Liquidity Services Inc (LQDT) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third-quarter 2012 Liquidity Services earnings conference call. My name is Keith and I will be your operator for today.

At this time all participants are in a listen only mode. Later on we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes.

And I would now like to turn the conference over to Ms. Julie Davis, Director of Investor Relations. Please go ahead.

Thank you, Keith. Hello and welcome to our third-quarter fiscal year 2012 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, July 31, 2012, 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 would like to turn the presentation over to our CEO Bill Angrick.

Thanks, Julie. Good morning and welcome to our Q3 earnings call. I will begin the session by reviewing our Q3 financial performance. Next I will turn it over to Jim for more details on the quarter and on our outlook for the remainder of fiscal year 2012.

Finally, I will provide context on where we stand in our Company's overall development. During Q3 Liquidity Services reported strong financial results as we expanded our share and leadership position into gross supply chain market by delivering significant value to our clients and buying customers.

We exceeded our guidance range for GMV, adjusted EBITDA and adjusted EPS, while continuing to make important investments for the future. Q3 GMV was up 52% year-over-year to $225.6 million, driven by growth in the volume of goods in our retail supply chain and government marketplaces by both existing and new clients.

Adjusted EBITDA of $33.4 million was up 121% year-over-year. And adjusted EPS during Q3 was $0.56, up 115% year-over-year when excluding tax items, driven by improved operating leverage on higher volume.

In addition to generating strong financial results, our team advanced all key elements of our growth strategy during this quarter, driving organic growth, innovation and external growth via acquisition.

During the quarter we enjoyed broad-based organic growth as we expanded our market share within both the commercial and public sector markets. Our value proposition is resonating with retailers, manufacturers and public sector agencies, which is reinforcing our network effect and resulting in new client wins in the reverse supply chain market. Our team has done an excellent job handling our increased volumes while maintaining a high level of service and quality to our clients and buying customers.

Our consistent execution has enabled Liquidity Services to become the trusted provider of choice in our industry with over 75 Fortune 500 corporations, over 4,700 federal, state and local government agencies, and over 1.8 million registered buyers utilizing our marketplaces.

As evidence of our customer focus, Liquidity Services was recently selected to receive the prestigious Vendor Excellence Award for Large Business by the US Defense Logistics Agency for our work supporting the DoD's surplus sales program. This is our second DLA award in as many years and forth overall, and demonstrates our unwavering commitment to relentless improvement and client service.

During the quarter we also continued to drive innovation to support our market leadership position as we rolled out our next generation BUX technology on our award-winning government liquidation marketplace.

Our BUX technology enables the seamless cross listing of relevant client assets on the Govliquidation.com website to further monetize our buyer base, provide enhanced merchandising options such as the use of streaming video, improve the overall experience in managing their account and finding desired assets. And it supports the rendering of our marketplace on mobile devices.

Following its initial introduction to our Liquidation.com and government liquidation.com marketplaces, our proprietary BUX platform now covers approximately 70% of our user base, and is just one recent example of how we leverage technology to improve the operational efficiency, reliability and scalability of our business.

Finally, in addition to growing our business organically our team completed the acquisition of GoIndustry DoveBid in early July. The acquisition of GoIndustry enhances Liquidity Services' ability to deliver surplus asset management, valuation and disposition services to large enterprises across North America, Europe and Asia.

This strategic combination expands our seller base by adding over 50 Fortune 1000 clients across complementary vertical segments. Enables us to offer important new services and broader global coverage to our existing sellers, and grows the buyer base for our online marketplaces.

Approximately one-half the acquired business is in North America, which will provide us with significant synergies in our operations, sales, marketing, technology and back-office function. We have spoken with many of our respective top clients and they are very enthusiastic about utilizing our expanded services and geographic support.

We are pleased to report that we continue to demonstrate our ability to not only integrate acquisitions, but to generate organic growth on top of the acquired business by continuing to invest in our people, our technology platform, and operations capabilities.

Now let me turn it over to Jim for a more detailed review of our financial results and our outlook for fiscal year 2012.

Thanks, Bill. Our record third-quarter results reflect market share gains and enhanced enhanced service levels and 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, exemplified by $99.5 million of adjusted EBITDA over the last year.

Our seller bases continue to grow as corporations and public sector agencies focus on reducing costs, improving transparency and working capital flows by outsourcing reverse supply chain activities. As corporations and public sector agencies increasingly prefer service providers with a proven track record, innovative technology solutions and demonstrated financial strength we have continued to penetrate our large, highly fragmented markets.

Our strong results for the quarter were driven by record volumes in both our retail supply chain group, which did not slow down from its seasonal high in the second quarter as we continued to add new clients and further penetrate existing clients, and continued growth in our public sector vertical.

In addition to strong core business operating results for the quarter we continued to make investments that drive long-term growth. In early July we closed the GoIndustry acquisition and have commenced the integration of this business.

