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Liquidity Services (NASDAQ:LQDT)

F4Q 2012 Earnings Call

November 29, 2012 10:30 am ET

Executives

Julie Davis - Director of Corporate Communications

William P. Angrick - Co-Founder, Chairman, Chief Executive Officer, President, Interim Chief Information Officer and Chief Executive Officer of Dod Surplus Llc

James M. Rallo - Chief Financial Officer, Principal Accounting Officer and Treasurer

Analysts

Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

Ross Sandler - Deutsche Bank AG, Research Division

Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Operator

Good day, ladies and gentlemen, and welcome to the Q4 and Fiscal Year Liquidity Services Incorporated Earnings Conference Call. My name is Catherine, and I will be your operator for today. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would like to turn the call over to Ms. Julie Davis, Director of Investor Relations. Please proceed, ma'am.

Julie Davis

Thank you, Catherine. Hello, and welcome to our Fourth Quarter and Fiscal Year 2012 Financial Results Conference Call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer; and Jim Rallo, our Chief Financial Officer and Treasurer. We will be available for questions after our prepared remarks.

The following discussion or responses to your questions reflect management's views as of today, November 29, 2012, and will include forward-looking statements. Actual results may differ materially. Additional information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results, as well as metrics and commentary on the quarter.

During the call, we will discuss certain non-GAAP financial measures. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. We also use certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. The supplemental operating data includes Gross Merchandise Volume and should not be considered as substitute for or superior to GAAP results.

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

William P. Angrick

Thanks, Julie. Good morning, and welcome to our Q4 earnings call. I'll begin this session by reviewing our Q4 financial performance. Next, I'll turn it over to Jim for more details on the quarter and on our outlook for the remainder of -- for fiscal '13. And finally, I'll provide an update on our long-term growth strategy.

During Q4, Liquidity Services reported strong financial results as we continued to grow our market share and build on our leadership position in the reverse supply chain market. We continued to benefit from large commercial and government clients placing their trust in us to handle more of their excess inventory and high valued capital assets, which drove strong results this past quarter. We exceeded our guidance range for GMV and adjusted EBITDA and adjusted EPS while continuing to make important investments for the future. Q4 GMV was up 65% year-over-year to $241 million, driven by growth in the volume of goods in our commercial and government marketplaces by existing and new clients. Adjusted EBITDA of $23.1 million was up 85% year-over-year, and adjusted EPS during Q4 was $0.40, up 186% year-over-year, driven by improved operating leverage on higher volumes.

This quarter also caps off another strong year for Liquidity Services, in which our team continue to advance our business strategy of building a defensible leadership position in the reverse supply chain market, while also generating outstanding financial results for our shareholders and clients. With our large and growing buyer marketplace, integrated services and domain expertise, we are enabling retailers, manufacturers and government agencies to drive efficiencies in their global supply chains and better compete in an increasingly complex business environment.

During the past year, we enjoyed broad-based organic growth as we expanded our market share within both the commercial and public sector markets. Our consistent execution has enabled Liquidity Services to become the trusted provider of choice in our industry with over 100 Fortune 1000 corporations, over 5,000 federal, state and local government agencies and over 2.2 million registered buyers now utilizing our marketplaces.

During the past year, we also continued to drive innovation to support our market leadership position as we rolled out our next-generation BUX technology on our award-winning government liquidation marketplace. This enabled the seamless cross-listing of relevant client assets on multiple LSI channels to further monetize our buyer base. Our proprietary BUX platform now covers approximately 70% of our user base and will continue to improve the efficiency of our marketplace for buyers and clients.

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

Of note, we expect the integration of GoIndustry will require significant upfront investments to fully realize the global capital assets market opportunity, which will result in a drag on earnings in the first half of fiscal '13 but will benefit the second half of fiscal '13 and our long-term growth prospects.

Our continued focus on delivering the breadth of services, industry coverage and global market data that large enterprises require in the reverse supply chain, positions Liquidity Services very well for fiscal year 2013 and continued long-term profitable growth and market leadership.

