Julie Davis – Director of IR
Bill Angrick – Co-Founder, Chairman, and CEO
Jim Rallo – CFO and Treasurer
Shawn Milne – Oppenheimer & Co.
Colin Sebastian – Lazard Capital Markets
Stephen Ju – RBC Capital Markets
Steve Weinstein – Pacific Crest
Liquidity Services, Inc. (LQDT) Q2 2008 Earnings Call Transcript May 1, 2008 5:00 PM ET
Good day, ladies and gentlemen, and welcome to the Q2 2008 Liquidity Services Inc. earnings conference call. (Operator instructions) I'd now like turn the call over to Julie Davis, Director of Investor Relations. Please proceed.
Thank you. Good afternoon and welcome to Liquidity Services Inc. earnings release conference call for the fiscal second quarter 2008 and the three months ending March 31, 2008. During this call, we will refer to Liquidity Services Inc. as LSI.
Presenting today are Bill Angrick, our Chairman and Chief Executive Officer, and Jim Rallo, our Treasurer and Chief Financial Officer.
This conference call is also being broadcast through the Internet and is available through the Investor Relations section of the Liquidity Services Inc. Web site. Before we begin, I'd like to remind you that matters discussed on this call contain forward-looking statements that involve risks and uncertainties concerning LSI's expected financial performance as well as LSI's strategic and operational plan.
These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by these forward-looking statements. These risks and uncertainties include a variety of factors, some of which are beyond our control. These forward-looking statements speak as of today, and you should not rely on them as representing our views in the future and we undertake no obligation to update these statements after this call.
Please refer to our SEC filings as well as our current earnings release posted a few minutes ago on our Web site for a more detailed description of the risk factors that may affect our results. Copies of these documents may be obtained from the SEC or by visiting the Investor Relations section of our Web site. To supplement the company's consolidated financial statements presented in accordance with GAAP, we use certain non-GAAP measures. These non-GAAP measures include EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS.
We believe these non-GAAP measures provide useful information to both management and investors. These measures, however, should not be considered a substitute for, or superior to, GAAP results. A reconciliation of all non-GAAP measures included in this conference call to the nearest GAAP measure can be found on the financial tables included in the press release.
We also use certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes GMV and should not be considered a substitute for or superior to GAAP results. At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.
Good afternoon, pleased to be with you today. As detailed in our press release, Q2 was another productive quarter for the company, as we grew GMV in all major segments of our business over the prior year period and completed the acquisition of GovDeals in January. We're pleased that despite a weakening economy, we continue to experience healthy growth and strong operating free cash flow.
During the quarter we reported record GMV of $88.2 million, representing a growth rate of approximately 47% over the prior year. Excluding the acquired GovDeals business, GMV grew approximately 21% over the prior year period. Adjusted EBITDA grew 21% over the prior year period to $5.7 million for the quarter. We also generated cash from operating activities of approximately $3.8 million during the quarter. There were several highlights from the quarter.
GMV in our surplus business grew 38% year over year and 20% sequentially. GMV in our scrap business grew 33% year over year. GMV in our commercial business grew sequentially by 11%, and GMV from our commercial consignment business grew 23% sequentially during the second quarter.
Finally, our acquired GovDeals business generated approximately $15.9 million in consignment GMV for the quarter. We continue to be excited by the opportunity to further grow our online marketplace in the large and fragmented state and local government market sector. I'd also like to point out that our team during the past quarter was able to close and successfully integrate GovDeals, while staying focused on executing our core business. Our management team's ability to continue to identify and close attractive M&A deals and deliver organic growth is another way we create value for our stockholders.
Our buyer marketplace continued to deliver strong results for our sellers as the number of auction participants increased 46% year over year to a record 463,000 during the quarter. We also completed a record 91,000 transactions during the quarter representing a 74% year-over-year increase. LSI's strategic mission is to develop the largest and most efficient online marketplace to enable commercial and public sector clients to transact wholesale, surplus and salvage goods.
