Liquidity Services Inc (LQDT) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q4 fiscal year 2011 Liquidity Services earnings call. My name is Kim and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session at the end of today's conference. (Operator Instructions) As a reminder this call is being recorded. I will now turn the call over to your host for today's call, Ms. Julie Davis, Director of Investor Relations. Please proceed, Ms. Davis.

Thank you, Kim. Hello and welcome to our fourth quarter and fiscal year 2011 financial results conference call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer and Jim Rallo, our Chief Financial Officer and Treasurer. We will be available for questions after our prepared remarks. The following discussion or responses to your questions reflect management's views as of today, December 2, 2011, I'm sorry, December 6, 2011, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter.

During this call, we will discuss certain non-GAAP financial measures. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures including reconciliations of these measures with comparable GAAP measures. 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. The supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.

Thank you, Julie. Good morning and welcome to our Q4 earnings call. I'll begin this session by reviewing our Q4 financial performance and then provide context on our strategy and where we stand in our Company's overall development. Finally, I will turn it over to Jim for more details on the quarter and on our outlook for fiscal year 2012. During Q4, Liquidity Services reported strong financial results as we expanded our leadership position in the reverse supply chain market by delivering significant value to our clients and buying customers. We exceeded our guidance range for both the GMV and EBITDA targets while continuing to make important investments for the future. Q4 GMV was up 20% year-over-year to $146 million driven by growth in the sale of high value capital assets in our commercial, DOD and municipal marketplaces. Adjusted EBITDA of $12.5 million was up 51% year-over-year driven by improved merchandising programs, further penetration of existing clients, and improved operating leverage.

Adjusted EPS during Q4 was $0.14, which included a change in our estimated book tax rate for the full year which negatively impacted Q4 by $0.06 per share. Excluding this impact would have resulted in adjusted EPS of $0.20 per share at the high end of our guidance range. We continue to demonstrate our financial strength by generating cash from operating activities of approximately $11.4 million during Q4 and we ended the quarter with approximately $129 million in cash and zero long term debt. As evidenced in Q4, eCommerce marketplace's large and growing network of buyers and integrated services are ideally suited to solving the needs of corporate and government clients for a wide range of surplus assets. As we reflect on our record year of financial results in fiscal year 2011, let me summarize our strategy and where we stand in our Company's development.

Since our founding in 1999, Liquidity Services' mission has been to transform and improve the inefficient and fragmented reverse supply chain market, which we estimate to be a $60 billion plus opportunity in the United States. We are proud to say that we've made a significant positive impact to this segment of the economy. Liquidity Services has built transparent, innovative and highly effective marketplaces in integrated services that have connected buyers and sellers of surplus assets across the globe supporting over $2.4 billion of completed transactions on behalf of many of the world's largest organizations. Since our IPO in 2006, Liquidity Services has grown its GMV and adjusted EBITDA by 26% and 29% per year respectively in a challenging economic climate. We have built the largest B2B buyer base for surplus goods and now have over 1.6 million buyers connected to our marketplaces. Our consistent execution has enabled Liquidity Services to become a trusted provider of choice in our industry with over 50 Fortune 500 corporations and over 4,000 government agency clients.

With this success comes the opportunity to continue to leverage our collective knowledge, expertise, and capabilities to improve our service and lead the way in our industry. Therefore, our goal is to triple the size of our business in the next five years to over $1.5 billion of annual GMV and over $150 million of annual EBITDA. Over the next five years, we will continue to deliver the marketplace and unique breadth of services that large enterprises require to manage the reverse supply chain activities. We will make continued investments in our marketplace platform, merchandising tools and operational infrastructure to increase client net recovery and expand the volume of supply and demand on our platform and we will aggressively drive market share expansion to achieve economies of scale to reinforce our leadership position. We at Liquidity Services remain very excited about our future, due to several important characteristics of our business.