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

James M. Rallo

Thanks, Bill. Our record full year results and strong fourth quarter results reflect market share gains and enhanced service levels and operating efficiencies across our entire business as a result of investments we have made to support our growth over the last several years. Our strategy of bringing innovative technology to the reverse supply chain market and our efficient business model has translated into strong results for stockholders. Fiscal year 2012 adjusted earnings before interest, tax and depreciation and amortization, or adjusted EBITDA, has improved 109.1% to a record $110.1 million. Our seller base has continued to grow as over 125 Fortune 1000 corporations and over 5,000 public sector agencies focused on reducing costs, improving transparency and working capital flows by outsourcing reverse supply chain activities. As corporations and public sector agencies increasingly prefer service providers with a proven track record, innovative technology solutions and demonstrated financial strength, we have continued to penetrate our large, highly fragmented markets.

Our buyer base has grown significantly over the last year to approximately 2.2 million, or 36.3%, as we added almost 600,000 new buyers, including over 300,000 from GoIndustry, where we had very little overlap and added significant number of international capital asset buyers to the Liquidity Services marketplaces.

In addition to strong core business operating results for the quarter, we embarked on several key initiatives to continue to drive significant shareholder returns in fiscal year 2013 and beyond. We closed the GoIndustry acquisition in July and have commenced the integration of this business including adding the additional capabilities of the Liquidity Services marketplaces to expand the opportunity for GoIndustry clients to maximize the value of their surplus assets outside the manufacturing vertical.

On November 1, we also completed the acquisition of NESA, which expanded our capabilities and value-added services in the consumer electronics vertical as well as creating a significant presence for us in Canada. NESA's another example of how Liquidity Services expanded its menu of services based on the need of our clients, as well as providing them a service location in Canada, increasing their logistics efficiency.

Next, I'll comment on our fourth quarter and full year results, which came in above our guidance range for Gross Merchandise Volume, or GMV, adjusted EBITDA and adjusted earnings per share. Total GMV increased to a record $241 million, up 65.1% for the fourth quarter and to a record $864.2 million, up 54.7% for the fiscal year. GMV in our commercial marketplaces increased to a record $156.8 million, up 145.5% for the fourth quarter and to a record $522.3 million, up 111.1% for the fiscal year, principally as a result of organic growth from new and existing clients, as well as the acquisition of TruckCenter.com, Jacobs Trading and GoIndustry over the last 18 months. GMV in our DoD surplus marketplace increased to a record $36.1 million, up 35.3% for the fourth quarter, and to a record $133.8 million, up 29.3% for the fiscal year as a result of increasing property flow from the DoD and a higher mix of high-value capital assets such as rolling stock. GMV in our GovDeals, or state and local government marketplace, increased to $31.8 million, up 8% for the fourth quarter, and to a record level $131.5 million, up 18% for the fiscal year, as we continue to add new clients, thus further penetrating the $3 billion state and local government market.

GMV in our DoD scrap marketplace decreased to $6.2 million -- $16.2 million or 33.6% for the fourth quarter and to $76.6 million or 11.1% for the fiscal year, as a result of decreasing property of both the DoD and decreases in commodity prices. As sales of DoD scrap have become less material, fluctuations in commodity prices are not materially affecting our financial performance.

Total revenue increased to $122.3 million, up 51.6% for the fourth quarter and to $475.3 million, up 40.9% for the fiscal year, primarily due to the GMV growth discussed.

I will now discuss the fourth quarter and fiscal year 2012 expense line items and will now provide detailed explanations for changes from fiscal year 2011, and those explanations are similar to the ones previously discussed in my comparison for the fourth quarter. Technology and operation expenses increased 42.7% to $20 million for the fourth quarter, primarily due to increases in staff and personnel from acquisitions completed during the last 18 months, outsourced processing labor and temporary wages including stock-based compensation and consulting fees associated with technology infrastructure projects to support the growth discussed. As a percentage of revenue, these expenses decreased to 16.4 -- to 16.4% from 17.4%. Technology and operations expenses increased 22.2% to $67.6 million for the fiscal year. As a percentage of revenue, these expenses decreased to 14.2% from 16.4%.

