Liquidity Services, Inc. (LQDT) Q3 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Third Quarter 2013 Liquidity Services, Incorporated Conference Call. My name is Kathy, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Julie Davis, Director of Investor Relations. Please proceed.

Thank you, Kathy. Hello, and welcome to our Third 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 views as of today, August 7, 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 will 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.

Good morning. Thank you, Julie. Welcome to our Q3 earnings call. I'll begin the session by reviewing our Q3 financial performance and recent strategic investments. Next, I will turn it over to Jim for more details on the quarter and our outlook for fiscal '13. During Q3, Liquidity Services reported results in line with our revised guidance range provided on July 16 while also funding major investments in support of our long-term growth strategy. Margins in our core business expanded sequentially over Q2 as a result of operating leverage and efficiencies gained from a more streamlined and focused organization. We exited Q3 with 0 debt, and we continue to generate strong cash flows with an annual return on invested capital in excess of 50%. We have continued to make good progress repositioning our GoIndustry marketplace to focus on the key global Fortune 1000 relationships that we expect will drive sustained profitable growth. Fundamentally, we are confident in our competitive position and our ability to achieve attractive organic growth over the next several years driven by our strong client service and continued investments in innovation. Our recent organic growth rate does not reflect the full impact of the progress we are making with clients and prospects in the marketplace. A key investment initiative for us is enhancing our sales and marketing organization and expanding our global reach through our acquisition of GoIndustry to drive awareness of Liquidity Services as the trusted provider of choice in our industry. Our vertically focused sales teams are equipped with ever improving proprietary data, case studies and industry insights to engage clients in our target markets, including biopharma, consumer package goods, energy, industrial, retail supply chain and transportation. Moreover, the expansion of our service capabilities and sales force automation tools continue to enhance our cross selling of services to global Fortune 1000 accounts. Together, these investments will drive future growth with existing and new clients. Our recent wins in the marketplace across multiple industry verticals demonstrate that our global presence, buyer marketplace and value-added services provide a winning formula for existing and new clients. Let me share just a few recent examples. We recently signed a new contract with one of the world's largest consumer packaged goods companies. Our first assignment for this U.S.-headquartered client was $1 million-plus sale of surplus capital equipment for 1 of their divisions in the U.K. Our online auction event attracted bidders from 24 countries, demonstrating our global reach while delivering better-than-expected results for the client who plans to expand our relationship in multiple locations around the globe. We recently signed a multi-year global agreement with Danone, covering valuation, asset sales and deployment of our AssetZone management tool. Headquartered in Paris, Danone is the global market leader for fresh dairy products and bottled water and is the #2 player in the baby foods market. Initially, we will focus on projects in France and Russia, and we'll expand globally thereafter. We recently signed a 5-year global agreement with a leading Dutch-based multinational life sciences company to provide asset management and investment recovery services. This new client operates 150 plants throughout North America, Europe, the Middle East, Africa and the Asia-Pacific region. We have recently signed a 3-year master services agreement with 1 of the world's largest asset-based lenders to provide valuation services throughout Europe and the Middle East. Over the last 12 months, we've worked with this client in the U.K., Germany, Spain, Netherlands and Abu Dhabi. We were recently awarded a contract by one of the world's largest state-owned oil and gas corporations to provide investment recovery services for all of its subsidiaries globally. We recently signed a contract with 1 of Australia's leading upstream oil and gas companies to sell surplus oil and gas production equipment located in 7 different countries around the world. We recently signed a contract with one of the leading multi-channel retailers in the U.S. to serve their consumer electronics division. Based on the progress, we recently expanded the relationship into their home improvement division. We recently signed a contract with the leading media and technology company to manage the sale of their excess consumer electronics devices in a manner that will protect their brand in the secondary marketplace. In each of these examples, clients embraced Liquidity Services as a strategic global partner due to our technology-driven marketplaces and services, our global buyer reach, our valuation data and industry domain expertise. In all cases, Liquidity Services was selected following a comprehensive review of other local and international service providers by the client. In short, we competed in every corner of the globe across every major industry vertical, and we're chosen as best in class. By focusing on value-creating investments measured over a multi-year horizon, we expect to deliver outstanding results to our clients, grow our market share and increase shareholder value. In summary, we made significant progress advancing our long-term growth plan during Q3. 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 across the Americas, Europe and Asia and have created the most talent and capacity we've ever had to pursue key organic and M&A growth opportunities that build on our leadership position. I will now turn it over to Jim for a more detailed review of our financial results and our outlook for fiscal year 2013.