First, Liquidity Services is still in its early days. We address multiple large markets still in the early stages of online adoption. Just as other segments of our economy have been transformed by technology, so too Liquidity Services is revolutionizing the reverse supply chain by developing and delivering innovative and effective solutions that enable Fortune 1000 corporations and public sector agencies to reduce costs and improve margins. We are replacing live on site events and manual liquidation sales with a professionally managed centralized online marketplace that enables sellers to tap a global buyer base with faster sales cycles, greater flexibility and higher net recovery than traditional sales methods. In turn, we are providing opportunity to millions of small businesses and end-users around the world to source assets that might otherwise lie fallow.

Second, with over 4,000 commercial and government clients including many of the largest and most sophisticated organizations in the world, Liquidity Services today is the market leader in our category with strong competitive advantages, as measured by GMV transacted, we are the number one online marketplace in retail consumer goods surplus liquidation, the number one online marketplace in public sector surplus goods liquidation and the number two online marketplace in the sale of capital assets. We believe our innovative business model, large and growing buyer base, long term seller relationships and unique product domain expertise are very difficult to replicate.

Third, we have a talented organization that is focused on expanding our position in the marketplace, organically and through complementary acquisitions. On October 1, we closed the acquisition of Jacobs Trading, a privately held provider of remarketing and reverse logistics solutions with an over 20 year track record of service excellence to Walmart and other leading Fortune 500 retailers and manufactures of consumer goods. This strategic combination will enable our respective clients and buying customers to utilize a broader array of innovative value-added services, sales channels, and distribution center locations to save costs, improve cycle times, and accelerate sustainability initiatives within the retail supply chain. The Jacobs Trading acquisition expands the size and scale of our commercial marketplace and further leverages our fixed investments in our national warehouse network, sales force, marketing, and operations teams. The markets we serve are still very fragmented and we continue to seek and evaluate strategic acquisitions which would enhance our seller and buyer base, product domain expertise and level of value-added services provided to our clients.

Finally our continued progress provides the insights and client feedback to invest in innovation. We plan to continue to enhance our marketplace technology platform and value-added services to make it easier for buying customers to find and buy desired assets and for our sellers to speed and improve the transaction process and recover more value. After more than a decade of growth and success, we continue to foster an entrepreneurial spirit at Liquidity Services. Our team has a passion to improve our business every day and deliver innovative solutions to our clients. Just like day one of our founding, we measure our success by our ability to create value for our clients and buying customers and we believe we are just getting started with where we can take Liquidity Services. Now let me turn it over to Jim for a more detailed review of our financial results and outlook for fiscal year 2012.

Thanks, Bill. Our record full year results and strong fourth quarter results reflect market share gains and enhanced service levels in operating efficiencies across our entire business. As a result of investments we have made to support our growth over the last several years. Our strategy of bringing innovative technology to the reverse supply chain market and our efficient business model has translated into strong results for stockholders. Fiscal year 2011 adjusted earnings before interest, taxes, depreciation and amortization or EBITDA has improved 40.5% to $52.7 million. In addition to the strong core business operating results for the quarter, we embarked on several key initiatives to continue to drive significant shareholder returns in fiscal year 2012. We closed the Jacobs Trading acquisition on October 1 and have commenced the integration of this business.

Additionally we have substantially completed the closing of our UK subsidiary Liquidity Services Limited or LSL in accordance with our previously announced plan. We will detail the losses of this business over the last several years in our 10-K, as the operations of the business have been classified as discontinued. The results discussed in our earnings release and on this call include the losses we have incurred for the quarter and the year. During our last earnings call, we disclosed adjusted EBITDA losses for fiscal years ended September 30, 2009, and 2010, of approximately $2.1 million and $3 million respectively for our UK business. The adjusted EBITDA losses in the fourth quarter came in as expected around $2 million resulting in a full year loss of $5.3 million for our UK operations.

During our last earnings call, we had estimated the effective income tax rate to be 26% for the year or a benefit of approximately $0.26 per share as a result of the closure of the UK operations. Actual full year adjusted net Income and adjusted diluted EPS per share only realized a tax benefit of $0.20 per share based on an effective income tax rate of 34% for the year which negatively impacted the fourth quarter by $0.06 per share. Excluding this impact would have resulted in adjusted diluted earnings per share of $0.20 in the fourth quarter. We estimate that our future effective income tax rate will be approximately 42%.

