Liquidity Services Inc (LQDT) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 and fiscal year Liquidity Services, Incorporated earnings conference call. My name is Catherine and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Ms. Julie Davis, Director of Investor Relations. Please proceed, ma'am.

Thank you, Catherine. Hello, and welcome to our fourth-quarter and 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, November 29, 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 Q4 earnings call. I will begin this session by reviewing our Q4 financial performance. Next, I will turn it over to Jim for more details on the quarter and on our outlook for the remainder for fiscal '13. And finally, I will provide an update on our long-term growth strategy. During Q4, Liquidity Services reported strong financial results as we continued to grow our market share and build on our leadership position in the reverse supply chain market. We continued to benefit from large commercial and government clients placing their trust in us to handle more of their excess inventory and high-value capital assets, which drove strong growth this past quarter. We exceeded our guidance range for GMV, adjusted EBITDA, and adjusted EPS, while continuing to make important investments for the future. Q4 GMV was up 65% year over year to $241 million, driven by growth in the volume of goods in our commercial and government marketplaces by existing and new clients. Adjusted EBITDA of $23.1 million was up 85% year over year. And adjusted EPS during Q4 was $0.40, up 186% year over year, driven by improved operating leverage on higher volumes.

This quarter also caps off another strong year for Liquidity Services in which our team continued to advance our business strategy of building a defensible leadership position in the reverse supply chain market, while also generating outstanding financial results for our shareholders and clients with our large and growing buyer marketplace, integrated services, and demand expertise. We are enabling retailers, manufacturers, and government agencies to drive efficiencies in their global supply chains and better compete in an increasingly complex business environment. During the past year, we enjoyed broad-based organic growth as we expanded our market share within both the commercial and public sector markets.

Our consistent execution has enabled Liquidity Services to become the trusted provider of choice in our industry, with over 100 Fortune 1000 corporations, over 5,000 federal, state, and local government agencies, and over 2.2 million registered buyers now utilizing our marketplaces. During the past year, 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. This enabled the seamless processing of relevant client assets on multiple LSI channels to further monetize our buyer base. Our proprietary BUX platform now covers approximately 70% of our user base, and will continue to improve the efficiency of our marketplace for buyers and clients.

Finally, in addition to growing our business organically, our team continues to drive inorganic growth and the consolidation of our industry to provide Fortune 1000 clients with the scale and services they require across industries, products, and geographies. In this context, we completed the acquisitions of GoIndustry in July and the National Electronics Service Association in October. These transactions enhance our ability to deliver surplus asset management, valuation, and disposition services to Fortune 1000 enterprises across North America, Europe, and Asia, and enable us to offer important new services to our existing sellers, while also growing our buyer base.

Of note, we expect the integration of GoIndustry will require significant upfront investments to fully realize the global capital assets market opportunity, which will result in a drag on earnings in the first half of fiscal '13, but will benefit the second half of fiscal '13 and our long-term growth prospects. Our continued focus on delivering the breadth of services, industry coverage, and global market data that large enterprises require in the reverse supply chain, positions Liquidity Services very well for fiscal year 2013 and continued long-term profitable growth and market leadership. Now let me turn it over to Jim for a more detailed review of our financial results and outlook for fiscal year 2013.

Thanks, Bill. Our record full-year results and the strong fourth-quarter results reflects market share gains and enhanced service levels and operating efficiencies across our entire business as result of investments we have made to support our growth over the last several years. Our strategy of bringing innovative technologies to the reverse supply chain market and our efficient business model has translated into strong results for stockholders. Fiscal year 2012 adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, has improved 109.1% to a record $110.1 million. Our seller base has continued to grow, as over 125 Fortune 1000 corporations and over 5,000 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 buyer base has grown significantly over the last year to approximately 2.2 million, or 36.3%, as we added almost 600,000 new buyers, including over 300,000 from GoIndustry, where you had very little overlap, and added a significant number of international capital asset buyers to the Liquidity Services marketplaces. In addition to strong core business operating results for the quarter, we embarked on several key initiatives to continue to drive significant shareholder returns in fiscal year 2013 and beyond. We closed the GoIndustry acquisition in July and have commenced the integration of this business, including adding the additional capabilities of the Liquidity Services marketplaces to expand the opportunity for GoIndustry clients to maximize the value of their surplus assets outside the manufacturing vertical. On November 1, we also completed the acquisition of NESA, which expanded our capabilities and value-added services in the consumer electronics vertical, as well as creating a significant presence for us in Canada. NESA is another example of how Liquidity Services has expanded its menu of services based on the need of our clients, as well as providing them a service location in Canada and increasing their logistics efficiency.