Thanks, Bill. While we are not satisfied with our recent performance and our organic growth, we are making significant progress towards achieving our long-term growth goals. One, we continued to improve the quality and effectiveness of the sales organization, as well as the range of services we provide, resulting in new client wins and new programs with existing clients, many of which are global in nature due to the addition of capabilities from the GoIndustry acquisition. While many of these programs have not ramped up as fast as we originally expected, the relationships that we are developing with these clients will drive strong results for shareholders over the long term. The integration of the GoIndustry acquisition is proceeding as we discussed in our last quarterly earnings call. Our Asia operations have been restructured by closing offices and exiting some markets while maintaining our core client servicing and capabilities to continue to serve our Fortune 1000 client base in that region. U.S. operations had been rationalized by closing smaller satellite offices and removing nonessential staff, while we continue to serve our core clients. Our European operations are being reorganized to more effectively serve our client base, including consolidating smaller country offices while maintaining our ability to serve our clients across the entire European market. These actions have moved GoIndustry to almost breakeven and thus, align the operations to be profitable in fiscal year 2014. Three, our integration of the NESA acquisition continues to proceed on plan. We have leveraged the knowledge base and skill sets in consumer electronics refurbishing from the NESA team throughout the Liquidity Services network, allowing us to add additional services for our existing clients and giving us the ability to add new clients and programs that we previously would not have been considered for. We continue to drive operating efficiency throughout the business as demonstrated by our increasing margins throughout the fiscal year to date. Adjusted earnings before interest, taxes, depreciation and amortization or adjusted EBITDA margin as a percentage of GMV was 11.5% for the third quarter compared to 10.4% in the first and 11.3% in the second quarter. Next, outcome in our third quarter results. Total GMV increased to $230.3 million, up 2.1%. GMV in our GovDeals or state local government marketplace increased to a record $45.5 million or 20.3%, as we continue to add new clients, bring total clients to over 5,700 out of a potential 88,000 in a highly fragmented state and local government market. GMV in our commercial marketplace has decreased $132.7 million or 0.7%, principally as a result of the decrease in our retail supply chain marketplace primarily around the consumer electronics vertical. However, we have observed strengthening trends in this vertical during the current quarter. GMV in our DoD surplus marketplace decreased to $33.9 million or 1.7% as a result of decreasing property flow from the DoD. GMV in our scrap marketplace decreased to $18.2 million or 8.1% as a result of decreasing property flow from the DoD and a decrease in commodity prices. As sales of the DoD scrap have become less material, fluctuations in commodity prices are not materially affecting our financial performance. Total revenue increased to $124.2 million or 2.4%, primarily due to the factors affecting GMV as previously discussed. Technology and operations expenses increased to 37.1% to $21.8 million. As a percentage of revenue, technology and operations expenses increased to 17.6% from 13.1%. These increases are primarily due to, one, expenses of $4.2 million from the acquisitions of GoIndustry and NESA; and two, expenses of $1.7 million in staff and temporary wages, including stock-based compensation and consultant fees associated with technology infrastructure projects. Sales and marketing expenses increased 37.5% to $10.1 million. As a percentage of revenue, sales and marketing expenses increased to 8.2% from 6.1%. These increases are primarily due to expenses of $2.5 million for the acquisition of GoIndustry and NESA. General administrative expenses increased 16.9% to $10.1 million. As a percentage of revenue, general administrative expenses increased to 8.1% from 7.1%. These increases are primarily due to, one, expenses of $1.9 million for the acquisitions of GoIndustry and NESA; and two, expenses of $400,000 in additional overhead costs, offset in part by an $800,000 decrease in staff wages primarily related to performance-based compensation. Adjusted EBITDA of $26.4 million decreased 20.9%, primarily due to the decreases in GMV from our retail supply marketplace and DoD marketplace as previously discussed. Adjusted net income of $14.3 million decreased 23.8%. Adjusted diluted earnings per share decreased 21.4% to $0.44 based on approximately 32.5 million diluted weighted average shares outstanding. Operating cash flow as stated on our cash flow statement increased to $6.4 million or 812.9%, as the third quarter of last year was negatively affected by a $10 million reduction in accounts payable. We continue to have a strong debt-free balance sheet at June 30, 2013, with a cash balance of $63.3 million, current assets of $137.3 million and total assets of $395.8 million with $64 million in working capital. Capital expenditures during the quarter were $1.4 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 expect GMV for fiscal year 2013 to range from $925 million to $950 million, which is a decrease from our previous guidance range of $1.025 billion to $1.1 billion. We expect GMV for the fiscal fourth quarter of 2013 to range from $200 million to $225 million. We expect adjusted EBITDA fiscal year 2013 to range from $104 million to $106 million, which is a decrease from our previous guidance range of $115 million to $121 million. We expect adjusted EBITDA for the fiscal fourth quarter of 2013 to range from $24 million to $26 million. We estimate adjusted earnings per diluted share for fiscal year '13 to range from $1.72 to $1.76, which is a decrease from our previous guidance range of $1.90 to $2.02. For the fiscal fourth quarter of 2013, we estimate adjusted earnings per diluted share to range from $0.39 to $0.43. This guidance assumes that we have an average fully diluted number of shares outstanding for the year of 32.7 million, and it 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 costs, including transaction costs and changes in earn out estimates; two, amortization of contract intangible assets of $33.3 million from our acquisition of the Jacobs Trading; and three, for stock-based compensation costs, which we estimate to be approximately $3 million to $3.5 million for the fourth quarter fiscal year 2013. These stock-based competition costs are consistent with fiscal year 2012. Bill and I will now answer questions.

