Liquidity Services, Inc. (LQDT) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Liquidity Services Inc. Earnings Conference Call. My name is Diana, and I'll be the operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host, Ms. Julie Davies, Director of Investor Relations. Please go ahead.

Thank you, Diana. Hello and welcome to our first 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 question reflects management's views as of today, January 31, 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, in 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 as substitute for or superior to GAAP results. At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.

Thanks, Julie. Good morning, and welcome to our Q1 earnings call. I'll begin the session by reviewing our Q1 financial performance. Next I will provide an update on our long-term growth strategy. I'll then turn it over to Jim for more details on the quarter, and on our outlook for fiscal '13. During Q1, Liquidity Services reported strong financial results, as we continue 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 asset sales, which drove strong growth this quarter. We exceeded our guidance range for adjusted EBITDA and adjusted EPS, while continuing to make important investments for the future. Q1 GMV was up 30% year-over-year to $233.4 million, driven by growth in the volume of goods in our retail supply chain and government marketplaces. Adjusted EBITDA of $24.2 million was up 6% year-over-year and adjusted EPS during Q1 was $0.41, up 11% year-over-year driven by improved operating margins in our core business. Despite our reduced outlook for fiscal year '13, we remain confident and focused on the execution of our long-term growth strategy to achieve $2 billion in GMV by fiscal year '16. Our 13-year history as a company has shown that by focusing on value-creating investments measured over 3- to 5-year horizon, we have been able to deliver exceptional growth and shareholder value. Our disciplined approach to this long-term investment philosophy has significantly enhanced our competitive position, client base, and financial position over the past 5 years. For example, during Q1, margins in our core business expanded year-over-year as a result of previous multi-year investment initiatives made to improve our operating leverage and efficiencies such as the rollout of our new warehouse management system, operational Six Sigma training and leadership programs, and new tools to automate our customer service and marketing functions. During the remainder of fiscal 2013, we will continue to sustain important multi-year 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 long-term $2 billion GMV target. One of the greatest organic growth opportunities we have is to do more business with our current clients. Today, we provide services to over 130 Fortune 1000 corporate clients, which include the leading companies in the retail, consumer packaged goods, energy, healthcare, transportation and technology sectors. Uniformly, our clients give Liquidity Services high marks for the quality and reliability of our services and for our domain expertise in the reverse supply chain, yet only a small percentage of our top clients take advantage of the full breadth of our services or conduct business with us in more than one geographic region. As a result, this year we have created a global strategic accounts sales group to review and prioritize strategic cross-selling opportunities. We're also investing in the further training and development of our sales and account management organization to enhance our ability to cross-sell our full array of services to our commercial clients in the U.S., Canada, Europe and Asia. This has already paid dividends as we are now bundling more of our services with major global commercial clients. We're also investing in the global rollout of salesforce.com, which will enhance our awareness of untapped opportunities within our large, multinational strategic account relationships and sharpen our execution. Together, these initiatives will increase our success in scaling a global sales organization while further penetrating our existing client relationships. Our second major focus is to add new sellers to our marketplace. To achieve this goal, our sales and marketing organization must be world-class. This year, we are expanding our investment in enterprise sales leadership and launching a standardized global enterprise sales methodology and process to improve our effectiveness in closing business with Fortune 1000 prospects. During fiscal year 2013, we expect to more than double the size of our sales and marketing organization as compared to the beginning of fiscal year '12. Given the size of our opportunity, it is important that we make these investments in the current year to support the long-term growth of our business. Another key prong in our strategy to add new sellers is to provide the full breadth of services large, multinational organizations require to conduct business. During 2013, we are increasing our investments in important services to fulfill the needs of Fortune 500 retailers, manufacturers and government agencies. In particular, we are investing heavily in the development of our asset zone system to enable large organizations to internally track and manage their equipment throughout the globe and to easily access our global valuation data and online sales capabilities. We're also expanding our multi-channel sales, refurbishing and recycling services to support the brand protection and sustainability goals of our clients. Finally, Liquidity Services is investing in the development of global execution capabilities to expand our addressable market, add new sellers, and further penetrate our existing relationships with multinational corporate clients. Following our acquisitions of GoIndustry and NESA, we are well positioned to support the needs of our target market in Canada, Europe and the Asia-Pacific regions. While the pace of