Next I will comment on the third-quarter financial results, which came in above our guidance ranges. Total GMV increased to a record $225.6 million, up 52.3% year-over-year. GMV in our commercial marketplaces increased to a record $133.5 million, up 112.9% year-over-year as a result of the strong performance already discussed and the Jacobs acquisition.

GMV in our GovDeals or state and local government marketplace increased to a record $37.9 million, up 9.5% year-over-year as we continue to add new clients, thus further penetrating the $3 billion state and local government market.

GMV in our DoD surplus business increased to a record $34.4 million, up 38.9% year-over-year as a result of increasing property flow from the DoD at a higher mix of high-value capital assets such as rolling stock.

GMV in our DoD scrap marketplace decreased to $19.8 million or 14.8% year-over-year as a result of decreasing property flow from the DoD and the decreasing commodity prices.

As sales of DoD scrap have become less material fluctuations in commodity prices are not materially affecting our financial performance. Total revenue increased to $121.3 million, up 45.6% year-over-year, primarily due to the GMV growth discussed.

Acknowledging operations expenses increased 23.9% to $15.9 million year-over-year primarily due to, one, expenses of $2 million for the acquisitions of Jacobs Trading and Truckcenter.com and, two, expenses of $1 million in staff, wages, including stock-based compensation. As a percentage of revenue these expenses decreased to 13.1% from 15.5%.

Sales and marketing expenses increased 32.2% to $7.4 million year-over-year primarily due to, one, expenses of $1 million in staff wages, including stock-based compensation and, two, expenses of $500,000 for the acquisitions of Jacobs Trading and Truckcenter.com. As a percentage of revenue these expenses decreased to 6.1% from 6.7%.

General and administrative expenses increased 31.3% to $8.6 million year-over-year primarily due to, one, expenses of $1.1 million in staff wages, including stock-based compensation and, two, expenses of $600,000 for the acquisitions of Jacobs Trading and Truckcenter.com. As a percentage of revenue these expenses decreased to 7.1% from 7.9%.

The year-over-year comparisons of adjusted EBITDA, adjusted net income and adjusted diluted earnings per share include the losses from our UK retail supply chain operations in the prior year. We closed our UK retail supply chain operations effective September 30, 2011.

Adjusted EBITDA grew 121.4% year-over-year to a record $33.4 million. Adjusted EBITDA margin as a percentage of GMV increased to a record 14.8% from 10.2% driven by operating efficiencies in our retail supply chain marketplace.

We expect adjusted EBITDA margins to be around 13% for fiscal year 2012, which is consistent with our prior expectations. Our adjusted EBITDA margins based on revenue continue to expand as we benefit from operating leverage and the adoption of fee-for-service offerings. Our adjusted EBITDA margins based on revenue for the third quarter and nine months were 27.6% and 24.8%, respectively, compared to 15.6%, 13.1% and 10% for fiscal years 2011, 2010 and 2009, respectively.

As we expand globally and more of our clients elect to use fee-for-service offerings, such as our consignment sales model, our adjusted EBITDA margins will fluctuate more quarter-to-quarter based on GMV. Adjusted EBITDA margins based on revenue will likely be more consistent and representative of our earnings leverage going forward.

Adjusted net income was a record $18.7 million for the quarter. Adjusted diluted earnings per share was a record $0.56 for the quarter based on approximately 33.2 billion diluted weighted average shares outstanding. Adjusted net income and adjusted diluted EPS for the prior-year period were positively impacted by a one-time tax benefit of $0.26 per diluted share as a result of closing our UK retail supply chain operations in the prior year. Normalizing the prior-year adjusted EPS for the tax benefit results in 115.4% year-over-year growth.

We continue to have a strong balance sheet. At June 30, 2012, we had a cash balance of $84.6 million, current assets of $144.1 million and total assets of $339.6 million, with $75.3 million in working capital. We have debt of $40 million in the form of a subordinated note.

Capital expenditures during the quarter were $800,000. We expect capital expenditures to be $5 million to $6 million for fiscal year 2012, which is consistent with last fiscal year.

Management is providing the following guidance for the next quarter and fiscal year 2012. We expect GMV for fiscal year 2012 to range from $850 million to $860 million, which is increase from our prior guidance range of $760 million to $800 million, primarily as a result of the GoIndustry acquisition and organic growth. We expect GMV for the fiscal fourth quarter of 2012 to range from $230 million to $240 million.

We expect adjusted EBITDA for fiscal year 2012 to range from $108 million to $110 million, which is an increase from our prior guidance range of $96 million to $100 million. We expect adjusted EBITDA for the fiscal fourth quarter of 2012 to range from $21 million to $23 million.

We estimate the adjusted earnings per diluted share for fiscal year 2012 to range from $1.81 to $1.84, which is an increase from our previous guidance range of $1.64 to $1.70. For the fiscal fourth quarter of 2012 we estimate adjusted earnings per diluted share to range from $0.35 to $0.38. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of the 33 million, which reflects the reason impact of our stock repurchase program under which we repurchased 505,000 shares for approximately $30 million during the prior quarter. However, it does not assume that we will continue to repurchase shares with the approximately $18.1 million yet to be expended under the program.