[Operator Instructions] Your first question comes from the line of Colin Sebastian of Robert Baird. Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division: Bill, starting off, maybe just a basic question, which is whether the retail vertical, how much of a focus that is specifically for the company or is the sweet spot of the platform really more in line with the capital asset and public sector opportunities where the speed of transactions perhaps isn't the top priority? And then, Jim, back in May, I think you guys were -- the implied guidance for Q4 in GMV was somewhere close to $300 million, which is backing now in Q3. So now we're $80 million to $90 million below that level. Can you break out how much of that shortfall is specifically related to GoIndustry, the retail weakness and other variables?

The evolution of our business, Colin, has initially started from a U.S.-centric, retail-focused client base. And as we become more familiar with our clients' supply chain needs, the service requirements and their global footprint, the natural extension for us was to serve manufacturers who supply the retail client base and to get in between the retailer and the manufacturer as a trusted intermediary to provide the technology platform, the valuation and market data, the services pre- and post-sale services to integrate the process, remove the friction from selling assets and over time, to handle the full breadth and condition of assets. So we have been, in many cases, introduced to manufacturers by our initial retail clients. Serving the needs of these retail and manufacturing clients jointly removes redundant handling, non-valued activity, allows us to improve margins for both sides of that value chain if you will. Our work with manufacturers opened up in sites that there lots of additional categories to serve in the U.S., as well as outside the U.S., and we began to build deeper relationships with manufacturers and expand our buyer reach and service offering, both organically and through acquisitions. And today, as evidenced by competitively bid contract awards, we are best in class, and we are best in class in major industry verticals that need our services. And I listed several of them during the remarks. So we're very committed to the entire retail supply chain, including online multi-channel and traditional offline retailers, the manufacturers who supply them globally, as well as industry categories where there's a lot of capital intensity, and therefore, a high rate of use and disposition of rolling stock, plant machinery, a material handling equipment, IT equipment and the like. And what's unique for us is that we support that growth with one technology platform, one set of services, uniform process globally, and clients are responding well to that.