Next, I will comment on our fourth-quarter and full-year results, which came in above our guidance range for gross merchandise volume, or GMV, adjusted EBITDA and adjusted earnings per share. Total GMV increased to a record $241 million, up 65.1%, for the fourth quarter, and to a record $864.2 million, up 54.7%, for the fiscal year. GMV in our commercial marketplaces increased to a record $156.8 million, up 145.5% for the fourth quarter, and to a record $522.3 million, up 111.1%, for the fiscal year, principally as result of organic growth from new and existing clients, as well as the acquisition of Truckcenter.com, Jacobs Trading, and GoIndustry over the last 18 months. GMV in our DoD surplus marketplace increased to a record $36.1 million, up 35.3% for the fourth quarter, and to a record $133.8 million, up 29.3%, for the fiscal year, as a result of increasing property flow from the DoD and a higher mix of high-value capital assets, such as rolling stock.

GMV in our GovDeals for state and local government marketplace increased to $31.8 million, up 8% for the fourth quarter, and to a record $131.5 million, up 18%, for the fiscal year, as we continued to add new clients as further penetrating the $3 billion state and local government market. GMV in our DoD scrap marketplace decreased to $16.2 million, or 33.6%, for the fourth quarter, and to $76.6 million, or 11.1%, for the fiscal year, as a result of decreasing property flow from the DoD and decreases in 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 $122.3 million, up 51.6% for the fourth quarter, and to $475.3 million, up 40.9%, for the fiscal year, primarily due to the GMV growth discussed.

I will now discuss the fourth-quarter and fiscal year 2012 expense line items. I will not provide detailed explanations for changes from fiscal year 2011, and those explanations are similar to the ones previously discussed in my comparison for the fourth quarter. Acknowledging operation expenses increased 42.7% to $20 million for the fourth quarter, primarily due to increases in staff and personnel from acquisitions completed during the last 18 months, outsourced processing labor and temporary wages, including stock-based compensation and consulting fees associated with technology infrastructure projects to support the growth discussed. As a percentage of revenue, these expenses decreased to 16.4% from 17.4%.

Technology and operations expenses increased 22.2%, to $67.6 million for the fiscal year. As a percentage of revenue, these expenses decreased to 14.2% from 16.4%. Sales and marketing expenses increased 68.1% to $10.4 million for the fourth quarter, primarily due to increases in staff and personnel from acquisitions completed during the last 18 months, including stock-based compensation to support the growth discussed. As a percentage of revenue, these expenses increased to 8.5% from 7.7%. Sales and marketing expenses increased 29% to $31.3 million for the fiscal year. As a percentage of revenue, these expenses decreased to 6.6% from 7.2%.

General administrative expenses increased 55.9% to $12.4 million for the fourth quarter, primarily due to general corporate overhead expenses, business development costs, and increases in staff and personnel from acquisitions completed during the last 18 months, including stock-based compensation to support the growth discussed. As a percentage of revenue, general administrative expenses increased to 10.2% from 9.9%. General administrative expenses increased 29.1% to $37.1 million for the year. As a percentage of revenue, these expenses decreased to 7.8% from 8.5%. 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 85.1% for the fourth quarter to $23.1 million. Adjusted EBITDA margin as a percentage of GMV increased to 9.6% from 8.5%, driven by operating efficiencies in our retail supply chain marketplaces. Adjusted EBITDA grew 109.1% for the fiscal year to a record $110.1 million. Adjusted EBITDA margin as a percentage of GMV increased to 12.7% from 9.4%.

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 fourth quarter and the fiscal year were 18.9% and 23.2%, respectively, compared to 15.5% and 15.6% for the 2011 periods, 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 up 216.1% to $13.1 million for the fourth quarter, and up 99.9% to a record $60.9 million for the fiscal year. Adjusted diluted earnings per share was up 185.7% to $0.40 for the fourth quarter, based on approximately 32.8 million diluted weighted average shares outstanding. Adjusted diluted earnings per share was up 77.1% to a record $1.86 for the fiscal year, based on approximately 32.8 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 2012, LSI generated $12.9 million and a record $52.1 million of operating cash flow, an increase of 13.1% and 30.7%, respectively, year over year. We continue to have a strong balance sheet. At September 30, 2012, we had a cash balance of $104.8 million, current assets of $162.6 million and total assets of $400.4 million, with $53.2 million in working capital. Subsequent to year end, Liquidity Services paid in full the 5%, $40 million seller-subordinated note related to the Jacobs acquisition. In addition, the Company received a $1 million discount for early payment, resulting in a total payment of $41 million, including the accrued interest. On November 1, the Company also paid $18.3 million for the acquisition of NESA. Capital expenditures during the quarter were $4 million, and $6.8 million for the fiscal year. We expect capital expenditures to be $6 million to $7 million for fiscal year 2013.