Our guidance of adjusted EBITDA and diluted EPS for, one, acquisition costs, including transaction costs and changes in earnout estimates; two, amortization of contracted intangible assets of $33.3 million from our acquisition of Jacobs Trading; and, three, stock-based compensation costs which we estimate to be approximately $2.3 million to $2.5 million for the fourth quarter. These stock-based compensation costs are consistent with fiscal year 2011.

I will now turn it back over to Bill.

Thank you, Jim. As we reflect on our strong Q3 results we have renewed excitement where we can take our business. Though we now have the scale of a $1 billion GMV business we have only 1% penetration of the highly fragmented $100 billion global reverse supply chain market.

Indeed, we are merely at the beginning of our journey to transform the global reverse supply chain. We have conviction that the asset recovery process will move online, just as other business functions have, to capture efficiencies and improve transparency for professional sellers and buyers. Liquidity Services will provide the expertise, marketplace platform and services to accelerate this trend.

Why do we have conviction that we can lead this transformation? Our credibility. We have an outstanding record of past performance serving the world's largest organizations in the biggest industry sectors in the world -- retail, energy, transportation, health care, consumer packaged goods, technology, and the public sector.

Our strong client relationships and track record with the leading companies in each of these industry sectors is resulting in the referral of new business across the supply chain. We are being introduced by retailers to their OEM suppliers, by OEM suppliers to their retail partners, and by service providers to complement their offering.

Second, we have outstanding domain expertise and global coverage. Liquidity Services has unmatched skill and expertise in bringing surplus goods to market for the world's largest organizations. Blue-chip multinational clients and public sector agencies are increasingly choosing to work with Liquidity Services because we cover the full range of products and asset conditions used in their business footprint and supply chains. We support all geographic regions where they conduct business. We are secure and compliant with local, federal and international laws and regulations. We integrate with their IT and financial infrastructure to improve the disposition process.

In many instances we provide an expansive scope of pre- and post-sales and services to simplify and outsource the entire process for these large organizations. Moreover, we provide many highly valued proprietary services to protect the brand reputation and channel relationships of these clients as part of our offering.

As thought leaders our global Fortune 500 clients often set the tone for how entire industries rethink their reverse supply chain activities, which helps us accelerate acceptance of Liquidity Services solutions in the marketplace.

Finally, our buyer reach and liquidity. Following our GoIndustry acquisition we now serve over 2.2 million professional buyers of surplus and salvage assets, which we believe is the largest surplus buyer network in the world.

We have successfully completed over 3 million transactions in nearly every product and every condition type across the retail and manufacturing supply chains. And we continue to leverage proprietary marketplace data to maximize the effectiveness of our marketplaces with sellers and buyers.

Our transparent marketplace and integrated services continue to attract buyers across the globe because of the time savings, convenience and the trust we have developed and established in our marketplaces.

The current sample of the online events in Liquidity Services marketplaces is a reflection of the breadth of our market-leading platform. Retail consumer goods for sale throughout North America by the pallet and truckload. Truck and trailer fleets for sale in Germany, Dubai and throughout North America. Pharmaceutical processing, test, and measurement equipment for sale in Malaysia, North America, Puerto Rico, the United Kingdom and Singapore.

Energy pipe and equipment for sale in Alaska, California, Louisiana, Texas and Wyoming. High precision wire bond binders and surface mount technology equipment for sale in Japan and South Korea. Vehicles, spares, and scrap metal for sale in South Africa.

At the beginning of fiscal year 2012 we established a long-term goal of tripling our business to $1.5 billion of GMV and $150 million of EBITDA. We are pleased to report that we are well on our way to achieving these objectives. Our team now over 1,100 strong in 25 countries has a passion to improve our business everyday and deliver innovative solutions that transform the global reverse supply chain.

Our entire team looks forward to continuing to significantly grow our business while maintaining the highest standards of integrity, service and quality to our clients and buying customers.

Thanks for your attention, and we will now open up the call to questions.

(Operator Instructions). Colin Sebastian, Robert Baird & Company.

Great, thanks, congratulations on the quarter. I guess first to drill down a little bit in the organic growth in the Commercial segment, you talked about growth for both new customers and existing partners. I wonder if you can maybe put a finer line on that perhaps? How much is from new customers versus greater allocation that you are seeing from your existing partners?

And then, secondly, I want to ask about the operating leverage a bit. You have been showing good leverage across each operating expense line item for several years now. And going forward I wonder where we should expect the bulk of operating leverage to continue, on which items you expect to see that? Thank you.

Let me just give you a few remarks on growth. I think when you see the investor deck that we normally update quarterly you'll note a quite expanded range of blue-chip global companies are working with us across the supply chain. In fact, we have about 140 Fortune 1000 clients now doing business with us.