Colin, let me take the second part of the question, which was the change in guidance for the fourth quarter. Really, it's driven by 2 factors. One is the retail supply chain, which I discussed in detail in my earlier comments. We also discussed that in detail in our pre-announcement call. But we are assuming that we will not see any substantial improvement in the fourth quarter over the third quarter results, which, obviously, as we talked about earlier were below expectations. I will tell you that we are seeing a change in the consumer electronics trend in the retail supply chain. And I think things may be turning, but I'm just, at this point, not willing to put that into the forecast. The GSS data will be out either later today or early tomorrow. That data will show that there was a pickup in the retail business, particularly the consumer electronics side. But again, I'm not going to anticipate that occurring for the rest of the quarter. The second piece is GoIndustry where, first off, there's a significant exposure to the European market. Bill indicated in his comments a lot of recent wins globally, and this is just a slow quarter for particularly non-U.S., the non-U.S. segment primarily just due to holidays. So I am anticipating again a similar range of GMV in the GoIndustry side of our business. And then just traditionally, it is a slow quarter for DoD, not that there should be a dramatic change there, but the group that we work with there does take vacation, particularly during late July and August. So the primarily -- the primary difference is going to be not expecting any real changes this quarter in retail and the GoIndustry side of our business.

The next question comes from the line of Jason Helfstein, Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: [Audio Gap] have dealt with historically and that lead time takes longer. Can you just talk about the size of like the average client wins? When you do win a piece of business, how would that compare relative to in your average size piece of business that you may have won 2 or 3 years ago? And then to the extent that, that business is probably much more sticky because it's really about integration into their supply chain for these bigger customers. Secondly, can you just talk about on the surplus side? I would imagine in both the third quarter and the fourth quarter, we're seeing some impact of sequestration on those numbers. Is it reasonable to assume that, that slowdown or the impact of sequestration and furloughs has an impact through the middle of next year?

Let me address the strategy. Those that have followed the development of Liquidity Services for any period of time have heard our goal is to provide the most-trusted comprehensive marketplace to serve the needs of the largest organizations in the world who retail and distribute finished goods and who have property, plant and equipment that is always becoming surplus to their needs in entering the sale marketplace. Over our evolution, we have continued to evolve and move up the buy-sell hierarchy, if you will, from simply a marketplace where one can list goods. We have clients today that self manage their listings on our marketplace and leverage our buyer base. But as you work with blue-chip Fortune 1000 companies, they're looking for global, multi-year strategic relationships. And in the contracts that we negotiate and sign, you're looking at very comprehensive scope of work that are managing a full range of assets, that handle their needs across many regions, that are exclusive for the assets we manage and sell, that require further integration with our clients to support their tracking and sale of assets, that provide significant transparency around the reporting of their activities that are often bundling and leveraging the valuation data that we have created over 14 years of transacting in these marketplaces. So we're talking about global, multi-year relationships that are exclusive. There is a longer lead time in that process. Examples of some of the items I listed in the call today, you might be negotiating that agreement for 5 or 6 months just the agreement. But on the other side of that, you have a much stronger incumbent relationship, a much deeper integration with the client and truly are impacting their own strategic plan and allowing them to have greater success in executing on their growth strategy. And that's where we have a very valuable role in the supply chain, as well as helping to influence the way the industry moves in embracing our business model for managing reverse supply chain needs, so longer lead times, longer sales cycles, but deeper integration with our clients and over time, reinforces our leadership position. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: On the surplus...

Jason, I'll take the -- yes, I'll take the sequestration question on surplus. So that certainly is affecting some operations with the Department of Defense. It's mostly on the administrative side of it, Jason, so it's not affecting property flows for the most part, as the military personnel themselves are not subject to that, so certainly, again, on the administrative side. So we're not -- we haven't really seen a large effect on property flows as it relates specifically to sequestration. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: I mean could -- can you then talk about what's driving the slowdown then in that business because we've clearly seen a slowdown the back half of the year? Or is it just comps?

Well, I mean, it's just the ebbs and flows of the Department of Defense. We've been working with that client for over a decade. Some quarters, it's up some. Some quarters, it's down some. Scrap, obviously, has more volatility because not only are you subject to the property flows from the Department of Defense, but you're also subject to commodity pricing, which has changed a little bit this year. I would say it's not down materially from last year. Again, as a reminder for folks, 60% to 70% of what we sell in the scrap piece of the Department of Defense is aluminum and steel. And so those have been fairly consistent this year, albeit down some.