integrating our GoIndustry acquisition is currently slower than initially expected, and will require more investment particularly in the Asia-Pacific region, our expanded breadth of services, industry expertise and geographic coverage have been well received by our clients and have strengthened our competitive position in the reverse supply chain market. Consistent with our long-term investment philosophy, we believe our roughly $11 million acquisition of GoIndustry is a value-creating investment that is important to our long-term strategy of providing the full breadth of services and geographic coverage of Fortune 1000 corporate clients. For example, our existing Fortune 1000 clients own and operate over 300 manufacturing facilities in China alone, with several billion dollars worth of equipment and material that will be valued, redeployed and sold in the coming years. As confirmed in recent client proposal discussions in China and other international locations, Liquidity Services is highly unique in its ability to provide global sales and operations support combined with industry expertise and access to an international buyer base through a multilingual e-commerce marketplace. To capitalize on this enormous growth opportunity with our existing clients, Liquidity Services is investing in the development and integration of our GoIndustry operations in Europe and the Asia-Pacific regions. We are convinced that making important investments in the further integration of our business globally is very important to serving the needs of our clients and in turn, this will accelerate the growth of our business and create long-term shareholder value. Finally, we continue to invest in the growth and penetration of our buyer base. At the beginning of fiscal year '13, approximately 90% of our buyer base was registered on only one Liquidity Services marketplace, providing us with an excellent opportunity to improve buyer participation in our auctions and drive corresponding GMV growth. Consequently, during 2013, we are in the process of moving our marketplaces onto our shared, flexible, BUX marketplace platform. During Q1, we've successfully developed and released a unified account tool that enables buyers to login to any BUX-powered LSI marketplace with a single password. This new functionality is an important prerequisite for fully integrating our marketplaces onto our BUX platform and for supporting the mobile versions of our marketplace platform, which will help us capture the network effects of our buyers across our marketplaces. In summary, we have strong conviction that the asset recovery process, we'll continue to move online to capture efficiencies and improve transparency for commercial and government customers and that this inevitable transition represents an enormous opportunity for Liquidity Services. We are confident in our long-term growth prospects and recently increased our long-term growth target to $2 billion of GMV. And we have a clear strategy to achieve this objective. Our competitive position continues to strengthen. Our base of existing clients and buyers provides significant long-term expansion potential. Finally, our recent investments to expand our personnel, geographic footprint, service offering and industry expertise will deliver strong results for our clients and shareholders over the long term. Lastly, I'd like to address our process for providing guidance. Each quarter, we evaluate our long-term strategic plan, as well as our operating and financial trends in formal reviews with the leaders of our marketplaces and regions. These reviews form the basis for updating our shareholders on our financial outlook during the course of the fiscal year. Predicting results for a rapidly evolving growth company is inherently challenging and thus, we may revise guidance based on the data we have at the time we provide earnings results or updates. This process, led by our CFO, Jim Rallo, has been and continues to be consistent and effective for us as a public company. During fiscal 2013, we have taken on an unprecedented level of geographic expansion to expand our addressable market in support of our long-term strategy, which involves the reporting and forecasting of results with new team members in 20 individual countries. Our expanded global organization has added a new dimension of complexity in the budgeting and forecasting process. Our current integration process including our investment in personnel and systems will enhance our ability to forecast results over time, all else being equal. 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 strategy of bringing innovative technology to the reverse supply chain market and our efficient business model has translated into strong results for stockholders. Calendar year 2012 adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA has improved 73.5% to a record $111.6 million. Our strong adjusted EBITDA and EPS results for the first quarter, which came in higher than our guidance ranges with a slightly less than expected gross merchandise volume, or GMV, demonstrates 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. We are again in a period with vast opportunities, and 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 acquire us to make more investments and restructure an organization that has not had any investments in the last 4 years. After 6 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. This restructuring includes replacing senior members of the U.S. and Asian GoIndustry organization, with tenured members of the Liquidity Services team. In addition, we are closing a larger number of locations around the world than originally planned. The success of these changes will be measured starting in next fiscal year, and we believe we'll have to drive one of the highest returns on invested capital for any of our acquisitions. On November 1, 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 begun the integration process of NESA, which is moving according to plan. Next, I