Next, I will comment on our fourth quarter financial results which came in above our guidance range for Gross Merchandise Volume or GMV and adjusted EBITDA. Total GMV increased to $146 million, up 19.6% year-over-year. GMV in our Gov deals or state and local government marketplace increased to $29.5 million, up 30.3% year-over-year as we continue to add new clients as further penetrating the $2 billion state and local government market. GMV in our US commercial marketplaces increased to $63.9 million, up 18.1% year-over-year principally as a result of the truckcenter.com acquisition on June 1, 2011. GMV and our DOD scrap marketplace increased to $24.5 million, up 18.8% year-over-year as a result of increasing commodity prices and a mix shift to higher value metal.

GMV and our DOD surplus marketplace increased to $26.7 million, up 21.7% year-over-year as a result of increasing property flow from the DOD and a higher mix of high value capital assets such as rolling stock. Total revenue increased to $80.7 million, up 10.6% year-over-year primarily due to the GMV growth discussed. Technology and operations expenses increased 9.5% to $14 million year-over-year primarily due to increases in staff, outsourced processing labor and temporary wages including stock based compensation and consulting fees associated with technology infrastructure projects and the addition of truckcenter.com. As a percentage of revenue these expenses decreased to 17.4% from 17.6%. Sales and marketing expenses decreased 2.5% to $6.2 million year-over-year primarily due to increased efficiencies in our online marketing campaign. As a percentage of revenue these expenses decreased to 7.7% from 8.7%.

General and administrative expenses increased 26.1% to $8 million year-over-year primarily due to -- one, $1 million in general corporate expenses and business development costs to support the growth already discussed; and two, expenses of $600,000 due to increases in staff, outsourced processing labor and temporary wages including stock based compensation and consulting fees associated with technology and infrastructure projects as well as the addition of truckcenter.com. As a percentage of revenue, general and administrative expenses increased to 9.9% from 8.7%. Adjusted EBITDA grew 50.6% year-over-year to $12.5 million. Adjusted Net Income was $4.1 million for the quarter, up 20.3% year-over-year including the additional taxes recorded as I previously discussed. Adjusted diluted earnings per share was $0.20 for the quarter, up 53.8% year-over-year based on approximately 30.5 million diluted weighted average shares outstanding and netting out the additional taxes recorded in the quarter.

I'll now discuss the fiscal year 2011 results and will now provide detailed explanations for changes from fiscal year 2010 when those explanations are similar to the ones previously discussed in my year-over-year comparison for the fourth quarter. GMV increased 29.9% to a record $558.5 million for the year. Revenue increased 17.6% to a record $337.4 million for the year. Technology and operations expense increased 12.7% to $55.3 million for the year. As a percentage of revenue these expenses decreased to 16.4% from 17.1%. Sales and marketing expenses increased 13.9% to $24.2 million for the year. As a percentage of revenue these expenses decreased to 7.2% from 7.4%. General and administrative expenses increased 15.6% to $28.8 million for the year. As a percentage of revenue these expenses decreased to 8.5% from 8.7%. Adjusted Net Income grew 88.4% year-over-year to $30.5 million and adjusted diluted EPS was $1.05 for the year based on approximately 29.1 million diluted weighted average shares outstanding.

The Company continues to demonstrate strong cash flow generation and growth as our overall working capital continues to be a source of cash. During the fourth quarter and fiscal year 2011, LSI generated $11.4 million and $39.9 million of operating cash flow, an increase of 51.5% and 24.9% respectively year-over-year. We continue to have a strong balance sheet. At September 30, 2011, we had a record cash balance of $129.1 million, current assets of $171.3 million, and total assets of $227.8 million with $111.7 million in working capital. Pro forma for the Jacobs acquisition, we had a cash balance of $49.1 million, current assets of $98.7 million and total assets of $301.5 million with $33.8 million in working capital. Also incurred long term debt of $40 million in the form of a subordinated note.