Your next question comes from Michael Purcell of Stifel. Michael B. Purcell - Stifel, Nicolaus & Co., Inc., Research Division: Bill, you sound excited especially about there's a lot more talk about the international opportunity for the company. A few quarters ago, it was much more U.S.-based companies. So a couple of questions for you to that end. I'm wondering with the slowdown, is the U.S. market changing that you feel that more of the growth will come from the company outside internationally. And to that end, we put together or you guys have presented a TAM in retail of, call it, $50 billion, and I don't recall if that was U.S. or domestic, but $50 billion for retail, about $100 billion for capital assets. So I'm wondering if there's a change in the flow of supply in the U.S., if you need to go internationally for that and if this going to kind of be the new face of the company of expanding international. If you could just kind of go through that, I appreciate it.

Sure. Well, as an Internet-enabled marketplace, we've always been international with respect to our buyer side. I would say in terms of focus and investment, it has not been a priority up until the last 12 months. What we've recognized is that our marketplace is extensible to the needs of clients outside the United States. In fact, many of our top U.S. clients headquartered here have significant operations outside the U.S. And any major Fortune 500 company, if you look at the revenue stream, 50% or more of their activity's outside the United States. So globalization is just the way the world is going, and to be relevant and responsive to the needs of large organizations, you must have an international strategy. So that's how we think about serving the needs of our clients and expanding the investments that we've made outside the United States. And we have talked about the rationale for acquiring GoIndustry, a business that has a long track rate of success serving many U.S.-headquartered blue-chip companies around the world. And so we made the decision to acquire those capabilities to expand in places like Europe, Middle East, Asia Pacific to stand up this marketplace and grow with our existing clients. With regard to the U.S. marketplace and the TAM, clearly, the U.S. has gone through big economic downturn and continued sort of rebuild since 2009. There is a frugality in the consumer marketplace that retailers are very sensitive to, so there's a lot of value price and promotion strategies. I think in the last 3 to 6 months, we've seen some secular change in the way some legacy or product categories and consumer electronics have been impacted. There are lots of significant restructuring efforts going on in the consumer electronics industry with some of the leading revered companies going through change. And undoubtedly, that has affected the volume and pricing of goods in our marketplace. Having said that, we have always been well positioned to benefit from product innovation in the U.S. We are seeing our fragmented market consolidate over time. We are a consolidator of choice. We believe we'll help lead the industry to continue to consolidate and provide national and international scale access to the services required to help manage the logistics, inbound, outbound logistics, the valuation data and reporting needs for our clients, and that requires investment. So that does require scale. So our international strategy is really not about the U.S. being less attractive. It's really about going where our clients are today and being a comprehensive service provider.

The next question comes from the line of Shawn Milne, Janney Capital Markets.

Bill, I wondered if you could talk a little bit about some of the changes in the sales force, you talked about automation tools and where are we in that process and in terms of taking sales leads and funneling them down and then making sure there's sort of appropriate filtering of that into your sort of financial outlook and how the progress is working there. And then -- and secondly, I just kind of want to go back. I know it's been asked like 2 times already. But really, to the U.S. retail business, I think Colin was asking about what the implied change was in Q4. It looks like, Jim, it looks like -- has there been a big loss of a customer? Has Wal-Mart been impaired? Any more color there? Because that business looks like it's under just more pressure than would be suggested by the consumer electronics comment. Certainly, there's been changes out there in the sector, but the longer-term view of that business was significant fragmentation. Many -- 10,000 local jobbers that you should have been able to win business from that just doesn't seem to be happening

