Liquidity Services Inc (LQDT) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2013 Liquidity Services, Inc. Earnings Conference Call. My name is Dave. I'll 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 the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Ms. Kathy Domino, Vice President and Corporate Controller, Liquidity Services Inc. Please proceed, ma'am.

Thank you, Dave. Hello and welcome to our second quarter fiscal year 2013 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, May 2, 2013, 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. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results.

At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.

Thank you, Kathy. Good morning and welcome to our Q2 earnings call. I'll begin the session by reviewing our Q2 financial performance. Then, I'll turn it over to Jim for more details on the quarter and on our outlook for fiscal '13.

During Q2, Liquidity Services generated solid results in line with our guidance range while also funding major investments in support of our long-term growth strategy.

Q2 GMV was up 19% year over year to $259.1 million, driven by growth in the volume of capital assets in our commercial and government marketplaces. Adjusted EBITDA of $29.2 million was down 6% year over year and adjusted EPS during Q2 was $0.48, down 8% year over year due to integration costs related to our acquisition of GoIndustry and delays in the rollout of new programs with selected large client projects.

Excluding integration costs, margins in our core business expanded year over year in Q2 as a result of operating leverage and efficiencies gained from our cross site marketing efforts and the sale of value-added services, such as appraisal, refurbishing and our AssetZone asset management services. Our sales organization was very productive during Q2 across all sectors resulting in several new mandates that will drive strong results during the second half of fiscal 2013 and beyond.

We exited Q2 with zero debt and we continue to generate strong cash flows with an annual return on invested capital in excess of 50%. We remain focused on executing our long-term growth strategy to achieve $2 billion in GMV by fiscal year 2016. By focusing on value-creating investments, measured over a multiyear horizon, we expect to deliver outstanding results to our clients, grow our market share, and increase shareholder value.

Key initiatives include, one, investing in our IT platform and suite of products; two, investing in our sales and marketing organization; and three, completing the integration of recent acquisitions.

First, our IT and product development team led by our new CIO, Leo Casusol, is executing a multiyear investment program to update our ecommerce platform that will improve our buyer and seller experience and ability to scale our business. For example, we continue to make important investments to improve buyer participation in our online events and drive corresponding GMV growth. During Q2, we enabled the first phase of cross site listings that present results from other LSI marketplaces when buyers search from their home marketplace.

During Q2 we also released mobile versions of our liquidiation.com and governmentliquidation.com marketplaces. Our agile development approach is focused on quickly establishing a new baseline user experience with these changes, testing and then optimizing on top of this new baseline to improve results as we extend this new functionality to all of our marketplaces. This is an essential part of our core value of relentless improvement across our entire business.

We also continue to invest in our AssetZone system, a proprietary web-based tool which enables global organizations to track, value, redeploy and then seamlessly sell their assets in our online marketplaces. AssetZone has been very well received by top global corporations because it supports their sustainability goals, tracked at the senior executive and board level. For example, during Q2, on behalf of a global CPG manufacturer, we trained over 150 engineers and plant managers on the use of our AssetZone system to standardize their management, redeployment and sale of idle equipment, inventory and raw materials. In this manner, Liquidity Services accelerates the zero waste and green initiatives of our clients by helping them identify, process, redeploy and sell surplus, salvage, and scrap inventory and equipment that would otherwise be discarded as waste.

A second major area of investment is our sales and marketing organization. Our marketing team is rolling out improved sales collateral and seller-facing branding initiatives to drive a more aligned and effective message to our global Fortune 1000 target audience to capture more business. We are training and educating our global sales organization on our collective services and adopting common best practices to successfully sell to large enterprises. We are investing in sophisticated technology and processes to increase the conversion of our sales leads and to track the progress we are making with accounts on a global scale.

Finally, we've established a global sales committee with our top executives to ensure we are maximizing our collaboration and cross-selling opportunities with our top commercial accounts to grow our business.