In the current economic environment, we believe LSI is well-positioned to increase the size of our online marketplace and expand our market share position as evidenced by a number of initiatives. We've recently begun to handle a new product category, store fixtures and equipment for some of our national retail clients. National retailers have a continuous need to upgrade and dispose off these capital assets as they open, close or consolidate retail store operations.
We've responded by developing solutions for large retailers to manage and sell these items using our online auction marketplace. To support this need, we have targeted and reached a critical mass of buyers for these assets and created a new store fixtures and equipment vertical in our online marketplace Liquidation.com.
During the quarter, we also opened a new distribution center hub in Bentonville, Arkansas, to serve existing and new clients in the South Central region of the U.S. for new sales programs. We continue to expand our buyer marketing programs using smart online and offline branding and promotional campaigns. These efforts are yielding strong results as we averaged five auction participants per completed transaction while growing GMV significantly during the second quarter. We see further opportunities to improve the buyer experience by enhancing the navigation and design of our online marketplaces.
Another important strategic goal we have is further diversification of our business. Our strong organic growth combined with our recent acquisition of GovDeals have resulted in a stronger and more diversified business by market segment and pricing model. During the quarter, approximately 80% of LSI's GMV consisted of clients using our consignment and profit sharing models and approximately 20% utilizing our purchase model. We expect further diversification and growth through our announced plans to acquire the Geneva Group, a leading asset remarketing firm in the United Kingdom.
We expect this acquisition to broaden and diversify LSI's marketplace by adding a European base of commercial buyers and sellers that will be very complementary to our existing business. We would also like to update you on the procurement process related to our surplus contract with the DoD. The DoD has published an RFP and timeline to award a new surplus contract on or about the end of June. We've submitted a technical proposal on April 17 in response to the DoD's RFP. We're prepared to operate and execute under any scenario, including the award of a new contract or the extension of the existing contract.
I will now turn the presentation over to Jim Rallo, our CFO and Treasurer.
Thanks, Bill. The company continues to experience strong top-line growth as the amount of growth as demand gross merchandise volume or GMV increased $28.2 million or 47.1% to $88.2 million for the three months ended March 31, 2008, from $60 million for the three months ended March 31, 2007, primarily due to one, our scrap business which generated 29.1% of our revenue and 20.7% of our GMV and grew 33.2%; two, our surplus business, which generated 33.5% of our revenue and 23.9% of our GMV grew 37.8%; and three, the acquisition of GovDeals completed on January 1, 2008, which generated 1.8% of our revenue and 18% of our GMV.
Revenue increased $13.5 million or 27.5% to $62.8 million for the three months ended March 31, 2008, from $49.3 million for the three months ended March 31, 2007. This increase is primarily due to the items driving the GMV growth.
The cost of goods sold excluding amortization increased $4.7 million or 40.1% to $16.2 million for the three months ended March 31, 2008 from $11.5 million for the three months ended March 31, 2007. As a percentage of revenue, cost of goods sold excluding amortization increased to 25.7% from 23.4%. These increases are primarily due to; one, an increase in the volume of goods sold by existing sellers utilizing our purchase model; two, a ramp up in volume with existing sales program which resulted in a lower inventory turnover; and three, a mix shift to apparel items which realized a lower margin during the three months ended March 31, 2008.
Profit sharing distributions increased $4.7 million or 26.5% to $22.6 million for the three months ended March 31, 2008 from $17.9 million for the three months ended March 31, 2007, primarily due to 37.8% growth in our surplus business and 33.2% growth in our scrap business. As a percentage of revenue, profit sharing distributions decreased to 36% from 36.3% primarily due to a decrease in the amount of profits we are required to pay the Department of Defense under our surplus contract which was modified on September 12, 2006, as well as the scrap contract which was modified on June 1, 2007.