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

General and administrative expenses increased 55.9% to $12.4 million for the fourth quarter, primarily due to general corporate overhead expenses, business development costs and increases in staff and personnel from acquisitions completed during the last 18 months, including stock based compensation to support the growth discussed. As a percentage of revenue, general and administrative expenses increased to 10.2% from 9.9%. General and administrative expenses increased 29.1% to $37.1 million for the year. As a percentage of revenue, these expenses decreased to 7.8% from 8.5%.

The year-over-year comparisons of adjusted EBITDA, adjusted net income and adjusted diluted earnings per share included the losses from our U.K. retail supply chain operations in the prior year. We closed our U.K. retail supply chain operations effective September 30, 2011.

Adjusted EBITDA grew 85.1% for the fourth quarter to $23.1 million. Adjusted EBITDA margin, as a percentage of GMV, increased to 9.6% from 8.5% driven by operating efficiencies in our retail supply chain marketplaces. Adjusted EBITDA grew 109.1% for the fiscal year to a record $110.1 million. Adjusted EBITDA margin, as a percentage of GMV, increased to 12.7% from 9.4%.

Our adjusted EBITDA margins based on revenue continue to expand as we benefit from the operating leverage and the adoption of fee-for-service offerings. Our adjusted EBITDA margins based on revenue for the fourth quarter and the fiscal year were 18.9% and 23.2%, respectively, compared to 15.5% and 15.6% for the 2011 period, respectively.

As we expand globally and more of our clients elect to use fee-for-service offerings, such as our consignment sales model, our adjusted EBITDA margins will fluctuate more quarter-to-quarter based on GMV. Adjusted EBITDA margins based on revenue will likely be more consistent and representative of our earnings leverage going forward.

Adjusted net income was up 216.1% to $13.1 million for the fourth quarter, and up 99.9% to a record $60.9 million for the fiscal year. Adjusted diluted earnings per share was up 185.7% to $0.40 for the fourth quarter based on approximately 32.8 million diluted weighted average shares outstanding. Adjusted diluted earnings per share was up 77.1% to a record $1.86 for the fiscal year based on approximately 32.8 million diluted weighted average shares outstanding.

The company continues to demonstrate strong cash flow generation and growth, as our overall working capital continues to be a source of cash. During the fourth quarter and fiscal year 2012, LSI generated $12.9 million and a record $52.1 million of operating cash flow, an increase of 13.1% and 30.7%, respectively, year-over-year. We continue to have a strong balance sheet. At September 30, 2012, we had a cash balance of $104.8 million, current assets of $162.6 million, and total assets of $400.4 million, with $53.2 million in working capital. Subsequent to year end, Liquidity Services paid in full the 5% $40 million seller subordinated note related to the Jacobs acquisition. In addition, the company received a $1 million discount for early payment resulting in a total payment of $41 million, including the accrued interest. On November 1, the company also paid $18.3 million for the acquisition of NESA. Capital expenditures during the quarter were $4 million and $6.8 million for the fiscal year. We expect capital expenditures to be $6 million to $7 million for fiscal year 2013.

Management is providing the following guidance for the next quarter and fiscal year 2013. We have assumed that we will once again receive the annual incentive payment under the DoD Scrap Contract in the third quarter of fiscal year 2013. In addition, we estimate that we will make investments totaling several million dollars to fully integrate GoIndustry into Liquidity Services over the next year, resulting in a drag on our earnings during the first half of fiscal year 2013. This is a change in our expectation that GoIndustry would be accretive to the bottom line throughout fiscal year 2013. We believe this investment is required to fully realize the synergies available across the company's buyer marketplaces and clients to position us for growth within the $100 billion global market for capital assets.