Our third major initiative is the integration of recent acquisitions. We have dedicated, cross-functional, project teams focused on completing the integration of our recent acquisitions of NESA and GoIndustry. NESA continues to go smoothly and we have continued to make progress with the integration of GoIndustry into our capital assets group. We have eliminated non value-added locations and activities while also making investments to integrate the sales and marketing function, IT, and back office systems. This has resulted in a more effective, aligned, and responsive organization. We expect to exit this fiscal year with GoIndustry operating profitably.

Collectively, these efforts are paying off as we've won several new contracts with large global Fortune 1000 organizations within the pharmaceutical, consumer electronics, energy, retail, and consumer packaged goods industries. Our wins have confirmed that the size and scale of our buyer base, breadth of services, market data, and technology platform are highly unique and valued by the world's largest organizations.

Our continued success with large Fortune 1000 and government agencies has increased the number and frequency of high value individual auction events. For example, we regularly close auctions with $1 million or more of GMV, which may materially impact results in a given month. As such, the formal reporting of monthly GSS data is less relevant to measuring the growth of our business. We will discontinue this practice commencing with the beginning of fiscal year 2014, which is the month of October.

During the remainder of fiscal 2013, we will continue to sustain important, multiyear investments that enable us to further penetrate our existing relationships, add new sellers, and grow our buyer base over the long term as we take aim at our $2 billion annual GMV target.

In closing, we made significant progress advancing our business plan during Q2. Our integrity, customer focus, and investment in innovation have enabled us to continue to expand our roster of blue chip clients. We now serve clients in over 25 countries across America, Europe, and Asia and have created the most talent and capacity we have ever had in our history to pursue key organic and external growth opportunities that build on our leadership position.

Now let me turn it over to Jim Rallo for a more detailed review of our financial results and outlook for fiscal 2013.

Thanks, Bill. Our strategy of bringing innovative technology to the reverse supply chain market and our efficient business model has translated into strong results for stockholders. Trailing 12 months adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, was $109.9 million.

Our solid results for the second quarter demonstrate the operating efficiencies we have achieved across our entire business as a result of investments we have made to support our growth over the last several years.

Adjusted EBITDA margin as a percentage of GMV was 14.6% for our core business during the quarter, which excludes the operating results and losses from GoIndustry.

We are again in a period with vast opportunities. Our ability to capture these opportunities over the next several years will be shaped by our investments we are making over the next several quarters, the largest of which is the GoIndustry marketplace. The opportunity to further serve 75 of the Fortune 500 clients associated with the GoIndustry acquisition will require us to make more investments and restructure an organization that has not had any investments in the last 4 years.

After nine months of operating the GoIndustry organization and reaching out to many of our clients, we are focused on cultivating all the good team members serving the needs of our clients, investing in changes in technology to conform the usability of Liquidity Services' marketplaces onto the GoIndustry platform, and restructure the organization to adopt the efficient operating model of Liquidity Services.

During the 3 months ended March 31, 2013, we made significant progress implementing and restructuring our plan for GoIndustry. We closed non-performing locations and rationalized the remaining supporting infrastructure while maintaining key elements of the organization that have consistently provided a high level of service to our Fortune 1000 clients.

This restructuring resulted in approximately $2.3 million in additional costs during the quarter. We expect to complete our restructuring plan over the next six months and we believe these changes will enable the GoIndustry marketplace to achieve profitable operations in fiscal year 2014. Over the next several years, we believe GoIndustry will drive one of the highest returns on invested capital for any of our acquisitions.

On November 1st, we also completed the acquisition of NESA, which expanded our capabilities in 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 needs of our clients, as well as providing them a service location in Canada increasing their logistics efficiency. We have continued the integration process of NESA which is moving according to plan.