will comment on the quarter results. Total GMV increased to $233.4 million, up 30.2%. GMV in our commercial marketplaces increased to a record $153.5 million, up 48% 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 $35.1 million, up 19.6%, as a result of increasing property flow from the DoD. GMV in our GovDeals of state and local government marketplace increased to $29.5 million, up 18.4%, as we continue to add new clients thus further penetrating the $3 billion public sector market. GMV in our DoD scrap marketplace decreased to $15.3 million or 27.9% as a result of decreasing property flow from the DoD and a decrease in commodity prices. As sales of our DoD scrap have become less material, fluctuations in commodity prices are not materially affecting our financial performance. Total revenue increased to $122.2 million, up 15.3% primarily due to the GMV growth discussed. Revenue growth was lower than GMV growth as the portion of our business using the consignment model increased. Technology and operation expenses increased 42.9% to $22.5 million, as a percentage of our revenue, technology and operations expenses increased to 18.5% from 14.9%. These increases are primarily due to: One, expenses of $5.2 million from the acquisitions of GoIndustry and NESA; and two, expenses of $1.5 million to staff and temporary wages, including stock-based compensation and consulting fees associated with technology infrastructure projects. Sales and marketing expenses increased 58% to $10.3 million, as a percentage of revenue sales and marketing expenses increased to 8.4% from 6.2%. These expenses are primarily due to: one, expenses of $3.2 million for the acquisitions of GoIndustry and NESA; and two, expenses of $600,000 in staff wages including stock-based compensation. General and administrative expenses increased $6.2 million to $14 million. As a percentage of revenue, general and administrative expenses increased to 11.4% from 7.4%. These increases are primarily due to: one, expenses of $3.7 million for the acquisitions of GoIndustry and NESA; and two, expenses of $2.5 million in staff wages including stock based compensation and other expenses. Adjusted EBITDA of $24.2 million grew 6.4% or 15%, excluding GoIndustry. Adjusted EBITDA margins as a percentage of GMV decreased to 10.4% from 12.7%, driven by operating losses from GoIndustry. Adjusted EBITDA margins excluding GoIndustry were 14% for the first quarter, demonstrating continued scale and efficiency improvements in our core business. Adjusted net income was up 14.8% to $13.6 million, adjusted diluted earnings per share was up 10.8% to $0.41 based on approximately 33.1 million diluted weighted average shares outstanding. Operating cash flow as stated on our cash flow statement was negatively affected by 2 items associated with the Jacobs acquisition during the quarter: one, the earnout payment which in total was $17.4 million; and two, the $1 million discount we received on the payment in full of the $40 million seller subordinated 5% note. We expect to pay another approximately $2.2 million associated with the Jacobs acquisition earnout in the March quarter, which we believe will be the final earnout payment. We continue to have a strong debt-free balance sheet. At December 31, 2012, we had a cash balance of $45.9 million, current assets of $111.5 million and total assets of $380 million with $25.5 million working capital. Capital expenditures during the quarter were $1.9 million. 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 DoD Scrap Contracts in the third quarter of fiscal year 2013. In addition, our guidance has been adjusted to reflect: one, reduced GMV and earnings versus our previous expectation from our GoIndustry business as we implement restructuring initiatives and investments totaling several million dollars to fully integrate GoIndustry in Liquidity Services. This is a change in our expectation for GoIndustry operations from our previous fiscal year 2013 guidance. We believe this investment is required to fully realize the synergies available across the company's buyer marketplaces end clients and to position us for profitable growth and market leadership with the $100 billion global market for capital assets. And two, reduce GMV versus our previous expectations from our liquidation.com marketplace due to lower than expected product flows from existing clients and slower than expected ramp up in product flows from new client programs. We anticipate normalized flows from new clients and programs sometimes during the third and fourth quarter of fiscal year 2013. We expect GMV for fiscal year 2013 to range from $1.025 billion to $1.1 billion, which is a decrease from our previous guidance range of $1.1 billion to $1.2 billion. We expect GMV for the fiscal second 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 a decrease from our previous guidance range of $123 million to $133 million. We expect adjusted EBITDA for the fiscal second quarter of 2013 to range from $28 million to $30 million. We estimate adjusted earnings for diluted share for fiscal year 2013 to range from $1.90 to $2.02, which is a decrease for our previous guidance range of $2.05 to $2.23. For the fiscal second quarter of 2013, we estimate adjusted earnings per diluted share to range from $0.46 to $0.50. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of 33.4 million and we will not repurchase shares with the approximately $18.1 million yet to be expended under the share repurchase program. Our guidance adjusts EBITDA and diluted EPS for: one, acquisition cost including transaction cost and changes in earnout estimates; two, amortization of contract intangible assets of $33.3 million from the acquisition of Jacobs Trading; and three, stock-based compensation cost, which we estimate to be approximately $3 million to $3.5 million per quarter for the next 3 quarters of fiscal year 2013. These stock compensation costs are consistent with fiscal year 2012. Bill and I will answer questions.