Technology operations expenses increased $1.9 million or 22.7% to $10.3 million for the three months ended March 31, 2008 from $8.4 million for the three months ended March 31, 2007, primarily due to one, the addition of 71 technology and operations personnel, the majority of whom were needed to support the increased volume of transactions and merchandise discussed above. Two, an additional 30 operating personnel who were needed to support our inventory assurance program under the surplus contract. And three, the acquisition of GovDeals which was completed on January 1, 2008.
As a percentage of revenue, these expenses decreased to 16.4% from 17.1% primarily due to our growth in revenue while leveraging our fixed expenses such as programming personnel.
Sales and marketing expenses increased $700,000 or 21.5% to $3.9 million for the three months ended March 31, 2008 from $3.2 million for the three months ended March 31, 2007, primarily due to one, our hiring of 14 additional sales and marketing personnel. Two, $400,000 in increased expenditures on marketing and promotional activities across our marketplaces, and three, the acquisition of GovDeals, which was completed on January 1, 2008. As a percentage of revenue these expenses decreased to 6.2% from 6.6% primarily due to our growth in revenue while leveraging our fixed costs such as marketing personnel.
General administrative expenses increased $1.3 million or 30.2% to $5.3 million for the three months ended March 31, 2008 from $4 million for the three months ended March 31, 2007. As a percentage of revenue, these expenses increased to 8.4% from 8.2%. These increases are primarily due to one, cost of $200,000 related to additional accounting, legal, insurance, compliance and other expenses needed to support our growth. Two, expenses of $300,000 related to the adoption of Statement 123(R); three, cost of $100,000 for travel related expenses associated with business development efforts; and four, expenses of $200,000 associated with GovDeals which was acquired on January 1, 2008.
The company continues to have strong cash flow generation and growth. LSI generated $3.8 million of operating cash flow during the three months ended March 31, 2008, an increase of $3.7 million or more than 30 times over the $100,000 generated during the three months ended March 31, 2007.
Adjusted earnings before interest, taxes and depreciation and amortization, or adjusted EBITDA, increased $1 million or 21.4% to $5.7 million for the three months ended March 31, 2008 from $4.7 million for the three months ended March 31, 2007. Adjusted net income increased $500,000 or 19.6% to $3.3 million for the three months ended March 31, 2008 from $2.8 million for the three months ended March 31, 2007.
Adjusted diluted earnings per share increased $0.02 or 20% to $0.12 for the three months ended March 31, 2008, based on 28.3 million diluted weighted average shares outstanding from $0.10 and 28.5 million diluted weighted average shares outstanding for the three months ended March 31, 2007.
I will now discuss the company's other key operating metrics as I've already touched on GMV, which management believes allows us to monitor the success of our marketing programs as well as our allotting and merchandising strategies. During the last 12 months, we also benefited from our ability to more effectively market assets to potential buyers and our marketing efforts along with the acquisition of GovDeals resulted in a 45.6% increase of registered buyers to approximately 892,000 at March 31, 2008, from approximately 613,000 at March 31, 2007.
Auction participants, which consists of a registered buyer who has bid in an auction during the period and accounted more than once if they bid in more than one auction increased to a record 463,000 including GovDeals for the three months ended March 31, 2008, representing an increase of 176,000 or 61.4% over the 287,000 auction participants for the three months ended March 31, 2007.
Completed transactions including GovDeals increased 73.6% to approximately 91,000 for the three months ended March 31, 2008, from approximately 52,000 for the three months ended March 31, 2007. Our growth in completed transactions was achieved while maintaining strong liquidity in the marketplace as the three months ended March 31, 2007, was our tenth consecutive quarter achieving on average greater than five auction participants per transaction.
The company continues to have a strong balance sheet. At March 31, 2008, LSI had $62.4 million of cash, current assets of $89.9 million and total assets of $121.9 million. The company continues to be debt-free with current liabilities of $30 million and long-term liabilities of $2.7 million for total liabilities of $32.7 million at March 31, 2008.