Next I will comment on our second quarter results. Total GMV increased to a record $259.1 million, up 18.7%. GMV in our commercial marketplaces increased to a record $166.6 million, up 29.9% principally as a result of organic growth from new and existing clients as well as the acquisition of GoIndustry on July 1, 2012. GMV in our DoD surplus marketplace increased to a record $38.7 million, up 14.2% as a result of the increasing property flow from the DoD. GMV in our GovDeals, our state and local government marketplace, decreased to $36.2 million or 2% as the second quarter last year had several large capital asset sales. GMV in our DoD scrap marketplace decreased to $17.7 million or 8.5% as a result of decreasing property flow from the DoD and a decrease 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 a record $130.3 million, up 3.7% primarily due to the GMV growth discussed. Revenue growth was lower than GMV growth as the portion of business using the consignment model increased.

Technology and operations expenses increased 41.8% to $22.4 million. As a percentage of revenue, technology and operations expenses increased to 17.2% from 12.6%. These increases are primarily due to, one, expenses of $4.7 million from the acquisition of GoIndustry and NESA; and two, expenses of $1.9 million in staff and temporary wages including stock-based compensation and consultant fees associated with technology infrastructure projects.

Sales and marketing expenses increased 44.4% to $10 million. As a percentage of revenue, sales and marketing expenses increased to 7.6% from 5.5%. These increases are primarily due to expenses of $3.1 million for the acquisitions of GoIndustry and NESA.

General and administrative expenses increased 44.1% to $11.8 million. As a percentage of revenue, general and administrative expenses increased to 9.1% from 6.5%. These increases are primarily due to, one, expenses of $3.1 million for the acquisition of GoIndustry and NESA; and two, expenses of $500,000 in staff wages including stock-based compensation and overhead expenses.

Adjusted EBITDA of $29.2 million decreased 5.6%. Adjusted EBITDA margin as a percentage of GMV decreased to 11.3% from 14.1% driven by operating losses and integration costs from GoIndustry.

Adjusted net income was down 8.9% to $15.6 million. Adjusted diluted earnings per share was down 7.7% to $0.48 based on approximately 32.3 million diluted weighted average shares outstanding.

Operating cash flow, as stated on our cash flow statement, was negatively affected by approximately $2.2 million associated with the Jacobs acquisition earn out final payment made in the quarter.

We continue to have strong debt-free balance sheet. At March 31, 2013, we had a cash balance of $57.2 million, current assets of $128.7 million and total assets of $390.9 million with $46 million in working capital.

Capital expenditures during the quarter were $600,000. 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 next quarter.

We expect GMV for fiscal year 2013 to range from $1.025 billion to $1.1 billion, which is unchanged from our previous guidance range. We expect GMV for the fiscal third quarter of 2013 to range from $250 million to $275 million.

We expect adjusted EBITDA for fiscal year 2013 to range from $115 million to $121 million, which is unchanged from our previous guidance range. We expect adjusted EBITDA for the fiscal third quarter of 2013 to range from $29 million to $32 million.

We estimate adjusted earnings per diluted share for fiscal year 2013 to range from $1.90 to $2.02, which is unchanged from our previous guidance range.

For the fiscal third quarter of 2013, we estimate adjusted earnings per diluted share to range from $0.49 to $0.54. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of 32.7 million and that we will not repurchase shares with the approximately $18.1 million yet to be expended under the share repurchase program.

Our guidance suggests EBITDA and diluted EPS for, one, acquisition costs including transaction costs and changes in earn out estimates; two, amortization of contract intangible assets of $33.3 million from our 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 the next two quarters for fiscal year 2013. These stock-based compensation costs are consistent with fiscal year 2012.

Bill and I will now answer questions.

Thank you. (Operator Instructions) Shawn Milne at Janney Capital Markets.

Just a couple questions. First on GoIndustry, Jim, can you help us out, a little more color on what GMV was for the quarter and trends in that business? I guess we can back into the loss there. Bill, just on maybe the pace of organic growth overall in the commercial business. I mean it looks like it's up a little bit, but you talked about having some major new wins in the second half. Do you expect that commercial growth then to accelerate? If you can add a little more color around that. Thanks.

