Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Liquidity Services (NASDAQ:LQDT) dropped more than 15% Thursday after the company announced sales have ceased for selected rolling stock and other assets under its Surplus Contract with the U.S. Defense Logistics Agency. Liquidity Services also lowered its fiscal third-quarter guidance.
So what: Specifically, Liquidity Services states selected sales have been cancelled at the DLA's request pending "further review of the impact of regulatory rules, unrelated to the Company's performance or conduct, on the DLA rolling stock property stream." Liquidity Services stated the developments will hurt results for both its fiscal third quarter ending June 30, 2014, as well as its full-year fiscal 2014.
Consequently, while Liquidity Services still estimates preliminary fiscal Q3 total gross merchandise volume within its previously expected range of $225 million to $250 million, adjusted EBITDA is expected to arrive roughly 10% to 20% below its guidance range of $18 million to $21 million. Adjusted earnings per diluted share are also expected to be 10% to 20% below its previous range of $0.28 to $0.34.
Now what: Shares of Liquidity Services have now fallen more than 50% since the beginning of April, which was when the company not only announced it decided to withdraw from bidding for its significant Department of Defense rolling stock surplus contract, but also secured less favorable terms for the non-rolling DOD portion.
With this in mind, patient long-term investors can still take solace knowing Liquidity Services was already working hard to shift its reliance away from federal government sources and toward more commercial and municipal government clients. Given its near-term pain, however, it's hard to blame the market for taking a step back today.