The first question on changes to our sales and marketing organization, a couple of observations: One, our scope of selling has greatly increased. We sell in multiple regions versus previously focused principally on the U.S. with some Canadian sales activities. We sell a wider range of services, not only the disposition of assets on a marketplace but valuation services. We provide an integrated web-based application called AssetZone to help clients track and manage their assets. We sell scrap disposition services to corporate clients. We help clients manage all of the aspects of closing facilities and moving that equipment to our online marketplace. All of those services have required us to trade and educate the sales organization. To be able to cross sell and upsell services, we have trained and educated our sales organization how to collaborate across these regions to work in unison as opposed to individual siloed sales teams. And we have just radically improved the flow of information using technology-based sales automation tools that allow us to track every lead that comes in with an existing client or a new prospect in a fashion that time weighted way will see itself through each step in the sales process, so improved transparency across the sales organization of what leads are coming in with existing clients and new clients, the ability to prioritize our time and energy based on the quality and size of the opportunity, and have a lot of industry knowledge, asset intelligence and client case studies worked on by vertical. And we've organized our teams by the industry verticals where we see the biggest opportunities. That is what has allowed us to compete for and win and actually, be invited in, in the absence of competition, in some cases, to serve clients and all of the regions we operate. And so that is the formula for success. We have not observed any other service provider or e-commerce marketplace that has this range of capabilities. Our clients feel they are getting significant enhancement in the value, both in terms of financial recovery but managing their compliance needs, protecting their brand in the secondary marketplace, ability to support their sustainability goals, which are often identified at the board level and handed down to the executive team and the supply chain and operations team. That makes us a strategic partner for our clients, a position that everyone wants, and it's hard to attain. So Shawn, we feel that, that is an important foundational aspect of building the business over the next several years, and we've made terrific progress in fiscal '13. Although it's required a lot of investment and integration, it is a prerequisite for growing and scaling the business over the next several years.

Yes, Shawn, if I could piggyback on Bill's comments for the second part of your question on the retail supply chain, you specifically mentioned Wal-Mart. I mean, Wal-Mart, obviously, is a very important client for us. We do deal a lot of business with them, and of course, our business with them is down year-over-year significantly around the consumer-electronics vertical. Wal-Mart is one of the largest seller of consumer electronics in the world, and we've seen, again, a significant softening in that market for us, particularly in the secondary market. So we haven't -- we're not losing clients. We are, again, as I made in my initial comment, seeing a turn in the consumer electronics sector a little bit. But I'm not ready to drop the flag and say things are better. So I have anticipated, really, a similar level of sales in that vertical that we did last quarter in the fourth quarter. As far as the rest of the business goes, I mean, the rest of the business is, frankly, going fairly well when you look at the different verticals. I think as we talked about it on our last call, we do have about 35% exposure to the consumer electronic vertical in our retail business. But when you look at clothing apparel, for example, that business continues to do well. We would expect uptick through the NESA vertical as back to school takes into effect, really, in the months of September and October. And there's been no change. So when you look at the TAM or when you look at how we're performing competitively, frankly, we are getting a lot more wins. As Bill indicated, those are both on the retail and the capital asset side of our business, but the pace of which those wins are coming into our the property flows or into our warehouses, it's just not as we originally expected. So I do understand that the guidance for the fourth quarter is down over what we had previously talked about on our third quarter -- sorry, on our second quarter earnings call. But again, I think I'm anticipating similar levels in the retail business in the last quarter.

The next question comes from Gary Prestopino of Barrington Research.

Most of my questions have been answered. But in terms of the newer contracts that have come on that you've cited, I believe you said there were delays in some of these contracts, property flows. Is there any assumptions in Q4 for these contracts adding any GMV?

We have -- for clients that not only have signed contracts but advanced to operational rollout where assets have been manifested and uploaded into our marketplace, we factor that into our forecast. And we use what is visible at the time we provide guidance to present those figures. It would not include the follow-on opportunities as you further penetrate the client or take on the next set of projects. And I would also say that with many of these clients we're typically starting with more limited scope of work and then expanding from there. That's been the evolution of most of our relationships over time. But what I think we've observed is that we have been much more bold in the nature of the relationships we're seeking and the scope of the contracts we're signing. So these are not small pilots in one location. These are global, multi-year, exclusive relationships to really become an extension of their strategy to execute in the reverse supply chain and in many cases, to bundle services to give them the data, the technology tools, and then ultimately, the marketplace to leverage. That's what's different about our company today versus just a few years ago, and that's what's ultimately the pillar of growth for us as we move to the next phase of our development.