Let me address the commercial growth. One, as you heard, we are investing in our sales and marketing organization. The quality and productivity of our enterprise sales force continues to improve over time. Given the focus of our strategy to aim our services at the largest corporations with the most capital intensive industries with high-value equipment and inventory to sell, when we win business it's meaningful. As we progress through the balance of fiscal '13, we will see that come through with high organic growth. We're in the high single digits coming out of the current quarter and we would expect that to improve.

As we've said time and again, the history of our business, over the last six years as a public company, I think we've had organic growth range from minus 6% to plus 50% year over year in given quarters. In many cases, you'd have build up periods and then you have breakthrough periods and the resulting stair step growth is what we've lived as we've targeted large organizations.

So I think we're very pleased that we're converting our effort into results in the sales and marketing organization and we're doing it in many industry categories that appreciate and embrace our approach to investing in technology, providing the required value-added services and bringing the global buyer base and demand for the equipment and inventory. So yes, we see continued progress and manifestation of that will be organic growth improving over time.

Shawn, there are -- on your going to your GMV question, GoIndustry was on plan this quarter for GMV. As we talked about in our last call, we expected get around $140 million to $145 million in GMV for the year out of GoIndustry. This is typically a lighter quarter as was expected. So in the capital asset side, December tends to be a larger quarter and then the March quarter tends to be the weakest quarter of the year. So, I would say again, GoIndustry was in line with what we discussed on our last call.

Colin Sebastian at Robert Baird.

Have a couple questions. First off, based on the midpoint of the guidance, it seems you're expecting quite a ramp in GMV and growth in the fourth quarter. If you could just tell us what gives you the comfort and visibility there? If that's just the new partners kicking in or is there any other lever in the Q4 to think about? Then on margins, in the press release you talk about expanding margins in the core business. If you could just clarify more specifically how you define the core business and put some color around the margin profile on the commercial side.

Sure, Colin. I'll take those. First on the margins, I guess core for lack of a better word, is everything excluding GoIndustry. So, when you look at the rest of the business, frankly operating extremely efficiently right now, in fact, a record quarter margin wise, again, excluding GoIndustry. So we had nice growth in the retail side of our business driving efficiencies there. Obviously the record quarter in surplus is helpful as that's one of our highest margin businesses as we've talked about.

So, again, I think when you look at the rest of the LSI organization, really getting leverage, scale efficiencies and operating the best it ever has, we -- as we indicated we've made continued progress with GoIndustry. I would expect actually -- and this will be a segue into really your first question, which is why are we comfortable with Q3 to Q4 ramp? A lot of that does have to do with GoIndustry and the progress we've made to date. So we would expect the losses to be much smaller in Q3 and Q4 around the GoIndustry organization as most of the implementation of our restructuring plan has been put in place. I don't want to say that we're done yet. We still have some work to do. But the significance of the work to do is greater behind us.

As far as additional top line growth, we're in a unique situation this year where we have signed several large clients during the year. As Bill indicated in his comments, we also have some what I would say is ancillary business or projects we're going to do for existing clients' programs as we've called them in the past, which are ramping up in the third and fourth quarter.

So again, when we look at, as you know from providing guidance and expectations for our quarters, we're dealing with business that we know that is signed up with either current or new clients. Again, as Bill commented in his remarks, we've been very successful in the last six months of adding new programs and adding new clients.

Just to add these investments in innovation as we call them do make a difference in terms of efficiency of the business. For example, we have commented on the fact that 90% of our buyers are only registered on roughly 10%, only on 1 of our marketplaces. So that's a huge upside for us to convert more buyer participation, which drives better auction results, which drives profitable growth for us. As we've gotten into the phased release across that listing, as we've improved the buyer experience on these marketplaces, we're getting some lift there, which is exactly why we've highlighted that in our product roadmap.

Ross Sandler at Deutsche Bank.