[Operator Instructions] And your first question will come from the line of Colin Sebastian fro Robert Baird and Company. Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division: First off, I'm trying to reconcile the top line GMV shortfall in December with your comments on the macro environment and the softness that you're seeing here in the March quarter, if those are related. And secondly, if you could talk about the specifically what parts of the liquidation.com business are underperforming and related to that, what's the implied growth rate, I guess organically for liquidation.com in the revised outlook?

Colin, let me answer the first part. As we indicated in our preannouncement press release, the miss in the guidance for this quarter in the top line had to do with some large sales in our Network International marketplace for some energy clients that moved into the next quarter. That had nothing to do with the retail business. The retail business performed extremely well during the first quarter. And again, those sales have moved into the second quarter. As far as the growth rate for the retail business for the rest of the year, we see a lowering of that growth rate from our prior expectations primarily related to existing clients, where their flows are lower than the flows received last year. Our new clients, which been we anticipated ramping up a little faster have not ramped up based on the forecast that we see today as quick as we anticipated. So we would expect to see low double-digit growth in the retail supply of our business for the rest of the year.

Let me just add to that, we were out in conversations with our clients in the December time frame, I think, yes, there was relatively good optimism around the holiday season. I'd say -- I would say by and large, the broad bellwether retailers underachieved relative to initial expectation during the December quarter and in particular, the holiday season. That top line has some impact on the reverse supply chain from mature clients on a year-over-year basis. And that has more to do with the business context of retailers at large and their performance in the market versus anything specific to our business or service offerings. So that being the case, while we may not achieve our long-term target in the liquidation.com segment of our business during this particular quarter, our business pipeline remains very strong. We have signed several new contracts that are in the process of being ramped up. The other thing I would note is because of a little bit of sluggishness in the growth rate of GDP and people's results in December quarter, some of our large Fortune 500 clients are taking cost-cutting initiatives of their own and to the extent, you have those personnel changes in the supply chain area, it does affect the rollout of new programs or new initiatives such as reverse supply chain initiatives with Liquidity Services. Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division: Bill, on the existing seller product flows, that decline, do you have a sense whether just the flow of overall liquidations from those -- to companies is down or are they exploring other liquidation channels or what's your sense on that?

The former. I think that's just the case, some people did not meet their own internal expectations shared with us which become part of our own forecasting and operational planning process. And as a result, they'll work through it. We'll continue to provide the outstanding service and continue to be a strategic partner, but we can't manufacturer their own top line growth. They have to deliver that.

Your next question comes from the line of Shawn Milne, Janney Capital Market.

I just want to go back to the prior question. Bill, I think the company has been fairly clear that part of your retail commercial growth was dependent on the clients' same-store sales growth, but is it your sense that they weren't stuffed with as much inventory as well as they perhaps monitored, or were focused more on their own inventory levels in the fourth quarter? Just trying to get around that dynamic of, some people think that if your -- the sales aren't that good at retail, you guys tend to get more and then there's the other philosophy on positive same-store sales growth, and I do have a follow-up on GoIndustry.

Yes, I'd be -- I think the seeds for returns are planted with sales. The more volume of sales, the more the addressable market is for, the greater the addressable market is for return volume. And when sales underperform, that the addressable market comes down for us. Having said that, we have had opportunities to enlarge the flow of goods by creating new programs for products that have historically been either discarded as waste or not handled efficiently. I think in the case of some of our long-standing clients who have adopted our services and strategy, their growth sales performance came down and therefore, the activity in their returns pipeline came down owing to that top line drop. That's not a relatively new development. We think that clients, since the downturn 2009, as a general matter have been more risk adverse to holding inventory. And so that means that you may run a lean supply chain this year and this particular quarter. So having said that, we're very interested in helping our clients expand the volume of sales in our marketplace. We've got some interesting new initiatives where we're helping our clients take products and move them not only to liquidation.com but some of their own e-commerce channels, consumer channels where we are the back-end for filling those products. I think there's great interest in moving less than new goods through our channel versus recycling programs, and we're seeing more and more high-tech products come through our channel in that regard. And over the long term, yes, we see good strategic account activity in our pipeline. So I think we're very comfortable with that. Over time, we will outperform the general market and we will sustain our long-term growth rate. I'd also add that in our history, if you just look at the last 4 years, our GMV growth as a company has range from minus 6% year-over-year to plus 50% year-over-year. And there are times and quarters where we've been anywhere from single digits to over 100% year-over-year growth. And in the end, this market is moving in our direction and we are providing the broadest, most compelling value proposition and that's what will drive our results.