Okay. Could you -- is there anything that you can do on your end to possibly speed up implementation of these contracts to get the product flows coming through? I know there's been some delays, but is there anything you guys can do?

Well, certainly, what we do is execute when we're given the opportunity to sell equipment and material and inventory and meet or exceed expectations, provide great service and follow through. We're not going to truncate the sales cycle of a general council to approve a master global services agreement. We're not going to truncate the legal and regulatory and maybe even labor law issues that come into play in international markets when a plant is closing. What we are able to do is have the most-talented, well-trained sales organization that is highly productive, working collaboratively around the world to fill up our pipeline and continue to grow the pipeline. And ultimately, that's what we're focused on in terms of investment, and that will impact and improve our growth rate over time. And as I said, we've been doing this for 14 years. We've had periods of integration and consolidation and then stair-step growth. And fiscal '13 has been one of those years, but we have made significant progress with the execution of our sales and marketing organization, and it continues to be an area of investment for us. And that's ultimately, Gary, what we can do to improve our growth rate.

Okay. I guess, the last question I would have is that you're seeing a somewhat of a secular change on the retail side in consumer electronics. Who knows when that is going to actually end or if it ever does end, but as you're putting on new business, contracts that you've signed, you think property flow's eventually coming through. Is this something you feel comfortable with that you can overcome over the next -- in the next fiscal year? Or is that still going to be a significant drag on the GMV growth?

Look, I think the reality is we've had -- if you look over the last 2, 2.5 years, we had substantial growth, and this was a difficult period of year-over-year comparisons with a lot of the progress are made 1 year ago. And we should continue to grow in the consumer electronics and technology sectors. The product life cycle issues do require a marketplace to get in front of those curves, and the pace of adding new programs is likely to improve over time. It was -- it has been muted over the last 4 to 6 months, and that is what has reduced the growth rate year-over-year. But we've had significant progress and success. Some of the clients that we've talked about today are in the consumer electronics vertical. So we have a very attractive value proposition in that vertical. Most of our clients have IT equipment either operating assets inside their companies that need to be disposed of or retailers that are dealing with returned inventory, seasonal inventory in the consumer electronics vertical. So it will continue to have a strong presence and a role. And yes, we believe that it is a growth sector for us.

[Operator Instructions] Your next question comes from the line of Nat Schindler of Bank of America.

Looking at this quarter organically and next quarter midpoint of guidance, it's somewhere like down 12% year-over-year. It's hard to reconcile that just with the consumer electronics slowdown. Has there been any change with your large retail clients, such as Costco, Wal-Mart, in number of stores you serve? And additionally, if there hasn't been a real change there on the downside, why aren't you increasing on the upside and overwhelming any fall down in consumer electronics or any other vertical simply because you have increasing value? Every dollar you spend in CapEx is increasing value in fulfillment centers. Every increase in the number of registered bidders you have, which looks solid this quarter is an increase in the vibrancy of your marketplace. So why wouldn't it be growing actually the number of stores you're covering at -- and overwhelm that?

So if you refer back to the last call, I think one of the areas that you're seeing is existing mature clients where we have 100% of their business in the U.S. and by the way, which really provide us the data that we use to forecast for own business have declined year-over-year. And it's a high-class problem when you have significant fully penetrated client relationships. But if they're having a year-over-year decline, you aren't going to have any control over that. What we can control and what has been a year-over-year point of investment and focus is continuing to expand our sales and marketing organization and influence the rate at which we roll out new program, sign new programs and then together with our client, get operational rollout out of those programs. That has slowed. And that has been the leading culprit in terms of not being able to grow through a decline in year-over-year results from existing mature programs and clients.

Can you help me on why it would slow with the existing large client penetration? Why would you grow from 3 stores to 100 at Costco in a short period of time and then kind of pause?

So Nat, I -- we'd be delighted to spend some more time with you to walk through the sales cycle with case study examples. So Julie and Jim and I would be available to do that.

I would now like to turn the call over to Julie Davis for closing remarks.

Thank you. That concludes our call for today. We appreciate your participation, and Jim and I will be available for questions. Thank you.