And what we find, frankly, is that blue-chip companies are more comfortable working with solution providers and partners used by other blue-chip companies, and that is really benefiting us. We see modest penetration today and the breadth of services we can provide with these existing clients. We have a significant opportunity to cross-sell services across these large global clients.

I would say that we also meet with regularly the senior management of these clients. And not only are they pleased with the progress we're making and with our services, but they are increasingly viewing us as a strategic supply chain partner that can do more for them, and not just in a region or a country but on a global basis.

And we are attacking issues that are very macro in nature and where these clients are inviting us in to help address things like sustainability. We are launching first of their kind programs across asset management, redeployment, asset disposition, valuation services, scrap recycling, helping attack zero waste initiatives.

So whether it is on the manufacturer's side working with suppliers to improve the return to vendor process, eliminate transportation costs, maximize margin because we are able to turn products quicker through our global marketplace, or on the retailer's side to streamline and outsource the entire process, we are seeing outstanding receptivity for what we are doing, and we have never had a broader portfolio of organic growth opportunities.

And I think you have followed us for a long while. We have long had a secular growth target of 15% to 20% organic growth, and we are frankly significantly achieving that today. And we see that as sustainable given the breadth of clients.

I think on the operating leverage, we continue to get strong leverage really across the entire organization. I think going forward, obviously, you are familiar with our business model. Most of our fixed costs are under our G&A line, so I expect to get the most leverage out of that line, followed by technology and operations where we may get a little leverage.

Sales and marketing, as you know, is where we continue to invest in future growth. I wouldn't expect to see a whole lot of leverage on that line as we continue to try to penetrate our huge fragmented markets.

Jim, just a clarification on that. So if we continue to see more of a mix shift to the Commercial segment we should still assume there is room for margins to expand?

Again, I think it depends on your measurement of GMV versus revenue. As we have discussed with our acquisition of GoIndustry, we are currently running that business at a breakeven to a small profit. I think next year we will obviously have better profits out of that business, but it will be less than our corporate average as far as margins. And then again we will be bringing those back up over fiscal 2014 and 2015 to really our corporate average.

Great, thank you very much.

Jordan Rohan, Stifel Nicolaus.

I have a couple of questions. First of all, I am trying to dig into the guidance a little bit on GMV. I think you beat the high-end of your prior-guided range for the fiscal third quarter by around $20 million. Meaning the fact that you raised the bar for the annual by $60 million means there is a $40 million net increase at the high-end. How much of that is due to GoIndustry DoveBid? I think the deal closed in early July, so you got most of a quarter there.

And what kind of seasonality might there be in that business? And how do we think about what the GMV that exists for that business for your next fiscal year starts October 1? Thanks.

Absolutely. On the seasonality -- let me take the seasonality part first, because I think will be easier to understand that how it affects the last quarter, and obviously your numbers for next fiscal year.

When you look at the GoIndustry business obviously selling high-value capital assets, particularly towards the manufacturing sector, a very similar seasonal business to a lot of our energy clients.

Most of these clients have a calendar year-end, which means there is normally a larger push in the December quarter to move things out before the end of the fiscal year. Summertime tends to be a little light and the first quarter tends to be a little light. When I say the first quarter, the first quarter of the calendar year, so the March quarter tends to be a little lighter.

So when you look at the next quarter we would expect somewhere around 35 -- kind of the high 30s in GMV from GoIndustry. And, again, that would have really an immaterial effect on the bottom line, as we indicated already in our earnings release -- I'm sorry, in our acquisition release on earnings.

Great, and one follow-up question. You said an immaterial effect on the bottom line, but obviously there is some reduction in net interest income that you get on the cash that was spent. And what I'm trying to figure out is if you back into the EBITDA impact for the quarter and for next fiscal year how should we think about modeling GoIndustry DoveBid? There has to be some EBITDA.

Sure. Well, again, not a lot in this quarter here, as we indicated. First off, cash out the door for the acquisition was not very significant. As you know, the total overall deal was about $31 million. Most of that was the assumption of liabilities, which did not have to get paid off with the transaction. I would call them more working capital liabilities. We only gave an $11 million equity value to the business.

So as you know, the interest return on cash in the bank today is not very significant, so again immaterial effect, especially after taxes on that front. I think when you look at EBITDA, again, you can translate that based on the $0.01 to $0.03 guidance that we have already given for that business for next year back into that number.

Obviously, we would expect our share count to be similar to what it is right now around that 33 million bogey. And we would expect our tax rate to be consistent next year with this year, which is around that 40% mark.

Okay, last follow-up question. If the impact is so immaterial what is the strategic value of doing this acquisition? When will the financial impact the more significant? Thanks.

When you look at how these global clients think and operate, it takes years to penetrate them in multiple geographies. And we give high marks to GoIndustry's organization for penetrating these clients, not just in the corporate headquarters suite but throughout their supply chain in multiple continents.

And so there is a really fertile ground for us to do a couple things. One is to introduce a technology platform, really a Software-as-a-Service platform, called AssetZone to allow these global companies to collaborate and manage the asset -- disposition asset recovery function. In some cases these clients have more than 100 manufacturing locations globally, and we are moving all that activity online, and then we are connecting it to our transactional marketplace.