Management is providing the following guidance for the next quarter and fiscal year 2013. 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 2013. In addition, we estimate that we will make investments totaling several million dollars to fully integrate GoIndustry into Liquidity Services over the next year, resulting in a drag on our earnings during the first half of fiscal year 2013. This is a change in our expectation that GoIndustry would be accretive to the bottom line throughout fiscal year 2013. We believe this investment is required to fully realize the synergies available across the Company's buyer marketplaces and clients to position us for growth within the $100 billion global market for capital assets. We expect GMV for fiscal year 2013 to range from $1.1 billion to $1.2 billion. We expect GMV for the first quarter of fiscal 2013 to range from $240 million to $250 million. We expect adjusted EBITDA for fiscal year 2013 to range from $123 million to $133 million. We expect adjusted EBITDA for the fiscal first quarter of 2013 to range from $22 million to $24 million.

We estimate adjusted earnings per diluted share for fiscal year 2013 to range from $2.05 to $2.23. For the fiscal first quarter of 2013, we estimate adjusted earnings per diluted share to range from $0.36 to $0.40. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of $33.4 million, and that we will not purchase shares with the approximately $18.1 million yet to be expended under the share repurchase program. Our guidance to adjusted EBITDA and diluted EPS for -- one, acquisition costs, including transaction costs and changes to our earn-out estimates; two, amortization of contract intangible assets of $33.3 million in the acquisition of Jacobs Trading; and three, for stock-based compensation costs, which we estimate to be approximately $3 million to $3.5 million per quarter for fiscal year 2013. These stock-based compensation costs are consistent with fiscal year 2012.

Finally, I would like to announce a change in the reporting of monthly gross sales data on our individual marketplaces. As a result of the integration of our buyer marketplaces, there is a significant and growing level of cross-listing, bidding, and selling activity across our marketplaces to maximize value for our sellers and buyers. This evolution has resulted in the monthly gross sales data of an individual marketplace becoming less relevant to measuring the growth of our overall business. As such, beginning with the month of November, we will post one gross sales summary report, or GSS, representing all the marketplaces 10 to 15 days after month-end on our corporate website, liquidityservicesinc.com, under the Investor tab. Now I'll turn it back over to Bill to discuss our long-term objectives and growth strategy.

Thank you, Jim. As we reflect on our strong fiscal year '12 results, we have renewed excitement of 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. At the beginning of fiscal year 2012, we established a five-year goal of tripling our business to $1.5 billion of GMV. Based on our strong execution and growing credibility in the marketplace, we are ahead of plan. And therefore, we have established a new goal of reaching $2 billion of GMV by fiscal year '16, or $500 million higher than the previous target. We are confident in our ability to achieve our long-range goals, due to our many strengths. Liquidity Services has the largest global buyer base for surplus assets, which continues to grow. We possess proprietary market data and knowledge derived from over $3 billion of completed asset sales to assist our growing client base, and the valuation and sale of assets in over 500 product categories in all condition types. And we possess the most innovative sales channels and services to meet the needs of the marketplace.

Building enduring, market-leading businesses requires a vision and conviction on the future trends and client needs in a given industry. It requires assembling talent with a passion for relentless improvement, discipline, and the willingness to invest and manage for the long haul, not for a given quarter or year. Growth and success does not occur in a straight line. As we expand into new verticals and to new geographies, and integrate selected acquisitions, results may vary in the short term. However, we have strong conviction that the asset recovery process will move online to capture efficiencies and improve transparency for professional sellers and buyers. And that this inevitable transition presents an enormous opportunity for Liquidity Services. We invite long-term investors to join us as we transform the $100 billion reverse supply chain industry.

What will drive our long-term growth and success? First, we have strong organic growth opportunities with our existing clients, which now include the world's largest organizations in the biggest industry sectors in the global economy -- retail, energy, transportation, health care, consumer packaged goods, technology, and the public sector. Our strong 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, and by OEM suppliers to their retail partners, both to re-think and re-engineer the returns process, and to manage and dispose of high-value capital equipment used in the production of finished goods. Where over our expanded capabilities enables us to cross-sell services to our clients, to capture more volume and fee-for-service business in areas such as valuation, asset redeployment, and refurbishing.

To date we have done very little cross-selling of services. And to fully realize these organic growth opportunities, we will invest in the expansion and training of our enterprise sales force and support systems to enable efficient cross-selling of our services to Fortune 1000 clients, which will boost revenues and cash flows over time. Additionally, we expect the volume of DoD's surplus property will increase over the next few years due to ongoing modernization programs, which will result in healthy organic growth with this long-standing client.

