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. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I'd 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 as 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 cost, 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 at 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 0 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, through 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…

Thanks, Bill. Our strategy of bringing innovative technology to the diversified chain market and our efficient business model has translated in a 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 were, again, in a period of 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 in a restructured organization that does not have any investments in the last 4 years. After 9 months of operating the GoIndustry organization and reaching out to many of our clients, we're 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 on to 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 nonperforming 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…

[Operator Instructions] The first question comes from Shawn Milne at Janney Capital Markets.

Just a couple of 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? And I guess, we come back into the loss there. And, 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.

Let me address the commercial growth. One, as you heard, we're investing in our sales and marketing organization. The quality and productivity of our enterprise sales force continues to improve over time. And given the focus of our strategy to aim our services at the largest corporations with the most capital-intensive industries with high-value equivalent inventory to sell, when we win business, it's meaningful. And as we progress through the balance of fiscal '13, we will see that come through with higher organic growth. Yes, we're in the high-single digits coming out of the current quarter, and we would expect that to improve. And as we've said, time and again, the history of our business over the last 6 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 have buildup periods and then you have breakthrough periods. And the resulting stairs that grow up is what we've lived as we 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 their equipment and inventory. So yes, we see continued progress, and manifestation of that will be organic growth improving over time.

Shawn, on your GoIndustry GMV question, GoIndustry was on plan this quarter for GMV. As we talked about in our last call, we expected to get around $140 million to $145 million in GMV for the year out of GoIndustry. And 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 in our last call.

Your next question comes from the line of Colin Sebastian at Robert Baird. Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division: I have a couple of 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. Is that just the new partners kicking in, or is there another lever in Q4 to think about? And then on margins, in the press release, you talked about expanding margins in the core business. And if you could just clarify more specifically how you define the core business and put some color around the margin profile in 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. As we indicated, we've made continued progress with GoIndustry. And we expect to actually, and this will be a segue into really your first question, which is why are we comfortable with Q3 and Q4 ramp. A lot of that does have to do with GoIndustry and the progress we've made today. 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 won't 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 client 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 per our quarters, we're dealing with business that we know that is signed up with either current or new clients. And again, as Bill commented in his remarks, we've been very successful in the last 6 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 only registered on roughly 10%, only on one 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. And as we've gotten into the phase release across that listing, as we have 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.

Your next question comes from the line of Ross Sandler at Deutsche Bank.

Just kind of a follow-on to the first couple of questions. But you stated last quarter that new clients are coming in slower, existing customers are also generating lower flows than you'd 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 bit 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? And then Jacobs, historically, has been a kind of over-the-phone container load business, and I know that one of the strategies was transitioning it to more of a hybrid online and then 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 that transition happens, how the EBITDA at the GMV margins at Jacobs are progressing?

Let me take the first part of your question, Ross. So last quarter, when -- the comments that you mentioned were dealing specifically with, why did we lower guidance for the full year? So when we looked 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 in the last call, we've used what I would say is the slowdown in volume with a 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, and also, again, as Bill noted in his comments, we've signed significant number of new clients, which we did not have 3 or 4 months ago when we did our last call. And so that was 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. And 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 prospective clients and backfill that supply. And that's exactly what the sales team has done in the last 4 to 5 months. I'll let Bill comment.

I mean, just to add on the context in this business environment, this slow-growth business environment, companies are looking to downsize facilities, outsource nonvalue-added activities, look for improvement in managing their brand in the secondary market place, which affects their core business. So when you talk about the context of new business, we're talking about manufacturers in industries ranging from health care to pharmaceutical, lot of consolidation happening in that marketplace. As patents come off, people have to be very cost efficient in the supply chain. 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, the consumer package goods industries. These are global corporations with 50, 60, 100-plus plants globally. They're looking for uniform process. They're looking for the ability to track and manage these asset as they go to the secondary marketplace in support of sustainability efforts. And there is a huge compliance focus for boards of these company's to manage their reputation. Those are all aligned 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 United States. There's a lot of capital equipment in investment occurring in this country. And 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 listing. 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 cost, both the retailers and the manufacturers that supply those retailers, and 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. And I guess we all, at some point, still use the phone, but most of that has migrated to online access of inventory manifest, the ability to capture sealed bids, and in some cases, move inventory through truck load and pallet auctions options as well. And we've incorporated all 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. And so we don't think of our business as standalone with 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 liquidation.com marketplace, our value-added services that support large retailers and manufacturers in the retail supply chain.

Your next question comes from Michael Purcell at Stifel. Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division: 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? And 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, et cetera, 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. And 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 goal from that area.

Your next question comes from Andre Sequin at RBC Capital Market.

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

First, the product roadmap in our investment 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 its investments that have been made the first half of the year and frankly prior years that allow us to continue to find opportunity and 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. And 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 in any prospective acquisitions. So we feel we've made smart value-added investments that will have multiyear impacts on our growth and success. Client wins, we're looking at global corporate client scenarios, and 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 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.

Your next question comes from Jason Helfstein at Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: Two questions. So can you just give us a little more detail -- I mean, the commercial purchase weakness, I think, you guys cited having to do, perhaps, with fiscal cliff issues. The guidance is, 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? Were that just acting more sluggish than historically? And 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. So 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. And that -- 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 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 about...

Yes, I mean, look, sequestration at the federal level is what we've experienced for some time at the state and local level. And what it means is that you have fewer resources to support the day-to-day operational needs of the agency. And that could relate to procurement. That could relate to essential services or administrative support services. And 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 valid purpose. But from what we have 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.

Your next question is from Dan Kurnos at The Benchmark Company.

Just a couple from me. Speaking to the ancillary revenue piece, if fee revenue was up 77% in the quarter, so I'm just wondering how we should think about your opportunities to expand that business? And maybe how, if at all, GoIndustry industry could factor into those plans? And 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 paying points in their supply chain, understand their long-term strategies and then delivering services that are responsive to that. And 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 revenue because we're adding more value. We're obviating their cost over doing things to improve the efficiency of the client. And so we've seen take rates grow in our business, which has helped drive that.

Yes, I mean, as a follow-up to that question, too, Dan, as Jason Helfstein asked, and the last question's really about the decrease in the purchase model, again we had an increase in the consignment model. So a 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. And 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 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're probably 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 on our cash flow dynamics.

Your next question is from 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 then what line item? I'm assuming that's commercial consignment. And also how much -- if that's a fairway 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 and, 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. And 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. And 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 the strategic plan in our asset management suite, AssetZone, in our marketplaces, it's 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, and as well as line pipe. And 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 e-commerce channels, as well as the pre-sell value-added services to help these global organizations track these equipment. Because they're in remote locations, it's not easy. Using technology is the right way to do it.

I'm sorry. Just to say there are no further questions for you, gentlemen, so now I'd now 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.