We expect GMV for fiscal year 2013 to range from $1.1 billion to $1.2 billion. We expect GMV for the first quarter of fiscal 2013 to range from $240 million to $250 million. We expect the adjusted EBITDA for fiscal year 2013 to range from $123 million to $133 million. We expect adjusted EBITDA for the fiscal first quarter of 2013 to range from $22 million to $24 million. We estimate adjusted earnings per diluted share for fiscal year 2013 to range from $2.05 to $2.23.

For the fiscal first quarter of 2013, we estimate adjusted earnings per diluted share to range from $0.36 to $0.40. This guidance assumes that we have an average fully diluted number of shares for the year of 33.4 million, and that we will not purchase shares with the approximately $18.1 million yet to be expended under the share repurchase program.

Our guidance adjusts EBITDA and diluted EPS for: one, acquisition costs, including transaction costs and changes to our earn-out estimates; two, amortization of contact intangible assets of $33.3 million from the acquisition of Jacobs Trading; and three, for stock-based compensation costs, which we estimate to be approximately $3 million to $3.5 million per quarter for fiscal year 2013. These stock-based compensation costs are consistent with fiscal year 2012.

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

Now I'll turn it back over to Bill to discuss our long-term objectives and growth strategy.

William P. Angrick

Thank you, Jim. As we reflect on our strong fiscal year '12 results, we have renewed excitement of where we can take our business. Though we now have the scale of a $1 billion GMV business, we have only 1% penetration of the highly fragmented $100 billion global reverse supply chain market. At the beginning of fiscal year 2012, we established a 5-year goal of tripling our business to $1.5 billion of GMV. Based on our strong execution, and growing credibility in the marketplace, we are ahead of plan. And therefore, we've established a new goal of reaching $2 billion of GMV by fiscal year '16, or $500 million higher than the previous target.

We are confident in our ability to achieve our long-range goals due our many strengths. Liquidity Services has the largest global buyer base for surplus assets, which continues to grow. We possess proprietary market data and knowledge derived from over $3 billion of completed asset sales to assist our growing clients base in the valuation and sale of assets in over 500 product categories in all condition types. And we possess the most innovative sales channels and services to meet the needs of the marketplace.

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

What will drive our long-term growth and success? First, we have strong organic growth opportunities with our existing clients, which now include the world's largest organizations in the biggest industry sectors in a global economy: retail, energy, transportation, healthcare, consumer packaged goods, technology and the public sector. Our strong relationships and track record with the leading companies in each of these industry sectors is resulting in the referral of new business across the supply chain. We are being introduced by retailers to their OEM suppliers, and by OEM suppliers to their retail partners, both to rethink and reengineer the returns process and to manage and dispose of high-value capital equipment used in the production of finished goods.

Moreover, our expanding capabilities enables us to cross-sell services to our clients to capture more volume and fee-for-service business in areas such as valuation, asset redeployment, and refurbishing. To date, we have done very little cross-selling of services. And to fully realize these organic growth opportunities, we will invest in the expansion and training of our enterprise sales force and support systems to enable the efficient cross-selling of our services to Fortune 1000 clients, which will boost revenues and cash flows over time. Additionally, we expect the volume of DoD surplus property will increase over the next few years due to ongoing modernization programs, which will result in healthy organic growth with this long-standing client.

Next, macro trends are increasing the demand for our services and potential for new client additions in the retail and manufacturing supply chains. For example, the continued growth of online retail sales, where return rates are 2x to 3x higher than in traditional retail, is driving a massive volume of return merchandise that must be tracked, managed and sold quickly to avoid significant loss of value as product lifecycles continue to shrink. We estimate that consumers will return a record $50 billion of merchandise this holiday season alone.