Just kind of a follow on to the first couple questions. But you stated last quarter that new clients were coming in slower. Existing customers were also generating lower flow than you had originally expected. Today's commentary seems like a bit of a departure from that, somewhat reflected in what you just said about 4Q ramping back up. So can you just give us a little more color on specifically what's changed? Is the share coming from the top 30 retail kind of core commercial clients? Is it new geographies, new categories? A little bit of color there.

Then Jacobs historically has been a kind of over the phone container load business. I know one of the strategies was transitioning it to more of a hybrid online and potentially doing smaller pallets. Is that happening? Can you just give us an update on what's going on, on the Jacobs side And, as the transition happens, how the EBITDA to GMV margins at Jacobs are progressing?

Let me take the first part of your question, Ross. So last quarter in the comments that you mentioned, we're dealing specifically with why did we lower guidance for the full year? So when we look at the end of the first quarter and looked at the rest of the year, we did not have ramp up in new programs coming as fast as we thought, meaning that we expected to have a better ramp this quarter, the quarter that just closed, Q2.

In addition, we weren't getting growth from existing client programs. So these are programs that we've been running for over a year. That phenomena has not changed. So we haven't really seen growth from existing client programs. What has changed, though, is as we talked about on the last call, we've used what I would say is the slowdown in volume with the great demand that we have on the buyer side to increase the number of programs we're doing with existing clients. So these are new programs for existing clients which are ramping. Also, again as Bill noted in his comments, we've signed a significant number of new clients, which we did not have three or four months ago when we did our last call. So that's what's really driving the growth.

So, Ross, you've been with us for a while. You remember we have had this in our history where we've seen slowdown in our growth trajectory. For us, that's usually been anywhere from a 60 to a 90-day phenomena as we're able to reach out to our clients, reach out to perspective clients and back fill that supply. That's exactly what the sales team has done in the last four to five months. I'll let Bill comment.

I mean just to add on the context in business environment. The slow growth business environment, companies are looking to downsize facilities, outsource non-value added activities, look for improvement in managing their brand in the secondary marketplace, which affects their core business. So when you talk about the context of new business, we're talking about manufacturers in industries ranging from healthcare to pharmaceutical, lot of consolidation happening in that marketplace. As patents come off, people have to be very cost efficient in the supply chains. You have plant closures. You have plant consolidation. You have rationalization of packaging and products that all feeds into our marketplace. The same in consumer electronics, consumer packaged goods industries, these are global corporations with 50, 60, 100 plus plants globally. They're looking for a uniform process. They're looking for the ability to track and manage these assets as they go to the secondary marketplace in support of sustainability efforts.

There's a huge compliance focus for boards of these companies to manage their reputation. Those all align with our value proposition. We're also picking up business in the energy marketplace. We're the growth economy in the globe now in energy in the United States. There's a lot of capital equipment and investment occurring in this country. The companies that we've served historically are aligned with that and we have the technology to bring the global buyer base to the equipment. Depending upon the size and scale of the event, we're talking about multimillion dollar auction listings. So that helps growth.

The retail supply chain is looking to simplify the return to vendor process. That plays to our strengths. We can resolve storage and transportation costs for both retailers and the manufacturers that supply those retailers. That's been productive in terms of winning new mandates.

As far as the Jacobs Trading business, I think we've been very thoughtful about leveraging the core competencies and knowledge of the Jacobs team with respect to their export buyer base. I guess we all at some point still use the phone, but most of that has migrated to online access of inventory manifests, the ability to capture sealed bids, in some cases move inventory through truckload and pallet auctions as well. We've incorporated all of the technologies that we have to not only support the existing business but to help grow the business, not only with Jacobs Trading but all of our acquired businesses over time.

So we don't think of our business as standalone, where one seller, one program, but really with regard to an entire industry set. So our retail supply chain group and effort would encompass all of the work of Jacobs Trading, our liquidiation.com marketplace, our value-added services that support large retailers and manufacturers in the retail supply chain.

Michael Purcell at Stifel.