Stockholders equity totaled $89.3 million at March 31, 2008. Capital expenditures during the three months ended March 31, 2008 were $400,000.
The management team is providing the following guidance for the next quarter and fiscal year 2008. The following forward-looking statements assume that current business trends and our operating environment continue including one, improvement in margins and product mix in our commercial business. Two, continued improvement in inventory turnover within our commercial marketplace. Tree, continuation of our surplus contract under its current terms for the balance of fiscal year 2008 pending the award and phase-in of a new surplus contract. Four, start up costs associated with the opening of our new distribution center in Bentonville, Arkansas, and five, our belief that we've yet to realize the full potential of our distribution center network, personnel and value added services necessary to support a much larger commercial business in the future which has resulted in less than our target profitability.
Our results may be materially affected by changes in business trends and our operating environment as well as by other factors including investments we expect to make in our infrastructure with value added services to support new business in both commercial and public sector markets.
Our scrap contract with the DoD includes an incentive feature which can increase the amount of profit-sharing distribution we receive from 23% up to 25%. Payment under this incentive feature are based on the amount of scrap we sell for the DoD to small businesses during the proceeding 12 months as of June 30 of each year. We're eligible to receive this incentive in each year of the term of the scrap contract and have assumed, for purposes of providing guidance regarding our projected financial results for the next quarter and fiscal year 2008, that we will again receive this incentive payment.
Under our surplus contract there are incentive features that allow us to earn up to an additional 4.5% of the profit sharing distribution over our base rate of 26%. This incentive will be measured quarterly during fiscal year 2008. For purposes of providing guidance regarding our projected financial results for the next quarter and fiscal year 2008, we have assumed that we will receive a portion of the surplus contract incentive payments.
Our guidance adjusted EBITDA and diluted EPS for the effects of the adoption of FAS 123(R) which we estimate to be approximately $1.2 million to $1.4 million per quarter for the remaining two quarters of fiscal year 2008. We expect GMV for fiscal year 2008 to range from $330 million to $340 million. We expect GMV for Q3 '08 to range from $91 million to $93 million.
We expect adjusted EBITDA for fiscal year 2008 to range from $24.5 million to $25.5 million. We expect adjusted EBITDA for Q3 '08 to range from $7.8 million to $8 million. We estimate adjusted earnings per diluted share for fiscal year 2008 to range from $0.51 to $0.53.
In Q3 '08 we estimate adjusted earning per diluted share to be $0.16. As always, if anyone has any questions on the information that we've provided or if there is information in the marketplace that appears to be inaccurate and we've noticed such instances over the last several quarters, please call me or Julie Davis. I will now turn our discussion back over to Bill.
Thank you, Jim. In closing, we are currently experiencing strong momentum in our business. The number of sellers and buyers using our online marketplace continues to grow and preliminary results reflect this continued strong momentum. LSI is focused on getting better at what we do each and every day.
As we pursue our next logical milestone of driving $1 billion of annualized GMV through our online marketplace, we continue to make the required investments in people, processes and operations to support a much larger volume business. As we grow into our expanded infrastructure during the second half of this year, we expect to improve our operational efficiencies. We thank you for your time and attention today and look forward to answering questions at this time.
(Operator instructions) Your first question comes from the Shawn Milne of Oppenheimer. Please proceed with your question.
Shawn Milne – Oppenheimer & Co.
Thank you and good afternoon. Thanks for taking my questions, and solid quarter, guys. A few things, I just wanted to first touch upon the apparel margin issue that you talked about, Jim, in the current quarter and what you see going forward. We've seen apparel prices move up a bit. Can you confirm that or talk about commission rates in the apparel business? Additionally, can you talk about GovDeals in the guidance? I think when you bought the company you talked about $30 million to $35 million in GMV. That looks low given what they did in the quarter. And then lastly, when did the new distribution center open and when would you expect material volume to flow through that distribution center? Thank you.