Additionally, vendors to retailers are seeking solutions to centrally and consistently manage the sale of their returned and overstocked goods in the secondary marketplace to protect the image and price points of their brands in the primary marketplace. Our comprehensive solution, encompassing returns management, refurbishment and multichannel disposition, enables us to reduce cost and increase recovery value for retailers and OEMs facing these challenges.

Another compelling macro trend, which will benefit Liquidity Services over the next decade, is the focus on global sustainability. Large organizations are committed to promoting Zero Waste solutions, which require credible strategies to track, manage and sell surplus and scrap items, both finished goods and capital equipment that have previously been discarded as waste. Liquidity Services has a proven solution and global buyer base to help these organizations meet their sustainability objectives, which will continue to fuel our growth over the long term.

For example, we recently completed one of the largest green and Zero Waste initiatives in the history of the U.S. government by successfully selling 7.4 million pounds of steel, aluminum and copper wiring, along with galley equipment, fixtures and furnishings from the decommissioned USS Long Beach. Items were sold at 118% higher than their projected value using our competitive online auction marketplace. To date, we've sold over 2 billion pounds of scrap material through our online marketplaces. That would be the equivalent of over 5,000 Boeing 747 aircraft being diverted from our nation's waste stream.

Finally, we see a huge opportunity in the public sector as government agencies such as municipalities, utilities, hospitals and school systems become increasingly interested in recovering more revenue and promoting sustainability. With the largest online marketplace for government surplus and scrap material and significant expertise in meeting the unique compliance and reporting needs of government clients, Liquidity Services will significantly grow its public sector business over the long term. In one example, we recently completed our first assignment for the University of Notre Dame in which we auctioned over 1,000 items in a very tight timeframe in connection with the closing and renovation of a major on-campus facility.

Given our ability to address these compelling macro trends and market needs, we plan to invest in the branding and promotion of our solution as the trusted provider of choice to expand our base of Fortune 1000 and government agency clients. By way of example, today, we launched a new version of our corporate website, which better conveys our industry domain expertise, expanded service offering and case set examples of our outstanding work. You can explore that further on our corporate website.

We also recognize that supporting a $2 billion GMV business requires important investments in our infrastructure that we will pursue during the next year. We have recently established a global HR function and leadership development program led by Mike Lutz and an expanded team, which will prepare our teams for increasing levels of collaboration and readiness, the anticipated set of growth opportunities ahead for Liquidity Services.

In many ways, we're building the workforce of the future with unique roles focused on sustainability, data analytics, e-commerce and technology.

We're in the process of rolling out a single sales force automation system and integrated financial reporting system to support our teams, which are now on the ground and selling our services in 25 countries around the world. This will be critical to smartly cross-selling our services to the world's largest blue chip companies. We're also investing heavily in our asset zone enterprise system used by large organizations to track, redeploy and sell high-value capital assets seamlessly with our online marketplace. This proprietary, web-based, vast platform fills a void in the Fortune 1000 marketplace for large organizations that need to efficiently manage and report on asset recovery and sustainability initiatives. Today, we have 24 Fortune 1000 organizations using our AssetZone system with hundreds of users around the world, and we are excited by the expansion opportunities of this service going forward.

After more than a decade of growth and success, we continue to foster an entrepreneurial spirit at Liquidity Services. Our team has a passion to improve our business everyday and deliver innovative solutions to our clients. And just like day one of our founding, we measure our success by our ability to create value for our clients and buying customers, and we believe we are just getting started with where we can take Liquidity Services.

Thank you for your attention and we'll now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] From the line of Colin Sebastian from Robert Baird & Co.

Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division

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

William P. Angrick

Well, sure, let me first introduce the rationale for the GoIndustry transaction. Global clients increasingly need and expect uniform service globally for all of their equipment. And having met with many of the top clients of that business, we are not only seeing that rationale play out, but we're even more enthusiastic about the long-term growth prospects of cross-selling services to many large companies. In fact, companies that have traditionally been selling equipment on the GoDove marketplace also are major players in consumer packaged goods and have inventory and scrap material that needs to be handled and sold. And so, we like very much the opportunity to integrate a global enterprise sales organization, integrate their 300,000 global buyers and then continue to scale the business. And so I think our comments with regard to investment merely relate to the experience of having 5 months being able to be on the ground around the world and investigate the level of software integration, staffing and other investments to position the company to scale and grow, not just next year, but obviously, for the next 4 to 6 years, in line with our long-term growth targets. So relative, I guess, another aspect of the question was relative to the contribution of the business. We see that not changing from a GMV standpoint.

Colin A. Sebastian - Robert W. Baird & Co. Incorporated, Research Division

And I guess, more broadly, on the commercial side, if we think about growth there, organically, is the opportunity, generally speaking, more about increasing your activity in the buyer base or is it new sellers or increasing the business from existing sellers? I guess, maybe it'd be helpful if you can kind of rank those in terms of the impact on commercial?

William P. Angrick

Well, commercial and public sector both operate in a 2-sided marketplace business model. And as we have consistently done over the years, we invest on both sides of that marketplace. We have seen very strong linkage of when adding a supply in certain categories is a catalyst for growing the buyer base, and we have earmarked certain investments in the year ahead to attack both sides of that marketplace. For example, on the buyer side, we are moving all of our marketplaces on to a single marketing automation platform that allows our buyers to receive information according to their purchasing criteria on assets available, not just in the initial marketplace they're registered on, but in all marketplaces that Liquidity Services operate. That's adding service and enhancing the value to the buyer and the relationship with the company, and ultimately, will drive greater competition and higher sales value realized by our sellers. So that would be an example on our buyer side. On our seller side, frankly, we have such a great story to tell, and we've done limited investment in branding of our services. And so this is a big opportunity for the company, to expand on the messaging you'll see on our corporate website, which was launched today, and equip our sales organization to not only serve a large Fortune 500 client in the area that would traditionally serve them, but to bring in other subject matter experts within Liquidity Services that allow us to expand the range of services we offer to that client. And so that's a huge opportunity for the company. I mean, we have great coverage of large, in many cases, the most influential players in all of the big industry sectors. As I mentioned, retail, both on the retail side and the manufacturer side and supply retailers, we have a lot of growth opportunity simply by further penetrating these relationships and adding product categories and expanding our service offering there. We also have examples now of branded manufacturers who want to bring in-house and centralize the way that their brands are sold in the secondary marketplace and they're asking Liquidity Services to provide that full service solution to move products through our own channels and also manage any outlet channels they have online to ensure they have access to our proprietary market data on what these assets should be selling for, what this inventory is worth in the marketplace and to maintain velocity on the movement of those goods to avoid loss in value. This is a potential new way of thinking in the return to vendor process and something we're very excited about.

Operator

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

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

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

James M. Rallo

Sure. So Shawn, first off, I think, when you look at the quarter that just closed, GoIndustry came in really in line with expectations. We had said on our last earnings call that we expected GoIndustry, again, the first quarter that we were operating with them, to be somewhere in the mid to high 30s of GMV and to be around breakeven on the bottom line, and that came in pretty much as expected. I think, when you look out at next year, we don't really see any change in our top line expectations at this point. As Bill commented earlier, our initial meeting with the clients have been strong, the opportunities between the 2 organizations are tremendous. What we want to do is simply accelerate what we believe is the long-term opportunity that we see with the business and we moved our integration, I think, up more than the first half of this year. So to be specific, on your question, as far as what changed, I think what changed was our timetable, a greater knowledge of the business, now operating it for the last 4 to 5 months. And we expected, yes, I would say $0.02 to $0.03 as you indicated, dilutive, if you would, for the first 2 quarters of the year and then breakeven to making money in the second half of the year. And again, I mean, I think that's reflected in our full year guidance, which represents over 18% organic growth year-over-year.