Capital expenditures during the quarter were $400,000 and $4.8 million for the fiscal year. We expect capital expenditures to be $5 million to $6 million for fiscal year 2012. Management is providing the following guidance for the next quarter and the fiscal year 2012. We have assumed that we will once again receive the annual incentive payment under the DOD scrap contract in the third quarter of fiscal year 2012. We expect GMV for fiscal year 2012 to range from $690 million to $730 million. We expect GMV for the fiscal first quarter of 2012 to range from $160 million to $170 million. We expect adjusted EBITDA for fiscal year 2012 to range from $78 million to $82 million and we expect adjusted EBITDA for the fiscal first quarter of 2012 to range from $16 million to $18 million. We estimate adjusted earnings per diluted share for fiscal year 2012 to range from $1.26 to $1.32.

For the fiscal first quarter of 2012 we estimate adjusted earnings per diluted share to range from $0.23 to $0.27. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of 32.5 million and that we will not repurchase shares with the approximately $18.1 million yet to be expended under our share repurchase program. Our guidance adjusted EBITDA and diluted EPS for acquisition costs including transaction costs and amortization of intangible assets including the $35.7 million intangible assets from our acquisition of Jacobs Trading and from the effects of FAS 123R which we estimate to be approximately $2.3 million to $2.5 million per quarter for fiscal year 2012, these stock based compensation costs are consistent with fiscal year 2011. Bill and I will now answer any questions.

(Operator Instructions) Jason Helfstein, Oppenheimer & Co.

Three questions, the first just kind of housekeeping and two more strategic questions. So first, would it be fair if we guess the impact of Jacobs on the first quarter of about, for GMV somewhere in the range of like $14 million to $16 million and for the full year somewhere around $65 million or just any kind of other color as far as what type of pro forma GMV; that's question number one. Number two, scrap Gov deals and surplus were all very strong in the quarter so can you talk about the near term trend you're seeing in those businesses and if you think you can still sustain these types of very strong growth rates. And then lastly, can you talk about how the fourth quarter of eCommerce dynamics impact your Company and when you see the impacts of that inventory management? Thanks.

Jim, you can take the Jacobs Trading transaction. I'll take the next two questions.

Great, thanks, Bill. So Jason, I would say again as you know, we don't provide specific guidance on marketplaces. I would tell you that based on the historical information that we filed for Jacobs as part of the 8-K, that those numbers are down the fairway and I think it would be respective of what we've incorporated into our forecast.

Yes, with regard to trends, I think public sector agencies certainly are looking to raise cash and have found this global buyer base very intriguing to convert particularly high value assets into sales transactions. We've seen a lot of activity with larger fleets, helicopters, even planes coming through the marketplace fueling growth on the municipal Gov deals marketplace. Frankly, I think that's going to be a secular trend for many years to come and we're delighted to be able to be the platform of choice as we grow our business with high population centers, particularly West of the Mississippi. The DOD surplus business continues to kind of plod along. I think the transportation and vehicle sales that we've had in the last quarter contributed well. Our forecast for the full year of fiscal 2012 is actually including more modest growth in the DOD surplus business. So to the extent there's any major change out of equipment, that would provide upside to our guidance.

I think the eCommerce environment certainly is sort of one of value-hungry consumers, frugal buyers. That's driven a lot of interest in our platform by its small businesses and end-users who use us to source goods at reasonable prices they can resell to sustain a profit in their own business. We just completed what we call Restock Tuesday following Cyber Monday with very good traffic and volume on our liquidation.com platform. We expect that clients will continue to rely on us as we move throughout the year. The National Retail Federation has actually estimated that returns will be up significantly year over year; the numbers are quite astonishing. The NRF numbers suggesting return rates or volume of consumer returns to be up 14% year over year to something like $220 billion, so that's giving further context on what should be a very favorable environment for our business.

And then you would see the benefit of those returns in your --

March quarter is our typical -- seasonal peak period for returns.