Thanks, Shawn. As far as apparel goes, you are correct. We've seen increasing ASP over the last quarter, and I'd like to credit our marketing group for that. As they increased demand, if you remember from our last call, we said we are going to attack this issue from really two fronts. One was the demand side which we are making progress on and hope to make continued process over the next quarter. On the cost side, as we indicated in the last quarter, we were going to talk to our sellers who were primarily providing us those apparel items. We've done that in most cases and have successfully renegotiated or I'd say, satisfactory rates on those apparel items. As far as the timing on that goes, we do see in the next three to four months unwinding the rest of those apparel items with those relationships.
On the GovDeals, yes, we are pleased to say that GovDeals had a strong quarter. As we talked on our last call, this was actually one of the more difficult quarters for GovDeals as far as the year falls. What I mean by that is that they have seasonality and the March quarter is their lowest. So, we do expect to have stronger GovDeals' GMV in the next quarter, that being the strongest quarter of the year. And then, we would expect a slight drop off in the September quarter on GovDeals. Regarding the new distribution center in Bentonville, that just opened, Shawn, so we are not moving product through that distribution center yet. We would expect to do that during the next quarter.
Shawn Milne – Oppenheimer & Co.
Okay, great. Thank you.
Your next question comes from Colin Sebastian with Lazard Capital Markets. Please proceed with your question.
Colin Sebastian – Lazard Capital Markets
Thanks for taking my questions. First on the government side, obviously very solid growth there in the March quarter, and from what we can tell the pipeline also looks strong. So, first, is it fair to assume that the supply constraints some in government merchandise is no longer much of a factor? And then, secondly on the commercial side of the business, in terms of growth rates there year over year at least decelerating a bit, I am wondering how that segment came in relative to your expectations. I think in the last call you talked about seeing an opportunity with holiday returns and that sort of thing? Thanks.
Let me first thank you for the question first addressed on the government side. From a broad perspective, it's important that everyone understand that our scrap business is a distinctly different business from our surplus business. While there is a common client, the DoD, these are independent contracts with independent operations in terms of buyer and merchandising activities and so while we have some economies of scale on the back office side, they are viewed as different businesses. The scrap business continues to enjoy healthy supply. We don't have a long forward look at supply but from what we can see, this business is clearly sustaining a growth like we have experienced in the last two quarters.
Our look at ahead for April, our April results and our look ahead for the quarter is very strong and we don't see any diminishing supply at this time. Pricing remains competitive for two reasons. One, we continue to find ways to target and reach buyers and drive competitive auction, dynamic pricing in our marketplace; and secondarily, I think broadly the type of commodity material that we are selling is still in great demand worldwide. With regard to the surplus contract, from an operational perspective we are executing better today versus a year ago because remember a year ago we had a lot of new operations.
We set up control property centers with the DoD partner. Those were new teams and new facilities, new procedures. So, I just think you have a little bit more maturation occurring there which is helping property flow. And, as I've said for the overall business, I think would also be the case for surplus, we see good forward visibility for the current quarter. With regard to the commercial business, we have had a lot of demand for the type of service we are offering. We found ways to grow within existing accounts. We talked about the addition of the store fixtures and equipment category. That's being realized with existing customers who are selling finished goods for us, that's nice synergy. I don't know if anyone noticed but we talked about the growth in our consignment GMV, sequentially a very strong growth there. So a lot of our clients are using us both on a consignment basis and a purchase model basis, which is interesting.
And, from our point of view, we'll have growth in both areas. We're comfortable operating in both areas. While the year-over-year growth is on the lighter side, I think the trend line in that business if you look at the last two quarters, is very strong that north [ph] forward visibility we have in the current quarter is very strong. And, for those who track, the GMV in the marketplace, and I know you all do, you will note that April was our best month ever in the history of the company on the commercial business. So, we are quite comfortable that we have in place very strong relationships with a large recurring pipeline of sales and that's going to continue to necessitate us to make investments in personnel and systems and in some cases, facilities to bring the type of scale that our clients will need over time.