Next, macro trends are increasing the demand for our services and potential for new client additions in the retail and manufacturing supply chains. For example, the continued growth of online retail sales, where return rates are two to three times higher than in traditional retail, is driving a massive volume of returned merchandise that must be tracked, managed, and sold quickly to avoid significant loss of value, as product life cycles continue to shrink. We estimate that consumers will return a record $50 billion of merchandise this holiday season alone. Additionally, vendors to retailers are seeking solutions to centrally and consistently manage the sale of their returned and overstocked goods in the secondary marketplace, to protect the image and price points of their brands in the primary marketplace. Our comprehensive solution encompassing returns management, refurbishment, and multi-channel disposition enables us to reduce cost and increase recovery value for retailers and OEMs facing these challenges.

Another compelling macro trend which will benefit Liquidity Services over the next decade is the focus on global sustainability. Large organizations are committed to promoting zero waste solutions, which require credible strategies to track, manage, and sell surplus and scrap items, both finished goods and capital equipment, that have previously been discarded as waste. Liquidity Services has a proven solution and global buyer base to help these organizations meet their sustainability objectives, which will continue to fuel our growth over the long term. For example, we recently completed one of the largest green and zero-waste initiatives in the history of the US government by successfully selling 7.4 million pounds of steel, aluminum, and copper wiring, along with galley equipment fixtures and furnishings, from the decommissioned USS Long Beach. Items were sold at 118% higher than their projected value using our competitive online auction marketplace. To date, we've sold over 2 billion pounds of scrap material through our online marketplaces. That would be the equivalent of over 5,000 Boeing 747 aircraft being diverted from our nation's waste stream.

Finally, we see a huge opportunity in the public sector as government agencies such as municipalities, utilities, hospitals, and school systems become increasingly interested in recovering more revenue and promoting sustainability. With the largest online marketplace for government surplus and scrap material, and significant expertise in meeting the unique compliance and reporting needs of government clients, Liquidity Services will significantly grow its public sector business over the long term. In one example, we recently completed our first assignment for the University of Notre Dame, in which we auctioned over 1,000 items in a very tight timeframe in connection with the closing and renovation of a major on-campus facility. Given our ability to address these compelling macro trends and market needs, we plan to invest in the branding and promotion of our solution as the trusted provider of choice to expand our base of Fortune 1000 and government agency clients. By way of example, today we launched a new version of our corporate website, which better conveys our industry domain expertise, expanded service offering, and case study examples of our outstanding work. You can explore that further on our corporate website.

We also recognize that supporting a $2 billion GMV business requires important investments in our infrastructure that we will pursue during the next year. We have recently established a global HR function and leadership development program, led by Mike Lutz and an expanded team, which will prepare our teams for increasing levels of collaboration and readiness for the anticipated set of growth opportunities ahead for Liquidity Services. In many ways, we are building the workforce of the future, with unique roles focused on sustainability, data analytics, e-commerce and technology. We are in the process of rolling out a single sales force automation system and integrated financial reporting system to support our teams, which are now on the ground and selling our services in 25 countries around the world. This will be critical to smartly cross-selling our services to the world's largest blue-chip companies.

We are also investing heavily in our AssetZone enterprise system, used by large organizations to track, redeploy, and sell high-valued capital assets seamlessly with our online marketplace. This proprietary web-based BASS platform fills a void in the Fortune 1000 marketplace for large organizations that need to officially manage and report on asset recovery and sustainability initiatives. Today we have 24 Fortune 1000 organizations using our AssetZone system, with hundreds of users around the world. And we are excited by the expansion opportunities of this service going forward. 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. And 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. Thank you for your attention. And we will now open up the call for questions.

Thank you.

(Operator Instructions)

Colin Sebastian from Robert Baird & Company.

Thanks, and good morning. I guess first off, I wonder if you can break out more of the contribution in GMV from GoIndustry in the quarter and what you are expecting ahead there? And some additional perspective would be helpful in terms of what changed since the acquisition was announced. Is this more of an integration issue or is it also the direction of that business has changed, compared to the assumptions that you made when you first announced the deal? Thanks.

Well, sure. Let me first introduce the rationale for the GoIndustry transaction. Global clients increasingly need and expect uniform service globally for all of their equipment. And having met with many of the top clients of that business, we are not only seeing that rationale play out, but we are even more enthusiastic about the long-term growth prospects of cross-selling services to many large companies. In fact, companies that have traditionally been selling equipment on the Go-Dove marketplace also are major players in consumer-packaged goods and have inventory and scrap material that needs to be handled and sold. And so we like very much the opportunity to integrate a global enterprise sales organization, integrate their 300,000 global buyers, and then continue to scale the business. And so I think our comments with regard to investment merely relate to the experience of having five months being able to be on the ground around the world and investigate the level of software integration, staffing, and other investments to position the Company to scale and grow, not just next year, but obviously for the next four to six years, in line with our long-term growth targets.