Shawn Milne, Janney Capital Markets.

Jim, can I just start off with just a quick housekeeping? I just want to make sure we're kind of measuring apples-to-apples, just to be very clear, the UK losses are included in the $12.5 million in EBITDA, correct?

Yes, that is correct, Shawn. If you pulled out the losses for the quarter that would be about $14.5 million, $14.7 million so we had again about $2 million of losses in the quarter for the UK operations which was as we guided to last quarter.

Right, and so your earnings on a continuing basis are $0.22?

Yes.

Okay. Let me just go back to the prior question, originally wasn't going to ask it. But I actually would counter that run rate that was thrown out there of Jacobs. We would see that being higher, Jim. Where am I wrong? I think when you acquired the Company, you had talked about a consistent track record of growth at Jacobs and that business was already doing $65 million. Now clearly some of that volume will be flowing through -- incremental volume would be flowing through your own distribution centers, but I would think that combined business with their large contract with Walmart would be growing into fiscal 2012. Is there something wrong with that assumption?

Well, actually, Shawn as we've said, what we would do with the first year for Jacobs is work on integration. As you know, this is the largest acquisition that LSI has ever taken on. They are significant operations and we plan to try to gain as much efficiencies as we can for the future and so we do not expect a lot of growth out of that business. So you're correct on your run rate number. I would tell you that we assume some growth for Jacobs in our forecast but that growth in year one is modest because we're really distracting the team with focus on integration because we want to set that business up to continue its strong track record of growth historically which again is more in line with LSI's typical growth rate.

Is there something contractually, I think we're going to get some more details around that five-year deal, is there something that speaks to the combined entity needing to pick up more volume from Walmart? I'm just trying to get a sense of some conservatism around that number. I can understand how it would not grow at 20% but to not grow when Walmart's returns, obviously are growing seems to not add up.

Sure, well again, Shawn, I hope we -- again, from my last comment, you don't think that I don't think it's growing. I just said, I think the growth is modest in year one, so --

I think your point on the growth opportunity within big box retailers is consistent with how we see the five-year plan in the mid range opportunity. And Jacobs certainly is a pillar to continue to penetrate the retail supply chain, world's largest retailer and spender base so we feel very excited about that. But we do know from our experience that it's important to invest today in personnel and product development and infrastructure to sustain what could be $1 billion plus business in the relatively near future. So we're deploying for example, a new warehouse management system in our distribution center network which will enhance our merchandising. We're deploying business collaboration tools to support cross Company project teams and to engage this increasingly distributed workforce. We're deploying our BOX technology to enable visitors to any of our marketplace to access and bid on all of our supply. We're building out mobile optimized templates and applications to improve marketplace access for visitors using mobile devices.

There's a lot of Research and Development we're working on to fund the buildout of several new products that will wrap business intelligence around our marketplace for use by large retailers and manufacturers, to capture information that will compare what's the value of a set of goods in our marketplace versus leaving those goods on the store shelves. So there's a lot of very interesting work being done which is very important to the five-year plan and which requires focus and attention. So we're not dower at all about the growth of prospects there. We're just doing it in the right sequence, we believe, to create the most shareholder value over time.

Okay, then just lastly Jim, on the share count expectations for next year, is there something embedded in there for the earn-out payment to Jacobs? Thanks.

Sure, well Shawn, if you look at the share count the fully diluted number at the end of the fourth quarter, it was 30.5 million and we issued with the Jacobs transaction approximately 900,000 shares so that gets you to 31.4 million assuming no stock price appreciation, so again, on the Treasury stock method, we're starting the year with 31.4 million outstanding. I'd assume that we continue to get stock price performance over the year which will then further dilute that fully diluted number using the Treasury stock method. I'm assuming that obviously because our results that we've guided to are fairly strong performance year over year. Now obviously if I'm wrong in those assumptions and the stock price does not go up over the year, the share count won't go up for the year, but I wanted to give people a sense of what we've assumed in our model to arrive at our EPS numbers.

Okay, but nothing specifically tied to an incremental earn-out payment to Jacobs?