No one else is doing this in manufacturing supply chain. It is a very interesting opportunity. We think the take rates actually with the capital assets clients are very robust. Why is that? Well, there are many factors other than price that these clients value in choosing a service provider and a marketplace -- brand reputation, asset redeployment, recycling solutions, customized reporting, export control compliance, the ability to drive this internal collaboration across that function, not unlike a salesforce function for the sales organization.

So we are going to see take rates, we think, expand as these global clients adopt more and more of our value-added services. And in lean economic times we believe this function is right for outsourcing in a way that allows us to improve take rate and drive double-digit EBITDA margins as a percentage of GMV when fully integrated.

So I think that can give you what you need in terms of where this business is growing for us. And it is also the case that we have many large retailers that we only work with in the United States, but that are global in scale and own a lot of property, plant and equipment, and are very interested in leveraging the set of services and geographic support to grow their business with us.

So that is where we see a lot of cross-pollination by having this range of services. And, of course, there is more detail on why we view this as strategic in our acquisition announcement, in our closing announcement, and we are happy to elaborate on that off-line.

Thank you so much.

Shawn Milne, Janney Capital Markets.

Thanks for taking my questions. I wanted just to, Jim, follow-up briefly on GoIndustry. Can you just confirm the bulk of that would be booked through the consignment part of your model.

And then secondly just given the -- what you talked about in terms of the acquisitions, still very good take rates, but I think their cost structure was somewhat bloated. Should we expect that accretion to be more back-half weighted in fiscal 2013? And I have a follow-up.

Sure, absolutely. I think when you look at the topline sources of revenue from GoIndustry it really has a couple of different value-added services, where the bulk of their fees are based on the consignment model. So again they are selling capital assets in the consignment model in place around the world. It is very similar to what we do with all of our energy and large industrial clients today.

When you look at some of the value-added services they provide, as Bill mentioned a couple of them already, assets owned. They have got valuation services, inspection services, inventory of assets for clients where needed. So they have got a whole field service organization spread out around the world.

They get paid fees for these services. So, again, it is a high-value to the client, as indicated by the higher take rates, as Bill discussed earlier.

So when you look at where that is going to come through on the bottom line you will have some fee-for-service that is just pure revenue, meaning there won't be GMV associated with it. That for the most part will be immaterial to the organization as a whole, and then the largest portion of the business will be consignment.

On the cost structure the reality is they have scaled this business to provide a high level of service for all these multinational clients. Now as a small company that is a difficult task to do and try to leverage your scale.

The reality is that the cross-selling opportunities we have with all these multinational clients -- and by the way a model that we have proven already with the Network International acquisition, the Truckcenter acquisition, our ability to provide additional services, sell additional assets for these clients around the world is where we are going to get a lot of synergies to enable them to scale their growth.

Obviously, we have got the largest amount of cost savings and synergies here in the US just because we can support them from a technology front, accounting front, and back-office. In addition, they were a publicly traded company on the AIM market in the UK. Those costs are eliminated already.

In addition, we did remove the CFO and the CEO. Obviously there is no Board fees or anything else, as well as any sort of directors and officers insurance and all the things you can imagine -- listing fees as being a publicly traded company. Those costs were over $2 million a year, and we have already removed them.

So, again, the business will get off the ground running, albeit not optimal margins, as Bill indicated. We think we can get those margins up over the next couple of years as we grow the business.

Let me just add one other comment. Some folks would say, well, why do more in capital assets? When you look at the roster of corporate clients that GoIndustry has served at a very high level for many years, and you look at our clients, there are just obvious conversations that are strategic in nature for us to have.

It is public knowledge that GoIndustry DoveBid was Supplier of the Year for Procter & Gamble, which has something like 30,000 vendors. They are the world's largest supplier to retailers globally. Well, we happen to work with the world's largest retailer since 2005 -- have an excellent relationship at a very high level.

And here you have two companies focused on removing waste and being more efficient in the handling of materials, equipment, inventory. And we are in a unique situation and a unique role to be a strategic buyer -- advisor to both these companies to help them streamline and improve their reverse supply chain. That is unique, and that is one of the elements of this acquisition that underscores the strategic value to Liquidity Services.

Thank you, that is helpful. And, Jim, just to follow up, you made a prepared remarks that your retail business did not slow down sequentially. I know some retailers happen to run some programs on consignment, some on purchased from quarter to quarter. But it looks like the purchase business was down quarter-over-quarter. Is that just Jacob's coming off a very high level of holiday returns and slowing down into the -- seasonally into the summer or is it something else going on there? Thanks.

Really that was just a mix shift. There was very little change in the Jacob's business quarter to quarter. Again, almost -- I would call it almost flat, which again was a positive result given the seasonality of the retail nature of that business.