Okay.

Relative -- I guess another aspect of the question was relative to the contribution of the business, we see that not changing.

I guess more broadly on the commercial side, if we think about the growth there organically. Is the opportunity, generally speaking, more about increasing or activating the buyer base? Or is it new sellers or increasing the business from existing sellers? I guess maybe it would be helpful if you could kind of rank those in terms of the impact on commercial.

Well, commercial and public sector both operate in a two-sided marketplace business model. And as we have consistently done over the years, we invest on both sides of that marketplace. You know, we have seen very strong linkage of one -- adding supply in certain categories as a catalyst for growing the buyer base. And we have earmarked certain investments in the year ahead to attack both sides of that marketplace. For example, on the buyer side, we are moving all of our marketplaces on to a single marketing automation platform that allows our buyers to receive information according to their purchasing criteria on assets available, not just in the initial marketplace their registered on, but in all marketplaces that Liquidity Services operates. So that's adding service and enhancing the value to the buyer and their relationship with the Company. And ultimately will drive greater competition and higher sales value realized by our sellers. So that would be an example on our buyer side.

On our seller side, frankly, we have such a great story to tell and we've done limited investment in branding of our services. And so this is a big opportunity for the Company to expand on the messaging you'll see on our corporate website, which was launched today. And equip our sales organization to not only serve a large Fortune 500 client in the area that we have traditionally served them, but to bring in other subject matter experts within Liquidity Services that allow us to expand the range of services we offer to that client. And so that's a huge opportunity for the Company. I mean, we have great coverage of large -- in many cases, the most influential players in all of the big industry sectors.

You know, as I mentioned, retail, both on the retail side and on the manufacturer side, supply retailers. We have a lot of growth opportunities simply by further penetrating these relationships and adding product categories and expanding our service offering there. We also have examples now of branded manufacturers who want to bring in-house and centralize the way that their brands are sold in the secondary marketplace. And they are asking Liquidity Services to provide that full-service solution to move products through our own channels and also manage any outlet channels they have online to ensure they have access to our proprietary market data on what these assets should be selling for, what this inventory is worth in the marketplace, and to maintain velocity on the movement of those goods to avoid loss in value. This is a potential new way of thinking in the return-to-vendor process, and something we are very excited about.

Okay, thank you Bill.

Shawn Milne from Janney Capital Markets.

Thanks. I just wanted to go back to the prior question. I mean, Jim or Bill, can you just -- you talked a lot about -- there was a comment about the dilution around GoIndustry. But then there was a whole commentary around bigger investments. Is there a way to just aggregate that? And very specifically, there was a prior expectation that GoIndustry was, I believe, $0.02 to $0.03 accretive this year. So Jim, what is it now? Is it $0.02 to $0.03 dilutive? What is the exact math behind that, if you can provide it? And then, Bill, you mentioned all things that should help drive growth, investing and branding the solution, expanding your sales force, all those things. What is that level of investment in '13? Thank you.

Sure. So Shawn, first off, I think when you look at the quarter that just closed, GoIndustry came in really in a line with expectations. We had said on our last earnings call that we expected GoIndustry again the first quarter that we were operating with them, to be somewhere in the mid- to high-30s of GMV, and to be around break-even on the bottom line. And that came in pretty much as expected. Then you look out at next year, we don't really see any change in our top-line expectations at this point. As Bill commented earlier, our initial meeting with the clients have been strong. The opportunities between the two organizations are tremendous. What we want to do is simply accelerate what we believe is the long-term opportunity that we see with the business. And we moved our integration, I think, up more into the first half of this year.

So to be specific on your question as far as what changed, I think what changed really was our timetable. A greater knowledge of the business now operating it for the last four to five months. And we expect to, yes, I would say see to $0.02 to $0.03, as you indicated, dilutive, if you would, for the first two quarters of the year. And then break even to making money in the second half of the year. And again, I mean, I think that's reflected in our full-year guidance, which represents over 18% organic growth year-over-year.

Yes, and let me -- on the back end of the question, we've added $2 million of corporate overhead to expand our global HR function, a product development function that centralized -- that's taking on the AssetZone enhancement that's integrating our sales force enterprise systems, that's adding this marketing automation platform. I mean the thing we all have to realize is if you're successful in branding and selling your services -- and we have every expectation that we will be very successful -- we are going to be asked to step up operationally to handle a much larger volume of business. And so we have always, going back to the beginning of the Company, been very disciplined and long-term oriented about making the investments up front in the right manner to make sure that we make the best first impression one can make when adding a new, in this case, mostly global large organization to our client portfolio. So that's our philosophy.