William P. Angrick

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

Shawn C. Milne - Janney Montgomery Scott LLC, Research Division

That's helpful. And I guess, Jim, what's the -- you kind of did the math for us, what's the pro forma cash balance after the acquisition. And the Jacobs -- no -- and why -- what would preclude or why wouldn't you be more willing to buy your stock back here, especially with what we're seeing today?

James M. Rallo

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

Operator

The next question is from the line of Ross Sandler of Deutsche Bank.

Ross Sandler - Deutsche Bank AG, Research Division

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

James M. Rallo

Sure. Let me first address the margin issue. I think, again, the margins for the quarter came in, frankly, in line, Ross, with what we expected. To reiterate, we were ahead of our guidance ranges on all fronts. I think, particularly the EPS result was significantly above the high end of the guidance range. So really, nothing unusual there. I think, the way you're looking at the business, again, is not the way we normally look at it, but as you know, that can fluctuate just basic -- based on the change and the different models of our business. Meaning, consignment model or purchase model primarily, we had much more consignment model in the business and so that may be moving your -- the gross profit margin that you're looking at. Again, we don't look at the business that way. That's the only thing I can think of, Ross, because, again, on our side, margins came in as or better than expected. What I would -- one comment on margins for next year, I think it's -- our margins for next year that are represented in our guidance are actually in line with exactly what we said last quarter. So we expected to finish this year around 13% EBITDA, adjusted EBITDA to GMV margin. I believe the year was 12.8%, 12.7%, something like this. So again, in line with our expectation. When we discussed the GoIndustry acquisition in our last call, we said mathematically, once you put that business on our platform and the investments we need to make in the first year, its breakeven status at the time of acquisition, that was going to affect the overall aggregate margin by 1.5 points to 2 points. And when you look at our guidance this year, that's exactly where we ended up. I think it's, what, 1.6% or 1.7%, something in that range, again, that 1.5% to 2%. So I think margins really are unchanged from our expectations that we've discussed about before, both in the current quarter and for the next year. As far as investment goes, I think Bill hit a fair amount of those during his overview. But specifically -- and what changed our expectations, I think, was when we really dug into the global opportunity for the $100 billion capital asset market and we looked at the disparate organization of GoIndustry, one that has not been run historically with common systems and common processes, which is a departure from the normal Liquidity Services philosophy, we just saw an opportunity to change those things more quickly and more dramatically than we had originally thought, again, from a due diligence process versus running the business for the last 4 or 5 months, and we believe that's going to create more opportunity in the long run.

William P. Angrick

Look, I think the GoIndustry transaction was something like $11 million of equity value investment. This is a business that, in the long term, is going to be very successful as part of an integrated capital asset group. With take rates of in the range of 20% for the bundle of services we're providing, with 0 inventory risk, a very asset-light model, a business that leverages our global data, our global buyer base and increasing cross-selling opportunities, this is a very, very unique opportunity for us from an acquisition perspective and one that will pay great dividends for Liquidity Services stockholders over time. I sat down with a gentleman who runs about $10 billion of capital equipment purchases for a very well-known Fortune 100 company, and there's very limited amount of business that GoIndustry had been doing with that client. And together, we explained the full range of services we're providing in information technology, property, plant and equipment, scrap material, and it became very clear that there was a significant opportunity to expand our business. And so we are smart and experienced to know that be careful what you ask for in the sense of if clients like the value proposition, they're going to want to do a lot of business and they're going to, in this case, want to do it globally, so we want to get ahead of the curve in terms of our financial reporting systems, our global sales force, automation and sharing of data and our operations teams so that we execute crisply against we anticipate to be a lot of future growth.

Operator

The next question is from the line of Jordan Rohan.

Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division

I'm trying to look out to fiscal 2013, if you take apart with the organic growth business, of the businesses that haven't just been bought, in other words, everything but NESA and GoIndustry. And I'm having a little bit of a tough time discerning from the 1,000,150,000 GMV midpoint of guidance. About how much of the growth will come from the core, if you define the core as what I just said, that is not GoDove and not NESA? Can you give me some clarification or conversely, and I realize this was asked before, but I'm not sure what you really answered, what would be the contribution of those businesses in 2013, so we can back that out, and what was the contribution looking retroactively for fiscal '12, so we can get sort of a common baseline for organic growth?

James M. Rallo

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

Ross Sandler - Deutsche Bank AG, Research Division

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

James M. Rallo

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

Operator

The next question is from the line of Jason Helfstein from Oppenheimer.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

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

James M. Rallo

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

William P. Angrick

Yes, think the question regarding cross-selling of services relates to the target market of Fortune 1000 companies, these are companies that, in many cases, are on the manufacturing side of the supply chain. These are companies that manufacture things and sell widgets, if you will, to the retail channel. There's a huge base of property, plant and equipment, rolling stock, IT hardware that is subject to product obsolescence and use and must be lifted out of those companies, valued and sold. There's a huge void in that marketplace, and therefore, great opportunity for us. There's really no enterprise system that multinational companies use to track surplus and idle equipment. We are filling that void with the increased investment and deployment of the assets on system I referred to in the call earlier. That's sort of like the a salesforce.com system and the assets recovery function allows plant managers and procurement managers around the world to be collaborating online, dragging and dropping formation using data images, even video, to understand what they have and when an item is no longer needed by one part of the organization, it's made available to their peers within a company. In some cases, through our collaboration tools, it might be made available within an industry vertical among companies. And if there's no interest in the redeployment, which is a sustainability goal, if you can you use something that's used, you don't have to buy new. If it's not -- if that's not the case, then these items move immediately to one of our online marketplace events. And so it's really aggregating more and more usage within these large organizations, they're very sticky, desirable reporting tool for these companies that actually do have to report on how they track and manage this equipment, how they redeploy equipment to meet sort of board level for sustainability goals and it's really an integration of our marketplace at a deeper level, with the largest sources of supply equipment in the world. The other thing that we would note is many of these manufacturers have inventory, they're consumer packaged goods manufacturers and they sell inventory to the retail channel and they have nonperforming inventory. We've never had really any major presence in the manufacturing side of the retail supply chain. And this is green space for us and something that we intend to fully exploit in our long-term plan and this is a great entrée for us to be in there, talking about not only the capital goods side but also the inventory side. And I'd also add, there are lots of situations, we have scrap and end-of-life material that is a perfect complement to our Scrap marketplace. We're doing business today with one of the largest CBG players in the world, helping them set up programs for Scrap that's a byproduct to their manufacturing process. Again, this is green space for Liquidity Services and one that really is a nice complement to our sales force and team out there talking with these companies everyday.

Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division

If I can just follow-up. So just on that, I mean, that would suggest that there should be operating leverage going forward in the model on these investments? I mean, historically, you guys have talked about ultimately keeping margins flat and passing the savings onto customers and then there was legacy businesses, can you confirm that to the extent that you make these investments and they're a drag on the first half profitability in fiscal '13, you would expect operating leverage from these investments on a go forward basis. And then, Jim, can you reconfirm, I was just looking for the GMV, excluding the impact of acquisitions, so using our numbers, can you just -- are we in the ballpark, something like 25% organic growth in the fourth quarter and perhaps the year is somewhere around the 40% range, maybe a little lower than that?

James M. Rallo

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

William P. Angrick

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

Operator

The last question comes from the line of Nat Shindler from Bank of America.

Nathaniel H. Schindler - BofA Merrill Lynch, Research Division

Most of my questions have been asked already, but can you guys go a little bit more into the GovDeals business? I would imagine that this business would have a very large TAM and a low penetration right now. And yet, it seems to have fallen off to kind of single-digit growth rate in the last 2 quarters. What's holding you back in kind of the state and local municipality business?

William P. Angrick

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

James M. Rallo

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

Operator

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

Julie Davis

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

Operator

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

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