The mix of consignment and purchases, you know, just depends on various factors, meaning penetration of clients and programs, product flows with various clients. And what I will tell you is that it's very difficult to predict. As you know, we don't model or business based on consignment or purchase, we are focused on topline GMV and driving profitability based on that GMV.

We did have some new programs come online this quarter that really deflected that seasonality that we have seen in prior years. So, again, continued growth in what I would call the legacy retail supply chain business, for that matter, and again strong continued performance with our existing clients.

Great, thank you very much.

Jason Helfstein, Oppenheimer.

Two questions as most of my questions have been answered already. Bill, you referenced in the investor deck we would see certain new clients. Is there any metric you guys can break out, total number of clients versus a year ago, just to get a sense of new client growth, because I think that number has probably been pretty impressive?

Secondly, for those who are new to Liquidity's story can you review the RFP process for both the surplus and the scrap contracts, so people can get a better understanding of how that goes? Thanks.

Sure. I would say we have doubled our global 1000 client base. In the last year we have expanded our industry coverage. We have expanded our asset and/product coverage and expertise. We have expanded our geographic coverage of where we serve these clients. We have expanded our service offering. Jim mentioned valuation, you know, every auction that is completed provides information that is valuable to people in the reverse supply chain. Combined with GoIndustry DoveBid, we have appraised 3 million individual assets in the history of the company. Services like desktop appraisal are obviously addressable for our client, something they would highly value. And most of the technology in our product roadmap is directly responsive to conversations we have had at a senior-level within these blue-chip corporate clients.

So we look at advancing our strategic plan. We believe we have made great progress on that. Many of the services that we provide are applicable not only in the commercial market, but also the public sector market.

And with respect to the DoD, I think the DoD has continued to ask us to expand our scope of services, providing technology, software, storage services, compliance management services.

I think the strongest statement of their sentiment is what they have done in their public announcement of awarding us the Large Business Vendor Excellence Award. This is the second year in a while row that we have won that -- we have won that award, a Vendor Excellence Award from the DLA, and the forth over the history of the Company.

And we have worked with 4,700 government clients and 4,700 contracts. And I can tell you that past performance is an important distinguishing factor in the way these clients look at us. And I believe that the DoD values the compliance management and zero defect process that has been built together with them and deployed across such a variety of geographic locations and properties that is a very important element to their go forward plans.

I also believe there is a nonzero probability of the DoD having to manage multiple property surges in the future. And that it is important for them to have consistency in preset software services logistics and support during those periods where they are changing either the internal management team, streamlining resources and managing potential global requirements within the military branches for their services, all of which we believe strengthens the probability of us serving them for many years into the future.

The procurement process is something that is managed by the DLA centrally. We have no role in that process. We have high confidence that they will exercise the renewal options for everything that I just explained. And at such time we will make that publicly available both to us and to the market.

If I could follow up on that too. As Bill indicated, really the RFP process itself is a two-part process. The most important thing to the Department of Defense is the compliance, the ability to actually perform on the contract all the things that Bill had indicated earlier.

So to get even to the economic part of the discussion, if you would, around a RFP, you have got to pass that first part. And that is where the 10 years of serving this client actually -- I'm sorry, we are in our 11th year of serving this client -- makes the difference.

And the other thing I would like to point out that there is a lot of discussion about the DoD on budgets, tightening the belt, if you would. And you have to remember we are a cost saving solution for the Department of Defense. They have been able to eliminate hundreds of employees because of our service and our ability to efficiently sell these products in an online auction marketplace versus having to sell them in place at over 200 bases around the country.

Today, if you remember, we operate at over 78 bases where we physically manage our folks. We also put people remotely in places once property is accumulated. And when you look at what the DoD is trying to do, if there is going to be a cost restructuring of what is inside the organization, they are talking about closing bases, something which really has not happened in the past.

Although there has been discussion of BRAC in the past, we have not seen maybe but just a handful of bases closed over the last couple of years. Really since 2005 there has only been about eight bases that have closed since 2005, so really not a significant number.

If that is an undertaking that the Department of Defense wants to do, this is an absolute value add that we are going to be able to provide them to manage that process and handle that flow of assets for them. They are going to want to use somebody that they know can do that in a very compliant way that has got a marketplace and a buyer base that is going to be able to handle that flow of product and drive a return to them.

So I think we are extremely well-positioned for any of the strategies that the DoD wants to follow over the next decade.

And just one quick follow-up. I think the last time you did the renewal on the surplus the terms improved to be more favorable to you, i.e., the rate you paid them on the wholesale went down from what it was previously.

Any concern that that rate goes back up? Obviously, there is still a lot of time left, but is there then -- and if the rate does go up is there kind of an offset where there is a way to get more volume? Because to your point that economics are the second part of winning the business, the first part is the compliance. So just any color around that.

Sure. I think we have been doing this for a long time. We have priced over 4,700 government contracts. We have a proven track record of generating good returns on effort and investment. And margins reflect the range of services we are asked to provide, the level of risk assumption that we take on, the range of products we are asked to handle and sell. And as we have shown, we will be good stewards of value in working through whatever the procurement requires.