That's helpful. And I guess, Jim, what's the -- you kind of did the math for us. What's the pro forma cash balance after the acquisition and then the Jacobs note? And what would preclude your -- or why wouldn't you be more willing to buy your stock back here especially with what we're seeing today?

Well, on the pro forma cash balance, Shawn, it will leave us with over $50 million in cash still on the balance sheet. As a reminder, we also have a line of credit, a $75 million line, which we have not tapped at all. So the Company continues to have plenty of growth capital available with its current structure. As far as the buyback goes, I mean the buyback is really a Board-type decision. We look at that on a regular basis, depending on the strategic opportunities we see in front of us, and what's the best use of cash to support the long-term return of our shareholders. And so obviously, the stock price is a factor that goes into that equation, and we'll review that as necessary.

Okay, thank you.

Ross Sandler from Deutsche Bank.

Great, thanks. Jim, just one question. I know you guys don't talk about it or think about it this way, but the gross profit to GMV margin ticked down a couple hundred basis points. And I know scrap was a little bit light this quarter. That can be a noisy line. Surplus looked pretty good. So can you just talk about what the kind of above-average businesses in commercial are in the quarter? Like, was that what was causing -- that kind of a mix shift -- was that causing the take rate compression? Or how do we think about that going forward? And then the second question is, the re-upped investment for GoIndustry, just to go back to this one, seems like it caught you guys somewhat by surprise. You're usually pretty tight on assessing what's going on and messaging appropriately. So can you just give us a little bit more color on what kind of investments need to be made there, and what exactly you're doing? Thanks.

Sure. Let me first address the margin issue. I think the -- you know, again, the margins for the quarter came in, frankly, in line with what we expected. To reiterate, we were ahead of our guidance ranges on all fronts. I think particularly the EPS result was significantly above the high end of the guidance range. So really nothing unusual there. I think the way you're looking at the business, again, is not a way we normally look at it. But as you know that can fluctuate, just basic -- based on the change in the different models of our business -- meaning consignment model or purchase model -- primarily we had much more consignment model in the business. And so that may be moving your -- you know, the gross profit margin that you're looking at. Again, we don't look at the business that way. That's the only thing I can think of, Ross, because, again, on our side, margins came in as or better than expected. What I would -- you know, one comment on margins for next year, I think it's -- our margins for next year that are represented in our guidance are actually in line with exactly what we said last quarter. So we expected to finish this year around a 13% EBITDA -- adjusted EBITDA to GMV margin. I believe the year was 12.8%, 12.7%, something like this. So again, in line with our expectation.

When we discussed the GoIndustry acquisition in our last call, we said mathematically once you put that business on our platform and the investments we needed to make in the first year, it's break-even status at the time of acquisition that was going to affect the overall aggregate margin by a 1.5 to 2 points. And when you look at our guidance this year, that's exactly where we ended up. You know, I think it's like 1.6% or 1.7%, something in that range. Again, that 1.5% to 2%. So I think margins really are unchanged from our expectations that we discussed about before, both in the current quarter and for the next year. As far as investment goes, I think Bill hit a fair amount of those during his overview. But specifically -- and what changed in our expectations, I think, was when we really dug into the global opportunity for the $100 billion capital asset market, and we looked at the disparate organization of GoIndustry, one that has not been run historically with common systems and common processes, which is a departure from the normal Liquidity Services philosophy. We just saw an opportunity to change those things more quickly and more dramatically than we had originally thought. Again, from a due diligence process, versus running the business for the last four or five months. And we believe that's going to create more opportunity in the long run.

Yes, look, I think the GoIndustry transaction was something like $11 million of equity value investment. This is a business that, in the long-term, is going to be very successful. It's part of an integrated capital asset group with take rates of in the range of 20% for the bundle of services we are providing, with zero inventory risk, a very asset-light model, a business that leverages our global data, our global buyer base, and increasing cross-selling opportunities. You know, this is a very, very unique opportunity for us from an acquisition perspective. And one that will pay great dividends for Liquidity Services stockholders over time.

You know, I sat down with a gentleman who runs about $10 billion of capital equipment purchases for a very well-known Fortune 100 company. And there is very limited amount of business that GoIndustry had been doing with that client. And together we explained the full range of services we are providing, and information technology, property, plant and equipment, scrap material. And it became very clear that there was a significant opportunity to expand our business. And so we are smart and experienced to know that be careful what you ask for, in the sense of -- if clients like the value proposition, they're going to want to do a lot of business. And they are going to, in this case, want to do it globally. So we want to get ahead of the curve in terms of our financial reporting systems, our global sales force automation and sharing of data, and our operations teams. So that we execute crisply against we anticipate to be a lot of future growth.