And gentlemen, just a follow-up on what that conversation was talking about. Perhaps lower growth from some of our clients would be understandable to take down your retail GMV expectations. But my understanding was that there wasn't much in your model previously, on your guidance previously for new client growth but that appears not to be true given what you've said this morning?

No, I guess, what's -- let me be specific about the comment, Shawn. So when we do our forecast, we forecast based on clients that we've been working with for a while, and clients that are -- we consider new, which would be clients that we signed up relatively recently which may be 3 to 6 months. And so those programs are just getting underway or ramping up. As you know, you've been covering us for a while, it takes some time to years to ramp up with clients and sometimes we have clients that will ramp up in 3 to 6 months. In this case, we had been working with our clients to get forecasts of expectations of product flows over this fiscal year. And as has been in the past, sometimes those estimates are better than expected and sometimes they're not as good as expected. In this case, they weren't as good as expected. As a reminder, this quarter last year, we increased our guidance because some recent clients that we had signed up at the time had given as forecast and it turned out that they were actually better than we had been received. So our process has really been the same. When we talk about new clients and forecasting, those are clients, as Bill indicated, that are signed contractually -- clients, but they've just been added recently. So there's not unsigned clients that are moving the needle here.

Okay. But again to clarify, Bill just said there are several new contracts that have been signed. My understanding is given this guidance, you have fairly low expectations for those clients in this fiscal year?

Well, I would say those expectations are lower than what they were they were before, yes.

Your next question comes from the line of Jordan Rohan, Stifel Nicolaus. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: And perhaps I missed this on some of the preamble on the discussion before the Q&A, but I'm curious on the impact of the GoIndustry acquisition. In the prior quarter in terms of GMV out of the $233 million that you reported, how much came from GoIndustry? And secondly and even more importantly, it seems you have taken that guidance down at the mid-point by $75 million or $80 million for the last 3 quarters of your fiscal year. How much of that reduction in guidance comes from ratcheting down the expectations at GoIndustry-DoveBid, and how much comes from the core business, if you will? And I guess, while we're at it, why is it different this time in expanding internationally? A few years ago, you guys had efforts, albeit much, much smaller and different in Europe that you ended up closing down. Any reason why we should believe that you'll be any more successful in China and the other 19 countries outside of North America that you seem to be approaching now? Or is this something that has a high risk of being pulled -- cut back in the future?

Let me just address the strategic imperative for being an international business. The world's manufacturing supply chain has moved considerably in the last 10, 15 years from more developed countries, North America and Europe, to lesser developed, high-growth regions like Asia-Pacific region. Our clients, many of which are U.S. headquartered, have property, plant, equipment and supply chains in Asia. They're doing business there. They want to be serviced there. The needs of that client really demand us to be in-country in places like China. So this is clearly something that we'll look back on in a year, 3 years and be very, very satisfied with our strategic position to be a service provider in these high-growth regions. So what we're really talking about, Jordan, is a tactical set of issues around bringing on a group of 300-plus employees that are new to LSI and on-boarding them and then aligning process and execution and making sure that we fully understand where clients have recurring business requirements and where they do not, and risk adjusting and refining our process as we move forward. This business is completely different than the business that we had in Europe in 2008 and '09. That was a retail liquidation business that was regrettably acquired right before the financial downturn of December 2008 and was a case where a few of their large clients simply went bankrupt. And the business we're referring to when we say GoIndustry serves 75 Fortune 500 blue-chip clients, sells high-value equipment on a consignment basis, a commission basis, there's 0 inventory risk and is leveraging a buyer base that's already been developed for the last decade and only continues to grow. More of our buyers want to be accessing our marketplace online. We use 1,200 videos a week globally to support these sales of rolling stock, of processing equipment, laboratory-tested measurement equipment. This is where the world is going and we're leading it in this new innovative way, and therefore, we're very much convinced that this is a terrific investment for us at $11 million. If you were just to be conservative, let's say we paid $20 million for the business, in our historical acquisition filter, we would be looking to pay in the range of 5 to 6x, maybe a little bit more for our business. So the question you have to ask is, are we able to drive a $4 million EBITDA return out of this business? I think unequivocally, the answer is yes. Will it take a little longer than we initially thought? Yes it will. In the end, it's going to be very high return on capital exercise for us, more importantly very strategic to where our clients are going and need to be served. I'll turn it over to Jim.