Jim, I was wondering if we could just circle back to Go. When I back it out, just an estimate, is it fair to assume that the total company grew organically in the upper single digit? If you could just help us there. Secondly, with the DoD contracts coming up in January and I believe June of next year, I'm wondering what the process is when you'll start RFP, etc.? If you could just kind of update us on that?

So, with regard to the public sector contracts, we hold today something like 5,600 government contracts at the federal, state, and local level. The typical process is the agency will seek input from industry in the form of an RFI. The DoD, along with state and local agencies, undertakes that process -- is undertaking that process with regard to the surplus program, which is February of 2014. It would appear that a lot of the themes that we just discussed are in place for the DoD looking to solidify and fortify partnerships to streamline and improve their supply chain. So we will participate in whatever process that they would require to understand and define the key deliverables in any future programs. Other than that, there's really no update in terms of the organic growth. I'll let Jim comment on that.

Yes, your math is fairly accurate, Michael. I would tell you that we're on track right now to get to around 12% or 13% organic growth for the entire year. This quarter was a little less than that but right now we feel good about our goals in that area.

Andre Sequin at RBC Capital Market.

You mentioned the tech investment a few times today. I think in the past the guidance was for tech investment in the first half of the year to integrate the industry. Is today's commentary an indication that we should continue to see further de-leverage going forward or are we over the hump here? Secondly, on the GoIndustry client wins, are these still more local in nature or are they really going to start taking advantage of the GoIndustry buyer network globally?

First, the product roadmap and our investment in technology is something that is already incorporated into our guidance. So, we don't expect to have a change in our cost structure based on supplemental spend in technology. I think the important point is that it's investments that have been made the first half of the year and frankly, prior years that allow us to continue to find opportunity to improve margins, improve efficiencies, and improve scalability for the Company. I think it's also important to recognize that as we progress these investments, it becomes far easier for us to integrate acquired marketplaces. We anticipate that in these investments that we're making to bolt on additional sellers, buyers, to anticipate the full range of needs for these clients and any perspective acquisitions. So we feel we've made smart, value-added investments that'll have multiyear impacts on our growth and success.

Client wins, we're looking at global corporate client scenarios. We are landing business in China. We're landing business in Europe. We're landing business in North America, Canada. We are truly the I think only player that uniquely brings global demand from over 200 countries through this online marketplace platform with project teams that can work with our clients in their facilities to capture asset information and with these enterprise web-based systems like AssetZone that support a centralized process for the way that the largest global corporations track and manage their equipment as it comes to market. So those combined services are what have helped us win new business in the marketplace.

Jason Helfstein at Oppenheimer.

Two questions, can you just give us a little more detail? I mean the commercial purchase weakness I think you guys cited to deal perhaps with fiscal cliff issues. The guidance you're saying is not assuming an improvement in that. So just talk about is there kind of what's going on with the retail goods, where that's just acting more sluggish than historically? Then the second question, can you talk about the impact of sequestration on the surplus business to the extent that you're seeing anything with that right now?

Sure, Jason, let me take the first part. So if I understand your question, you're asking me about what you termed as weakness in the commercial purchase business. That's -- I guess the purchase model is simply the output of a mix of business from various clients. We do not dictate purchase or consignment with our clients. We work to offer our clients a flexible operating and flexible economic model that fits into their business. So the purchase model shrinking is really just a manifestation of what our clients are adopting as the way they want to work with us, meaning the consignment model has been growing. There's no -- there's really nothing more to read into that. It's only an output metric. So there's not -- there's not specific weakness there. I would just say that the growth has been coming more in consignment relationships both on the retail side of our business and the commercial capital asset side of our business. I'll let Bill talk --

Yes, I mean, look, sequestration at the federal level is what we've experienced for some time at the state and local level. What it means is that you have fewer resources to support the day-to-day operational needs of the agency. That could relate to procurement. That could relate to essential services or administrative support services. I think as a taxpayer it's a serious issue when vital services aren't provided because of across-the-board cuts that aren't surgical and don't serve a valid purpose.