Jordan Rohan.

Thanks, guys. I'm trying to look out to fiscal 2013 and pick apart what the organic growth is of the businesses that haven't just been bought. In other words, everything but NESA and GoIndustry. And I'm having a little bit of a tough time discerning from the $1.150 billion GMV midpoint of guidance about how much of the growth will come from the core, if you define the core as what I just said, as not Go-Dove and not NESA. Can you give me some clarification? Or, conversely, and I realize this was asked before, but I'm not sure what (technical difficulty). What would be the contribution of those businesses in 2013, so we can back that out? And what was the contribution looking retroactively for fiscal '12, so we can get to a common baseline for organic growth? Thank you so much.

Sure. And thanks, Jordan. Yes, I touched base on the organic growth looking at next year, I think, in one of my prior answers. But when you strip out GoIndustry which, again, as Bill indicated, is a pretty -- BusinessWorld was running at breakeven, and we considered it to be -- you know, breakeven is to a slight loss next year, so not adding anything to the bottom line. NESA, obviously a very small acquisition, adding a few pennies and a few million dollars to EBITDA. You're looking at 18% organic growth next year both top- and bottom line. Obviously, the top-line growing more quickly than that, because there is a decent GMV run rate from GoIndustry which, again, is really unchanged from our prior call, Jordan. We would expect somewhere between $165 million to $185 million of GMV from GoIndustry next year. Again, that's in line with what we discussed last quarter. So really no changes to our thoughts there.

And can you remind us what the seasonality is for Go-Dove? It seems like if there is a 35 to 40 kind of quarter in the October quarter, and you're guiding to 175, roughly, for Go-Dove in fiscal '13, that we should have some pretty sizable March or June quarters in that business. Am I thinking about it the right way? Is that where we really get the incidence to the GMV to really kick in? Thanks.

Sure. Good question on the seasonality. So that really follows the seasonality of the typical capital assets marketplace, which is that it tends to be fairly slow in the first quarter of our fiscal year, Jordan. So that's the December quarter. It will pick up a little bit in March as they roll into the next year, and in June. June tends to be fairly good. And September should be a pretty good quarter, as well.

Alright, thanks, guys. Appreciate it.

Jason Helfstein from Oppenheimer.

Hey, thanks, Two questions. One, just -- I don't think you commented, but if you can comment on what the organic growth was? So again, stripping out the acquisitions for both the quarter and for the year. I mean, we have our estimates, but if you can give us some direction of what it was historically. And then, secondly, just following on Bill's comments, I mean, it seems that you guys have added a lot of capabilities over the last 18 months. And can you go into a bit more detail on -- I guess, as you look at the business the ability to cross-sell those, or areas that you consider new? Because I think, kind of what The Street is missing here is that you are spending money to drive the business going forward that's going to show up in technology and operations, it's going to show up in sales and marketing, and ultimately, right now, The Street is looking at that as a negative. And it seems like you have a different view on that. Thanks.

Sure. Let me take the first part of that question, Jason, on organic growth. So organic growth continues to be strong. I obviously discussed that going forward. When you look at the last year and the last quarter, very nice results. Organically for the quarter, we were up over 50% on GMV on a -- actually, I'm sorry -- over 60% on GMV and over 50% on EBITDA, organically. When you look at the full year, you're talking about EBITDA of over 75%, organically. Again, as a reminder, we were up 109% for the year on EBITDA. And when you look at GMV, again as a reminder, we were up 55% for the year, over 40% organically. So very strong organic growth next year. And again, we see good organic growth into next year.

Yes, I think the question regarding cross-selling of services relates to the target market of Fortune 1000 companies. These are companies that, in many cases, are on the manufacturing side of the supply chain. These are companies that manufacture things and sell widgets, if you will, to the retail channel. There's a huge base of property, plant and equipment, rolling stock, IT hardware, that is subject to product obsolescence and use, and must be lifted out of those companies, valued and sold. There's a huge void in that marketplace, and therefore a great opportunity for us. There's really no enterprise system that multinational companies use to track surplus and idle equipment.

We are filling that void with the increased investment and deployment of the AssetZone system I referred to on the call earlier. That's sort of like a salesforce.com system. And the asset recovery function allows plant managers and procurement managers around the world to be collaborating online, dragging and dropping information using data, images, even video to understand what they have. And when an item is no longer needed by one part of the organization, it's made available to their peers within a company. In some cases, through our collaboration tools. It might be made available within an industry vertical among companies. And if there's no interest in the redeployment, which is a sustainability goal if you can use something that's used, you don't have to buy new. If that's not the case, then these items move immediately to one of our online marketplace events.