Colin Sebastian – Lazard Capital Markets
Okay. Thank you very much.
Your next question comes from the line of Stephen Ju with RBC. Please proceed with your question.
Stephen Ju – RBC Capital Markets
Good afternoon, everybody. So, your implied fourth quarter guidance implies a decrease in GMV sequentially versus the third quarter. Is that seasonality in GovDeals? Or are you seeing something else in the market? Also, it seems like the GovDeals take rate is about 7% or so. Is there any opportunity to increase that at some point to get somewhere your Liquidation.com levels? Thank you.
Thanks, Stephen. I'll take the first part of the question which is seasonality. Yes, if you recall last year, we did note seasonality in several sectors of the business primarily our commercial business, obviously, we have a large exposure to retail sellers. We do anticipate that again in the September quarter and that's reflected in our guidance. On the surplus side of the business, we also have had seasonality in that business, typically in the September quarter. Not as much of a drop off as the commercial business but if you go back over the last several years, you would note that as well. GovDeals as well, again just the nature of direct client, the state and local sellers as I noted, March is typically a tough quarter, June is a tremendous quarter for them and then it starts to fall back off in September. So, yes, that decrease in GMV is implied in the guidance and again related to seasonality. I'll turn the last part of the question over to Bill.
Yes. Stephen, with regards to the GovDeals pricing model, indeed, GovDeals heretofore has been essentially a self-serve model whereby municipalities and state clients can essentially self-list assets. We provide all of the technology, e-commerce platform, marketing support to drive transaction volume and strong pricing and at the conclusion of those transactions the sellers collect the money directly. Now, we bring to the table a number of optional value added services that can be overlaid on that type of model that we do intend to explore and roll out. One example, we've a lot of, I think, nifty technology with regard to online payment and buyer fraud prevention and actually buyer verification services that would be, I think, very interesting for this public sector client base, which has now grown to over 1,700 state and local clients. So, we indeed will be pursuing selectively on a client by client basis the opportunity to up sell these optional value added services probably first in the arena of payment and buyer verification and that will allow us to increase our take rate gradually over time.
I'd also say that this is an interesting business and exciting business for us because these 1,700 clients that are there today are essentially coming from only two regions in the United States, the Southeast and the Mid-Atlantic regions and we believe there is a tremendous opportunity to continue to grow contiguously in the U.S. We expect to have additional resources to call on clients in the Northeast and the Midwest. We recently won a contract with the state of New Jersey, for example. That contract was awarded by the state but it allows all local governments in that state to ride on that contract without having to conduct their own local RFPs, and we've seen tremendous interest, you know the product, the service and perhaps these optional value added services. So, over time we will keep you informed but we do intend to drive a potential increase pricing.
Stephen Ju – RBC Capital Markets
Is there an opportunity to use some of your existing distribution centers and use that for GovDeals also?
Absolutely. Again, optional value added services is implied not only payment collection services but inbound or outbound asset merchandising, storage and handling transportation logistics. And, I think what's nice for us is we continue to get scale in all of these natural logistics hubs in the regions. So, if we have agencies that are willing to compensate us through variable fees to handle additional activities such as outsourcing warehouse and managing that on behalf of our client, we are glad to do that. A lot of these state and local government agencies are facing a very difficult fiscal environment. Tax revenues are down, property taxes are down, so they are looking to fill that through innovative services that don't cost them any amount up front and perhaps could save them on an operating cost basis. So, we are a perfect solution in this environment. We realize greater value for the assets sold. We can outsource all the activities related to the transaction process, the storage process and so that's very positive.
Stephen Ju – RBC Capital Markets
Okay, thank you.