Jordan, I'd take the first couple of questions you had. As far as GoIndustry's performance in the first quarter, it was better than the last quarter that we had of fiscal year 2012. This is a -- tends to be a seasonally higher quarter for GoIndustry, capital assets, meaning the clients are 12-31 year-end companies and so there's a lot of capital assets that tend to move off the balance sheet before the next fiscal year. So again, I would say we actually had sequential growth in the business quarter-to-quarter. What we're not seeing in the pipeline is the kind of growth that was anticipated at the beginning of the year. So we certainly expect to be significantly under our budgeted ranges for GoIndustry that we had talked about at the beginning of the year. I would say that was more than half of -- and good segue to your second question, which was the $75 million drop in GMV, I'd say that's more than half of that number. Most of the rest is coming from, again, the retail part of the business, which I think Bill and I discussed earlier in detail what's driving that. And then there's a small little bit that you have, to be frank, which is coming from scrap, which continues to be lower than expectations, albeit not a material part of business anymore, it is obviously a part of our core business and going down. I think one point I would comment on is the scrap business continues to decline, yet our operating margins continue to improve in the core business as I indicated in my comments. The core business operating margins were 14% this quarter, where I say core, I'm only excluding GoIndustry from that number, which was a loss for the quarter. And that would be significantly higher than we've ever had in the business. So we continue to get operating efficiencies and scale as we grow the business, and the point being that we are growing the business this year just not at the rate that we anticipated. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: Just so I know, I believe the last run rate, you spoke of on a quarterly basis for GoIndustry was something in the mid to high-30s range per quarter in GMV, is that correct and does that mean that you saw something maybe in the mid-40s for the trailing quarter, the December quarter?

That's about right -- we were expecting more than that. Jordan, we talked about doing around $185 million or so of GMV for GoIndustry this year. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: All right. So if we kind of look at that, you guys perhaps are down to $185 million minus $40 million, or about $145 million in expectations now?

I would say somewhere around there, yes.

Your next question comes from the line of Jason Helfstein, Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: I think we've hit a lot of this already. So maybe talk about clearly the market is discounting, what's happening. Obviously, you think a lot of this is due to GoIndustry and the market is taking a lot out of the stocks. Can you talk about your desire to take advantage of that? Clearly, you have capacity left on your buyback. And then the company is underlevered, is there any desire to add leverage? And then talk about your acquisition pipeline, should we expect you to ease up on acquisitions until you can show better financial performance out of GoIndustry?

Well, I think the driver of managements philosophy and approach is where do you generate strategic value for your clients and high returns on investment in capital and investment of capacity and time, and in various phases of our company, we've been in heavy investment mode or integration mode or operational enhancement mode, which I call sort of a build-up phase, and then we've had various phases where we've had more of a breakthrough phase, where we're growing more rapidly than our long-term growth targets. And you toggle constantly [indiscernible] through those 2 parts of your business or philosophy as you grow our company over time and fiscal '13 is the time where we're very focused on enhancing our business. Independent of acquisitions, heavy investments in the sales and marketing organization, and the software and e-commerce platform driving our business and a global promotion of our services, strategic cross-selling. So a lot of investment going on. We have expanded geographically. This is a transformative expansion. It's not without calculated risk but the returns more than justify the incremental risk undertaken when you look at the size and scale of where our current clients have needs. And so, we're very focused on generating very high returns on our current investments. We've had the opportunity to become effectively the strategic acquirer of choice in our industry. We get presented with lots of opportunities. We're the natural consolidator people in the market who know this industry. I think I have high regard for our approach in our business model. And, yes, Jason, we'll be presented with opportunities, more in the tuck-in variety than significant transformative acquisitions, but we're very comfortable with what we have on our plate in 2013 with GoIndustry-DoveBid and NESA. Our clients are using our services in both respects to do more and more volume with us and I think in fiscal '14, you're going to see results based on the investments we've made in fiscal '13 that will be very encouraging. So we do look at acquisitions. I don't view it as a driver for the balance of 2013 but, yes, there are always situations that present themselves. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: You didn't comment about...