And so it's really aggregating more and more usage within these large organizations, a very sticky, desirable reporting tool for these companies that actually do have to report on how they track and manage this equipment, how they redeploy equipment to meet sort of board-level sustainability goals. And it is a really an integration of our marketplace at a deeper level, with the largest sources of supply of equipment in the world.

The other thing that we would note is many of these manufacturers have inventory -- you know, they are consumer-packaged goods manufacturers and they sell inventory to the retail channel. And they have nonperforming inventory. We have never had really any major presence in the manufacturing side of the retail supply chain. And this is green space for us, and something that we intend to fully exploit in our long-term plan. And this is a great entree for us to be in there talking about not only the capital good side, but also the inventory side. And I would also add there are lots of situations where you have scrap and end-of-life material that is a perfect complement to our scrap marketplace. You know, we are doing business today with one of the largest CPG players in the world, helping them set up programs for scrap that's a byproduct of their manufacturing process. Again, this is green space for Liquidity Services, and one that really is a nice complement to our sales force and team out there talking with these companies every day.

Well, I'll just follow up. So just on that, I mean, that would suggest that there should be operating leverage going forward in the model on these investments. And historically, you guys have talked about ultimately keeping margins flat and passing the savings onto customers and then more of the legacy businesses. Can you confirm that to the extent that you made these investments and they are a drag on the first half profitability and potentially that fiscal '13 you would expect operating leverage from these investments on a go-forward basis?

And then, Jim, just can you reconfirm -- I was just looking for the GMV, excluding the impact of acquisitions, Bill. I'm just using our numbers. Can you just -- are we in the ballpark? Something like 25% organic growth in the fourth quarter? And perhaps the year was somewhere around the 40% range, maybe a little more than that? Thanks

Sure. I guess, yes, Jason, I'm sorry if I didn't answer your question specifically on organic growth. Those numbers are in line, absolutely. As far as the investments go, we absolutely expect to see improvements in margins going forward after fiscal 2014 and '15, from our investments. Primarily, a lot of those investments are bringing everybody together as it relates to the GoIndustry acquisition. And we've indicated, again starting with our last call, our plans to do that. So you're looking at taking a business that's running at break-even to a level of profitability that is consistent with the other capital markets pieces of our business today. So we would expect to see leverage on margins moving forward after this year.

I think as I mentioned, if you're going to have a long-term orientation about where you're taking your business, we understand that there's growth outside the United States. And there is a fixed level of investment that's necessary to set up shop, if you will, in major economic centers, including the Asia-Pacific region. And as we absorb those fixed costs, right, based on cross-selling services and improving our volumes, naturally we will get operating leverage out of that.

Thank you.

Nat Schindler from Bank of America.

Yes, hi. I think most of my questions have been asked already. But can you guys go a little bit more into the GovDeals business? I would imagine that this business would have a very large TAM and a low penetration right now. And yet it seems to have fallen off to kind of single-digit growth rate in the last two quarters. What's holding you back in kind of the state and local municipality business?

Well, I think, first -- anyone who has been in the public sector marketplaces knows that, again, discipline, long-term orientation is important, the procurement cycle for the larger state and local agencies is a long sales cycle. And there's no question that you have evaluation processes that take months, and in some case years. But we've been in this business for 12 years. We now serve 20 of the 50 state agencies. We are getting access to larger municipalities based on credibility and track record. We just won a piece of business with the Chicago Transit Authority that brings together a variety of services we're providing in sort of a unique differentiation on how to serve the needs of a large agency. We expect that this $2 billion, roughly, GMV market will clearly embrace transparent online marketplaces, will move away from live, local auctions. And we are going to be the large force of change in making that happen. And whether that happens in fiscal '13 or fiscal '15 we can't put a precise projection on. But what we know is, as we've added resources and sales, and as we've moved geographically west of the Mississippi, we are having great success.

Yes, I think, Nat, when you look at GovDeals -- and we saw phenomenal growth in the beginning of the year -- the growth absolutely, as you pointed out, tapered off a little bit at the end of the year. But as I've indicated before, we are a growth Company, and you know that, and we don't grow in a straight line. So I think different pieces of our marketplaces will ebb and flow as far as growth rates. We'll end up the year with 18% growth in the business, which was frankly in line with what we expected at the beginning of the year. We were looking at 20%. So again, not too far off. When we will look at that business for next year, and some of things Bill indicated we've got in the hopper, with some new clients and existing clients, then we expect that business to grow over 20% over fiscal '13.

Okay, great, thank you.

Thank you. I'd now like to turn the call over to Julie for closing remarks.

We would just like to thank everyone for joining our call today. And as always, Jim Rallo and myself will be available for any follow-up questions you may have. Thank you.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Have a very good day.