But from what we've experienced, furloughs have reduced the capacity of the DoD just to manage day to day. I think less hours during the week to get the day-to-day work done.

Dan Kurnos at The Benchmark Company.

Just a couple for me. Speaking to the ancillary revenue piece, your fee revenue was up 77% in the quarter. So just wondering how we should think about your opportunities to expand that business? Maybe how if at all GoIndustry could factor into those plans? Then just for Jim maybe a little more housekeeping, it looks like you pulled back on CapEx in this quarter. I'm just wondering how we should think about your investment spending plans going forward to support operational growth.

So on the fees, we have had a consistent focus of listening to these clients, understand the pain points in their supply chain, understand their long-term strategies and then delivering services that are responsive to that. Indeed, as we've delivered more value-added services to handle online financial settlement, screening of inventory against export control rules or de-labeling rules or as we roll out our software as a service web-based AssetZone system, we get higher take rates. We get a higher share of the revenue because we're adding more value. We're obviating their costs. We're doing things to improve the efficiency of the client. So we've seen take rates grow in our business which has helped drive that.

I mean as a follow up to that question, too, Dan, as Jason Helfstein asked in the last question really about the decrease in the purchase model, again we had an increase in the consignment model. So consignment model by definition is fee revenue. So what you're really just seeing is a change in the mix of business from our clients which we don't necessarily control. Again, it's an output metric. There's nothing really to read into that as far as how the business is growing or read into it with any specific client changes.

On the CapEx, yes, I think CapEx was a little lighter this quarter than we would have anticipated. We're running at about $2.5 million so far for the first 6 months, which is in line with our $6 million to $7 million range, a little lighter. I mean I guess if I had to guess right now, we'd probably be at the lower end of that $6 million range. But as you know, our model is extremely CapEx light. So whether it ends up being $6 million or $7 million at this point is not going to materially make a difference in our cash flow dynamics.

Nat Schindler at Bank of America.

Just regarding that $15 million to $20 million of energy industry capital equipment sales that fell out of Q1, how much was recognized in Q2 and in what line item? I'm assuming that's commercial consignment. Also, how much -- if that's a fairly annual sale, where were those sales recognized or corresponding sales recognized last year?

Sure, well I guess, Nat, we never said that there was $15 million to $20 million of assets that moved from the first quarter into the second quarter. Specifically, we were $6 million under the guidance for the first quarter on GMV only. We indicated that the reason for that was several sales of large energy -- for large energy clients and those sales rolled into the second quarter. In fact, they did. So when you look at where they come out in the matrix of pricing models that would be in the commercial consignment area of the mix. Again, that's the same place that they would have taken place last year. Our clients -- we have a nice recurring revenue model on our network international marketplace. We work with some of the largest energy companies in the world globally. Although on a monthly basis, those sales can be lumpy as we've seen in the past. When you look at an annual basis, we've seen nice growth traditionally in that marketplace.

Yes, I mean I think as we talked about earlier, this strategic plan in our asset management suite, AssetZone, in our marketplaces is an enterprise solution for these clients. So I wouldn't get caught up in trying to tie the industry criteria or industry definition of a client with the products that we sell for the client. For example, for one of the largest exploration and production companies in the world, we sell rolling stock. We sell machine tools. We sell IT equipment as well as line pipe. We're able to track several hundred assets that are available for redeployment internally before they go to market. So it's an enterprise solution that encompasses a vibrant disposal marketplace, our ecommerce channels as well as the pre-sale value-added services to help these global organizations track this equipment. Because they're in remote locations, it's not easy. Using technology is the right way to do it.

Go ahead, Dave.

I'm sorry. Just to say there's no further questions for you gentlemen. So now I'd like to turn the call back to Mr. Jim Rallo for closing remarks.

Thanks, Dave. That concludes our call today. Thanks, everyone, for dialing in or listening on our webcast. If you have any further follow-up questions, you can reach me in the office. I'll be in all afternoon.

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