That is correct, no.

Ross Sandler, RBC.

One follow-up on the commercial side, so instead of talking about maybe what Jacobs is going to contribute is there any reason to believe that the commercial segment in 2012 would grow at a growth rate that is different than the 15% to 20% organic growth rate that you've been seeing of late ex Jacobs, ex TruckCenter. Can you just comment on what the growth expectation for the 2012 guidance implies and then the same thing on the Gov deal side. So it's been growing pretty healthy, north of 30% this quarter, north of 40% in prior quarters. What do you think the longer term or at least the 2012 organic growth rate for Gov deals looks like, thanks?

Sure, Ross. The overall business context for the growth of our retail business is quite good and we expect to continue to meet or exceed that 15% to 20% year on year growth that we've enjoyed the last several years. First, as I indicated earlier the National Retail Federation which has a pretty good pulse on what both large and middle market retailers are doing, are expecting 14% growth in returns this year. Second there's an increasing use of online retail which is driving a higher volume of returns on a percentage basis than brick and mortar retail. Third, more and more buyers are using online channels such as ours to identify and buy goods. So we really like our positioning in the retail space. I think we also, because of the past performance and work with many of the largest retailers in the world, we are the trusted provider and the safe choice for managing our clients' brands, managing and protecting their channel relationships, moving products as necessary outside the US, reporting back in a very transparent way, the manner in which these goods are tracked, managed and sold.

We have outstanding data security, protection and support and we have very strong financial controls and internal operational controls, all of which give great comfort to large organizations who move volume through the retail secondary marketplace. So we're very well positioned to execute our business plan in that regard. I think the Gov deals business has been a 20% plus grower. We expect that to continue. You see some stair-step growth that might accelerate that a little bit depending upon whether we bring on a new large client and some of those clients do house cleaning. They have significant back-logged inventory that they want to dispose of on our marketplace and that can lift a given quarter above that sort of secular 20% growth rate and so that's likely to happen from quarter to quarter over time but we think that is still very early on. We're about 7% penetrated in the municipal marketplace in the US. We'll be adding Canada as we move through the year which has maybe not the same number of agencies but those that have an interest do move a decent amount of volume and we're excited to work with them. So those are the ideas that are driving our Gov deals and retail business.

(Operator Instructions) Shawn Milne, Janney Capital Markets.

I just wanted to follow-up, Bill if I could. I know you put it in your Press Release, your outlook for scrap is for I think stable commodity prices. Could you talk a little bit about how you're planning that going forward? We don't really have any growth in our models for 2012. Is that the best way to look at it and just see what happens with pricing?

Yes, I think we're looking at consistent volume. We'd probably err on the conservative side with regard to try to manage and predict commodity prices. What we like about the scrap business is we have embedded ourself as the exclusive channel where buyers in this supply meet and we've been, I think appropriately conservative in our outlook on scrap. We have a very interesting, vibrant global market place for the full range of metals. Some of the zero waste initiatives that retailer have, have fed commodity categories into our scrap buyer base as sort of an interesting synergy between what we're doing with the DOD and some large retailers who will have anything from shopping carts to paperboard, some cases scrap metal to feed into this marketplace. But overall conservative outlook for scrap. And yes, we have a very strong market position.

Gregor Schauer, Robert W Baird.

I'm stepping in for Colin who is on the road today. I was hoping to get a better understanding of the integration time frame, the typical integration time frame that's taken for most of the acquisitions. We know Jacobs is obviously one of the largest acquisitions, but what is the typical integration time frame and then if you could also just add some context in that Jacobs is -- their business is primarily offline, and that's going to remain that way, so it doesn't seem like there's going to be much on the technology side from an integration perspective. Does that put that more in line in terms of smaller acquisition integrations? If you guys could --

Sure. Well let me say we have had experience with acquisitions and integration programs having completed five transactions and the first sort of moral for us is do no harm with the acquired business, make sure that we are able to sustain the service excellence expected from the clients and the buyers, that will certainly be the case for Jacobs. A 12-month integration time frame would be very typical. There's certainly on the back end a lot of the normal things one does in terms of accounting, payroll and vendor relations. We are working in parallel with the current modes of business to prepare for the ability to bring products from a Jacobs and be able to expose that to the appropriate channels and buyers and automate that process, make that process more seamless, give us the organizational dashboard to see where we're getting the appropriate returns for our clients and that requires the technology integration on the front end.