And we are very confident that we have, again, the experience to manage through any pricing model. We have the data to support our decision-making and are very comfortable about that.

Thank you very much.

Gary Prestopino, Barrington Research.

Have you made public what the take rate is on GoIndustry percentage?

I think we have said probably during conversations when we initially announced this transaction this is a company that commands 20% gross commission on the asset values sold.

Okay.

These -- again remember, GoIndustry was traded on the AIM. All their historical financials are currently available. To be clear, we will be filing an 8-K that specifically identifies the performance of that business for the last nine months as well as calendar year 2011. They were a calendar year-based company. But that calendar year information, by the way, is already available if you would like to get it.

And I would add that this is a business where there is zero inventory risk. That take rate can be higher or lower depending upon the range of services that the client elects to use.

Okay. So you said the take rate is 20% gross commission on the actual assets, that doesn't include the services or it does?

That is an historical average. And what I am saying is we are rolling out additional services that can move that higher should the client elect to use those. In other cases, clients may take on some of their own responsibilities to load assets into a marketplace, like we do for our GovDeals clients, in which case we charge a lower fee.

So when you are talking about capital assets, are you talking about things like industrial equipment, machines, or is it more or less parallel what you're doing in the United States with network services in terms of what you are selling?

Well, the answer is both. We have expanded the volume of equipment in things like transportation, in terms of scrap metal, material handling equipment, machine tools. But GoIndustry, as noted when we acquired the company, also is expanding us into brand-new industry verticals that require the same ability to connect supply with demand and do so efficiently and globally, such as health care and biopharma.

If you look at the CapEx on lab and test equipment, for example, it is significant, and there is a refresh of that equipment every year or two. And so there is a consistent supply that needs to be managed and sold in that market. We also have global manufacturers with process lines inside the four walls of a warehouse or a manufacturing plant. That equipment is upgraded and replaced on a regular basis.

We do a lot of additional work in the technology marketplace. We talked about surface mount technology that is being sold today in Japan and South Korea. These are global electronics manufacturing enterprises that are constantly upgrading their equipment to provide the competitive cost advantage of producing surface mount circuit boards, chips, mobile chips and devices. So we love the idea that we can handle the full range of inventory and equipment associated with the manufacturing supply chain.

Okay, and you said about 50% is North America, and then is the rest Europe or is there a split between Europe and the Pac Rim?

Split between Europe and the Pac Rim. And increasing our clients don't really look at themselves by geography but more by industry vertical and supply chain.

Okay, and then I would assume that they have their own infrastructure system there with warehouses and all, similar to what you have in the US?

We don't have warehouses globally, and the reason is this is equipment that is sold in place.

Okay, it is sold in place. Okay.

From client locations. And the only thing I would say to the extent that we have business in Europe, it is very attractive business for us. We are a countercyclical business model, and we are in high demand as these industries look to be more efficient across their global supply chains.

Okay, so it is sold in place. You don't have physical -- really physical locations, so you have these employees go out and do valuations, inspections, et cetera? You go directly to where the equipment is located?

Most of the valuation work is information-based. So if you have valued over 3 million pieces of equipment as we have, you are really able to do that work efficiently, and allow clients to upload information that can then be reviewed and feedback provided.

Okay, and then just last question. With your growth are we looking at maybe an uptick in capital spending? Do you have to add any physical locations in the US or any other parts of the world where you are operating now just because of the growth that you have had in 2013?

We don't really foresee that at this time. Certainly, adding a facility, as you know, is not very expensive. We are leasing those facilities here in the US. We are paying $1.99 -- $5 or $6 a square foot. It is not very expensive. We don't really have facilities globally today other than office locations for staff.

We don't foresee that being a part of the growth factor in the future, but if we did, we don't really see that as a significant cost. So when you look at our CapEx spend every year of about $5 million to $6 million, I wouldn't be surprised to see that go up a little bit -- when I say a little bit, a couple million dollars -- just to try to take advantage of the global leadership position that we have today. But, again, you're not going to see us double our CapEx spend next year or the year after.

Thank you very much.

Dan Kurnos, The Benchmark Company.

Not too much left here to pick at, so let me just ask you a couple of high-level questions here. Could you remind us of your thoughts about further international expansion now that you have closed GoIndustry and whether that is an internal initiative or if your sellers are asking for more global exposure?

And then now that you have really diversified the business over the past few years are there any verticals in particular where you feel you are either underpenetrated or have a strong growth opportunity either through existing assets or potential acquisitions?

Sure. Thanks for the question. We have always been a client-driven organization, and as we have observed interest on behalf of clients or industries that we are currently serving to be able to provide support outside the United States that naturally piques our interest.

In the case of the retail supply chain clearly you peel the onion back, you have got not only the points of presence where retailers sell. You have a set of global suppliers that are responsible in many cases for taking back products from the retailer, often called a return to vendor process.