And on stock, I think, look, we would potentially see certainly, repurchases, as part of our long-term use of cash and I can only imagine that we'll be looking at repurchase activity in the near term. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: And then just one quick follow-up, Jim. Can you just talk about if you take your annual guidance, what percent of the -- how much of GoIndustry is a drag on the, let's say, the mid-point of EBITDA guidance for the year?

Yes, I think I hit that when I was answering Jordan's question, Jason. I mean, basically on the bottom line, most of that is coming from GoIndustry.

The next question comes from the line of Andre Sequin, RBC Capital Markets.

I was wondering if you could give us a little color around the investment you're making in GoIndustry. What exactly is involved there? I mean, is it just a matter of building out a website for each of these places or is it building out a distribution center even? And kind of what timescale is involved for each location? And then secondly, you mentioned the closure of more offices than expected, and I was wondering if you could talk about what the decision process is there? Is it that you just don't need those offices or that there -- these locations aren't capable of handling the types of systems you hope to install on those locations?

Sure. In terms of the integration process, there are several areas that we're making these investments. First is creating a global sales organization on the same platform. We have put investment in Europe and in Asia in the sales and marketing organization in advance of scaling our business in those regions. We have strong client references. We have current clients in those regions, but there is a front loading of investment in sales and marketing to properly serve and cover client business opportunities. So that's one area, and I think along with the systems, the sales force automation, the tools to identify and execute sales activities. Second, I think we are focused on integrating the buyer marketplaces. We commented on the BUX platform, there is a process by which we are investing in software engineering resources to bring the GoIndustry marketplace onto our BUX platform. Again, you must front-load those expenses to do the work to develop the requirements and then to execute that. I think we have said in the past that there's some very small percentage overlap between the GoIndustry-DoveBid buyer base and our legacy buyer base. There's a lot of cross-selling opportunities with the buyer base that will be monetized as part of that integration effort. Certainly on the financial and back-office operations, rolling out a set of global financial systems where each country is integrated into one set of financials, one sort of software package to integrate financials is another area of investment. Again, you make that investment up front before you realize the synergies. Operations and customer support is another big area. We have an opportunity to consolidate customer service and operations and not need to provide it on a country-by-country basis but on a more regional basis. That's going to provide a lift in efficiency, integration of the global HR function and the leadership development function is another area of investment. That's something that we're in the process of managing, and I think because our sales organization is supporting clients in their place of business, we don't need as many physical offices and therefore targeted offices that don't provide any real strategic or operational value and a reduced -- in North America, already some of those locations will do the same outside the United States. As far as how do you identify the strategic need for a location, let's say an international location. First, we start with our client base, where are their needs, where are their facilities, where do they have recurring activity? In those cases where they do have recurring activity and they are strategic accounts, there's a high interest in maintaining those locations, whereas locations where this isn't that strategic recurring activity but more of a one-off business, that's less valuable to the company and therefore, more likely to be sunset over time and that would be the rationale and thinking around where we want to have locations versus where we're going to close locations.

The next question comes from the line of Gary Prestopino, Barrington Research.

Just some further questions on GoIndustry. I mean, with the shortfall in the GMV, is that a function of worldwide macro environment or is that really a function of that when you got your first look at this, you maybe did not have your people in place there and the growth was there that was not anticipated?

I think there are 2 aspects there. One, the new organization provides their view of potential and until LSI has had experience interacting with particular business leaders or vetting information, we have a certain reliance that we place on newly acquired teams and personnel in forecasting techniques. And as we peel the onion and we have more experience with what they use as a risk-adjusted forecast, we have some risk in working with that forecast. In the current state, we have eliminated a lot of the risk of their forecasting techniques because we have either put an LSI long-tenured employee in place to lead a division or a marketplace. In fact, we have elevated experienced LSI leaders to head of North American sales, head of North American operations and head of the Asia-Pacific region. And secondly, we have more experience now working with those individual clients in those individual countries to understand what is the real timeline of plant liquidation, equipment appraisal and closure activities, and in some cases, insolvency proceedings and those are things that do affect the timing, Gary, of sales. And every country has different statutory lead-time items. So our experience continues to allow us to be better at understanding what drives a forecast for that GoIndustry business and we'll increase over time, all else being equal, the accuracy of the information and the quality of information we gather from these various outposts throughout the world. And then we're driving more use of standardized systems and process that had been in place for, in some cases, 12 years with Liquidity Services and exporting those processes to these newly acquired operational teams and locations.