And just because a direct sale may not go through a live online auction event doesn't mean that there isn't technology used to support that process. Increasingly business buyers are demanding things like EDI or online information portals to evaluate and decide on how they want to purchase inventories and we're well positioned to provide that sort of client portal technology and that will require not weeks but months of integration work.

Okay, and would it be possible to get some sense is Jacobs expected to be a greater integration effort than some of the other smaller acquisitions given the lack of the online component? I understand that there are other sort of back end technology integration issues.

Sure. I think, Gregor, the Jacobs integration obviously will be greater than some of the ones we've done in the past just due to its scale. You've also got a distribution center network that over the years, we will create a more efficient way to serve our clients. Jacobs has a concentrated network. As you know our network is a little more spread out over the United States so we'll leverage our network while continuing to maintain the high level of service that they've provided for their clients. So when you look at the integration I think there's just different phases as Bill discussed. We've got the near term phase, where we'll get a lot of the back office done and you've got kind of the short-term phase where we'll be working on a lot of IT systems and cross-selling and then you've got what I would say is the longer term phase where we're really combining the operational infrastructure of the businesses so we're all operating as one.

Ross Sandler, RBC.

Jim, just one quick follow-up on the 2012 EBITDA guidance. So I think the midpoint implies about 11% EBITDA to GMV margin and I'm just wondering, is that just conservative? If you factor in the mid to high 20%s EBITDA to GMV that Jacobs is doing, the fact that UK is basically cleaned up after this year, is that just conservatism or is there some kind of mix shift that we're missing? Thanks.

Sure. Well, I think again we've seen significant margin improvement since 2009, so consistently 2010, fiscal year 2011 we expect to see again margin improvement in fiscal 2012. I think at this point, certainly we're looking at adjusted EBITDA margins over 11%, Ross. Should it be as high as 11.3%, 11.4%, 11.5%? At this point I think some of it will have to do with the mix as you've indicated. Part of it has to do just with the consignment versus the purchase model. As we rollout those different pricing models, that can affect margins, so I think at this point we're certainly comfortable with over 11%, as we go through the year though I'm happy to update that number with you.

Jordan Rohan, Stifel Nicolaus.

I have a question really at a more macro level. Last year around this same time, you were able to look into the consumer electronics portion of your channel and identify that there had been significant, significant discounting, just broadly and it seemed to play out in December of last year as you looked at holiday sales. Can you at a high level compare the amount of discounting you're seeing in various channels particularly on the retail side and with a head towards consumer electronics and how does it feel this year versus last? It looks like volume is surprisingly high for retail sales in 4Q. Are you seeing a similar level of discounting, more aggressive discounting or less aggressive discounting? Thank you.

My perspective on that is retailers have been more disciplined in the level of inventory within the stores, their refresh of inventory when they have good sales volume and momentum is quite good, so what's selling is not as deeply discounted. I think there are some binary decisions where people have made a bet on a product line and it's just fallen flat and they've pivoted away from that product line or exited that product line. Those are the things that we've seen come through our channels. So if the product was just a total miss, retailers have been pretty savvy about exiting those product lines, but the things that are kind of consistently in the store, I think the pricing has held up pretty well, certainly people have had promotional activity to drive traffic to stores and online venues but I think overall, I think the margins have held up reasonably well in the consumer electronics space.

There is no further questions at this time. I would now like to turn the call back over to Ms. Julie Davis for closing remarks.

Thank, Kim. Thanks everyone for joining our call this morning. As always if you have any follow-up questions Jim Rallo and I are available. Thank you.

That does conclude today's conference. Thank you for your participation. You may now disconnect and have a great day.