(Operator instructions) Your next question comes from the line of Steve Weinstein with Pacific Crest. Please proceed with your question.
Steve Weinstein – Pacific Crest
Great. Thank you. Just a couple of questions. One that I look at the surplus business, the growth over the last year or so it's been volatile due to procedural changes that you are working through. But, I look at the revenue level now and it's back to the highs where it was in 2006 before you had to go through that change. I'm wondering, if you would use this as the new baseline, about $21 million GMV? What do you think the growth looks like for that business from this new level, is this a 15% growth business, do you think, or is it a 20% plus growth business going forward from this new rate? And then second, on the GovDeals, obviously it surprised I think, everyone to the upside here. We had actually put in the model at $10 million for the quarter, so a on the upside of your forecast. So, I am wondering what happened in the quarter just to make it further strong [ph]. Was it something you did or was it just the flow of business? When you gave original guidance, were you expecting some disruption or why was that material upside in what's considerably a weakest quarter? Thank you.
Sure. Since I was just on the topic of GovDeals, take that second question first. I think with a company that was acquired and integrated in the first quarter, which happened to be a March quarter, number one, we certainly tried to put our best view forward on activity in a business. With a new business that actually is being acquired and integrated for the first quarter, obviously you have less visibility in understanding of the nature of the business. So, that clearly is a unique scenario when you own a business for three months as opposed to three years or a longer period in time.
Clearly, what is also in place is the company just continues to perform very well, above our expectation clearly. This is a company that is perhaps benefiting more than we thought from this kind of brink of recession that we are on. If you look at the site, there is a lot of heavy equipment being sold and it seems that a lot of these state and local governments, rather than hanging on to equipment are electing to sell that equipment to realize more value. A perfect example of that is, there was a helicopter, a seconds helicopter that was held for a number of years by a municipality that elected to sell that because they had a budget gap. And in that quarter, we realized a sale of about $800,000 for putting it on the online auction marketplace and that was a great result.
The actual sale itself demonstrated here is an (inaudible) agency who wants to fill the gap so they put up an asset for sale. They originally were hoping to get $400,000 or $500,000 for it. They got $800,000 for it. So, in both scenarios, we benefit from that. And that is just one anecdote, if you added across 1,700 sellers. Obviously, you can move the needle pretty quickly. So, that is really the context for GovDeals. I am sure, Steve, as we own the business longer, you have a little bit more understanding of the nuances with the business and that will be the case with GovDeals. I think your first question related to the DoD surplus business. I think you are right. It has been a volatile business. There is no inherent forward visibility in the DoD surplus business. It is volatile. We don't have a long look ahead. We have 45-day look ahead.
And so, we just have to have a very flexible model and we are able to have a flexible model by utilizing this Internet-enabled marketplace. And, when property does become available we can move it to market very quickly. So, with regard to a secular growth rate for the business, I think historically we had been guiding folks to the mid-teens in terms of year-over-year growth. And that could be trending down as you recover to 2005, 2006 levels. But, inherently it is a more difficult business to forecast.
Yes. Steve, the only comments I'd add to Bill regarding the growth of surplus is that when you look at last year, obviously we were right dead center in the middle of inventory assurance rollout and so your quarter comparable last year for this quarter was frankly mathematically pretty easy as well as really the next quarter. So, I think when you look at the next quarter and a little bit more also on the September quarter, your comparisons just mathematically are a little easier. I think it wouldn't be prudent at this point to comment on 2009 and beyond just because, as you know, we are in the middle of the RFP on that contract.
Steve Weinstein – Pacific Crest
Okay. Thanks guys.
There are no further questions. I'd now like to turn the call back over to Mr. Bill Angrick for any closing remarks.
This concludes our earnings call. We appreciate your participation and if you have any additional questions, Jim Rallo and Julie Davis are available.
Thank you for your participation in today's conference. This concludes the presentation, you may now disconnect.
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