So do you have all the people in place that you need to have in place now, your seasoned team members?

Yes, we believe we do. In fact, we recently hired a new CFO for our Capital Assets Group, which is one of the things overseeing the GoIndustry organization. We also have added a new Vice President of Marketing, a very experienced B2B practitioner for that reason. So yes, we are making those investments in personnel, which is part of what we've been talking about.

Can you give us some idea of your thought process of when this becomes breakeven to accretive?

Well, we have a phased approach. I think North America is already achieving great success in many areas. We've aligned incentives in our sales organization. We've begun to cross-train sales teams to sell our range of services. So I think you're going to see great progress in North America followed by Asia and Europe. But I think when we look at this acquisition and we look at the investment we're making, profitability will be a fiscal '14 timeline and we're very comfortable with that.

Okay. So you're still comfortable you can get this back to profitability next year?

Yes.

[Operator Instructions] Your next question comes from the line of Dan Kurnos, Benchmark.

Let me just maybe start with 2 questions. Just a high-level question here. Your goal to get to $2 billion in GMV by 2016 seems pretty aggressive and you're obviously investing heavily this year to get towards that goal. So I'm just curious if you have any sense of how long this heavy investment is going to persist, particularly in GoIndustry as you reach -- as you go towards that goal?

Well, I think you have stair step growth in the size and scale of investment activities, Dan. When you look at the size of our sales and marketing organization, it's more than doubled in the last year. However, that is the capacity that helps drive the opportunity to create $2 billion of GMV. And so one thing that's important to remember, our business is growing in fiscal '13, notwithstanding significant step function growth in sales and marketing, technology infrastructure. We'll be adding a new CIO in the near future that's going to give us global execution capabilities that we've not had in the last 2, 3 quarters. There's a lot of important investment we make every year. It's just that the step function growth that we have has probably grown. The strides in our investment are larger now and that is the essential foundational element of growth. And I would be worried if I was looking at a company that wasn't making these important upfront investments to sustain and grow a business. We are making very important investments in fiscal '13 in every functional area and we've expanded our market opportunity. For most of our existence, we've been a North American focused, Retail Supply Chain focused business with a state and local government marketplace and expertise in the Federal government. Now, we have a global sales opportunity that spans 6 or 7 major drivers of our economy; retail, energy, transportation, healthcare, technology and we're executing services that span every aspect of the surplus asset management valuation, redeployment, obviously, the asset disposition process to our marketplaces, we have more services to sell our clients, we can serve our clients in more regions, we have a very small percentage of clients that use more than one of our services or work with us in more than one region. So our growth to $2 billion is merely a function of serving the needs of our existing clients and leveraging that expansion potential while also using the strong references to be the market leader in those industry categories. So that drives the opportunity to grow on a consistent basis.

So that sort of segues into my second question, which is, you talk a lot about your existing clients underperforming based on their forecast, and that's really hurt GMV in the quarter. But you've also identified as an opportunity increased penetration with those existing clients, so I'm just curious as to what you think when we should start expecting to see that moving the needle on the GMV perspective?

Well look, I think when you examine the clients we have, manufacturer clients that are selling equipment to us, but who also manufacture consumer goods that need to be tracked, managed and sold as an inventory liquidation service, so we see opportunities to take a relationship that has historically been related to capital asset sales and leverage it into the sale of inventory using our Retail Supply Chain Group expertise. Equally, we have Retail Supply Chain growth coming from manufacturers of finished goods that have massive supply chains and capital equipment disposition opportunities. So in both directions, we're able to penetrate those relationships and do so in more regions in the world. As far as where that growth will reveal itself, it will reveal itself within the top retailers, the top manufacturers, many of whom supply retailers, leading companies in energy, leading companies in transportation, leading companies in the healthcare and pharmaceutical space and that growth of roughly 20% a year over the next 4 years is very attainable.

This concludes the question-and-answer portion for today. I would now like to turn the call back to Julie Davis for any closing remarks.

Thank you and thanks to all the participants on our call today. As always, we will be available for any follow-up questions and questions that we did not have time for on today's call. Thank you.

Thank you. Once again, ladies and gentlemen, this concludes the conference. Thank you for your participation. You may now disconnect. Have a great day.