from $62 to $46

STRONG DOD CONTRACT PERFORMANCE


• LQDT has effectively executed DoD contract for 11 years• Received Vendor Excellence Award from DLA for last two

years• Past contract renegotiations have led to better terms for

LQDTDoD abandoned consignment model for purchase model,

thus sacrificing economic benefit for ease of business

VAR: “We have moved to a purchase model from a consignment model even though it added greater economic recovery because of the purchase model’s ease” – Ken Macnavin (DLA Public Relations)

BEST POSITIONED TO MEET BID CRITERIA


Keys to the Bid (Least to Most Important):• Logistics: Other companies can perform this• Liquid marketplace: Hard for competitors to replicate without

strong network base• Compliance: Stringent DoD requirements make this difficult

to replicate

VAR:“If we fail to meet compliance on one item, we have to pay half the item’s value to the DoD… imagine how much we would have to pay on a jet. Therefore, compliance is definitely the hardest part of a DoD bid. We have had a compliance error rate of 0% over the last 11 years” – Julie Davis (LQDT Investor Relations)

MARKET STRESSES COMPETITION FROM GENCO


Genco Overview:• Market’s favored competitor for 2014 DoD contract• Claim to be the world’s largest provider of reverse logistics

services

Concerns are Unsubstantiated:• Genco focuses on consumer goods, not large capital assets• Genco has no history of compliance with DoD• LQDT operates 150 warehouses on US Military bases to

support operations

GENCO VS GOVLIQUIDATION SNAPSHOT


GencoMarketplace

LQDT’s Government Liquidation

LONG-TERM SECULAR GROWTH DRIVERS FOR DOD BUSINESS


Minimum of $500 billion in DoD

budget cuts over next 10 years

Revenues have always fluctuated quarter to quarter due to nature of

business

Revenues have always fluctuated quarter to quarter due to nature of

business

ISPERCEPTION 2: VIABLE COMPETITION IN COMMERCIAL SECTOR


LQDT HAS A SUSTAINABLE COMPETITIVE ADVANTAGE


High Barriers to Entry:• Logistical requirements make industry capital intensive• Buyer and seller network effects create liquid markets

eBay’s Past Failures:• 2005: eBay attempted to enter wholesale auction marketplace• 2009: eBay exited industry, worked closely with LQDT• Justification: hands-off marketplace• LQDT is eroding eBay’s B2B business by acquiring its

power sellers

Ritchie Bros. Auctioneers:• VAR: Ritchie Bros expressed no interest in building

extensive online business – RBA Investor Relations

HUGE UNTAPPED MARKET POTENTIAL


REALITY: STRONG GROWTH WILL CONTINUE


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2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

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$M

Total Revenues

Gross Merchandise Volume

Adjusted EBITDA

GMV:31.1% CAGR

Revenue:25.4% CAGR

Adj. EBITDA:

40.3% CAGR

TAILWINDS FOR DOD BUSINESS


• $500B budget cut already announced, with possibility for $500B more in 2013

• Transition from manned to unmanned wars results in widespread equipment obsolescence.

• Surplus assets from ending military operations in Iraq will boost LQDT business

COMMERCIAL BUSINESS GAINING CRITICAL MASS


• Fortune 500 companies are just learning how to extract value from the reverse supply chain

• Environmental regulations mandate the use of proper capital asset disposal services

• Strategic accretive acquisitions (e.g. Jacobs Trading) add substantial value to LQDT and cut costs through operational synergies

• Growth in e-commerce will drive expansion of retail liquidation business

VALUATION MODELS PREDICT OUTPERFORMANCE


Multiple Methodologies:

• Revenue Build• Discounted Cash Flow

Analysis• Sensitivity Analysis• Historical Comparables

Valuation• Triangulation

SEGMENTAL REVENUE BUILD


DCF ANALYSIS PROMISES UPSIDE


DCF SENSITIVITY ANALYSIS SHOWS FLEXIBILITY


HISTORICAL COMPARABLES ANALYSIS COMPLETES PICTURE


LQDT IS UNDERVALUED RELATIVE TO HISTORICAL COMPS


Current PriceCurrent Price

UpsideHigh: 192.8%

Average: 88.3%

Low: -16.3%

Price as of 10/22/12:

$39.27

Average Implied Value:

$73.93

TRIANGULATED VALUE INDICATES 63.4% UPSIDE


RICE PROJECTION MAKES LQDT AN ATTRACTIVE INVESTMENT


CATALYSTS: HOW PERCEPTIONS WILL CONVERGE


1) DoD Renews Contract with LQDT in FY13:• Negligible chance of contract renewal failure• New contract terms will likely be favorable for LQDT

2) Beats Earnings in 2H13:• Market expectations shift after 4Q12, making beats

easier• Consistently conservative guidance• Network effect and untapped value of reverse supply

chain becoming increasingly apparent• Goindustry Dovebid synergies lead to operating margin

expansion

RECOMMENDATION


Strong growth will continue as company gains critical mass

Price Target: $64.16Upside: 63.4%

Misperception 1: DoD business on the decline

Catalyst 2: Earnings beats driven by network effect and acquisition synergies

Misperception 2: Viable competition in commercial sector

Catalyst 1: Favorable renewal of DoD contracts

APPENDIX


Blue Chip Client BaseRevenue Build

Overall and CommercialState and Local GovernmentDepartment of Defense

Discounted Cash Flow AnalysisLine ItemsAssumptions

APPENDIX: BLUE CHIP CLIENT BASE


APPENDIX: REVENUE BUILD - OVERALL AND COMMERCIAL


APPENDIX: REVENUE BUILD - STATE AND LOCAL GOVERNMENT


APPENDIX: REVENUE BUILD - DEPARTMENT OF DEFENSE


APPENDIX: LINE ITEMS


APPENDIX: ASSUMPTIONS


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