We are having very productive conversations with those global manufacturers and the retail counterparts to step in and provide service to both sides of that equation and eliminate transportation costs, accelerate the sales cycle, recover value for both parties and allow them to share in that margin savings. And that is one of the things that is likely to take us beyond the United States.

In terms of these global manufacturers, we also recognize that in addition to supplying retailers, they own a lot of property, plant and equipment that they want to have transparency. They want to have a uniform process around the world in the way these assets are tracked and managed. They want collaboration tools they can work on internally to manage the potential redeployment of the asset before it is sold.

We provide all those services in a turnkey fashion to make that process far simpler, far more convenient. And it is a standard that we think we can become really the best practice in the manufacturing supply chain.

And so naturally that will take us to all the growth pockets in the world. You look at places like Asia, 60% of the world's population there. It is very young. You have the GDP that is growing at 5 to 6 times the growth rate of the United States.

So we are ahead of the curve in that where most of those manufacturers are going to want to have support, we are going to be there already. Many of these companies like to have these public compliant organizations like Liquidity Services as their partners, because we are very sensitive to compliance with local, national or international regulations. So that is a very comforting thing and why we are being invited into these blue-chip companies.

And in terms of the verticals?

Yes, your second question on industry verticals. Well, we have a lot to do in our core markets. We are 1% penetrated. So we picked our verticals by where we see a high degree of product obsolescence due to technology development, due to wear and tear, due to the constant need to upgrade and replenish equipment for EPA and regulatory needs.

So when you look at our markets, retail it is a very dynamic global market. It is in need of solutions that help clients improve cost management, transparency. A lot of these clients are shrinking to a core focus on their target markets. They want to outsource non-core activities. They are like a great match for our services.

It also picks up the retail OEM, supplier base, many of which are consumer electronics companies, branded home improvement tools, housewares, computer technology companies. There is a great synergy between those two areas.

Energy. Energy spends $350 billion a year in CapEx. They spend it whether the economy is up or down. It is a twenty-year investment cycle for them. So there is a massive market there in terms of the amount of line pipe that is sold every year. The amount of transportation equipment and material handling equipment used to stage either the exploration and production process or the downstream distribution of energy.

We have had a rejuvenation of activity in the shale formations in the United States and the fracing business in the United States. So there is a lot of opportunity in that core energy business for us.

The transportation vertical, you know, rolling stock is constantly being upgraded and replaced, either fuel efficiency issues, driver safety issues, EPA regulation issues. We have relationships with large retailers that own thousands of units of trucks and tractor-trailers that are looking for that global service.

We have many large asset-based lenders which require a turnkey logistics service and marketplace to recover those vehicles from lessee clients, process them through an asset valuation and ultimately to leverage an efficient marketplace.

We are excited by the ability to grow our services in that transportation vertical. And I would tell you we have been working with buyers of transportation equipment really since the inception of the Company. Many of our buyers began working with us buying government surplus equipment and now are being very active in buying similar equipment from commercial sellers.

And we talked about this BUX technology rollout. It is important that people understand that we have a lot of upside in monetizing our buyer base. We have had multiple marketplaces, and for a buyer to participate in an auction historically they have had to register on individual marketplaces. We are now giving them global permission and the ability to see all of the available assets from one user account enabled by our BUX technology.

We are doing some very interesting things in cooperation with our clients to capture more detailed information, streaming video. So the buyer experiencing and leveraging that buyer base is helping us penetrate markets like transportation.

The global health care supply chain is undergoing a lot of change. And you have got different segments in that supply chain focusing on production, testing, measuring, new drugs, and you have got therefore lots of supply that needs to be tracked and sold.

Another thing that overlays our technology platform is ultimately we believe our marketplaces will all be accessible via mobile devices. Our BUX technology platform is the precursor to that. It will help render the marketplaces in very simple intuitive navigation on mobile devices in the future.

We are a professional marketplace. We are not a consumer marketplace. So the vast majority of our traffic is still on traditional devices. But I think it is important for shareholders to understand that our product roadmap has contemplated and is preparing for rendering of our marketplaces in a mobile area.

As far as other industry verticals, we see a lot of interest in the technology sector, the technology sector which has your contract manufacturers that focus exclusively on the production. They are global in scale. They do a lot of distribution. Our products to people we already do business with. So we are penetrating by going back in the supply chain to provide services within the four walls of either a manufacturing facility or a light assembly facility to provide them access to our services.

Just one quick point of clarification. Correct me if I am wrong, but with the GoIndustry acquisition you guys also picked up a more robust global currency platform, yes or no?

Absolutely, yes, and multicurrency, multilingual. We render auctions now in Chinese language, in a variety of other in-country languages to help bring this global buyer base onto our marketplace.

Great, thanks very much.

Ladies and gentlemen, we have reached the time limit for our call today. So I would like to turn it back over to Ms. Davis for some closing remarks.

Thank you for joining our call today. Unfortunately, we did exceed the time limit for our call, but Jim Rallo and I will be available for any follow-up questions and discussion.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us. And you may now disconnect. Everyone have a great day.