Liquidity Services, Inc. (LQDT) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Welcome to the Fourth Quarter 2013 Liquidity Services Earnings Conference Call. My name is Celia, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Julie Davis, Senior Director of Investor Relations. Please proceed.

Thank you, Celia. Hello, and welcome to our fourth quarter and fiscal year 2013 financial results conference call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer; and Jim Rallo, our Chief Financial Officer and Treasurer. We will be available for questions after our prepared remarks. The following discussion or responses to your questions reflect management's views as of today, November 21, 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 release and in our filings with the SEC, including our most recent annual report on Form 10-K. As you listen to today's call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non-GAAP financial measures. In our press release and our filings with the SEC, each of which is posted on our website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures. We also use certain supplemental operating data as a measure of certain components of operating performance, which we also believe is useful for management and investors. This supplemental operating data includes gross merchandise volume and should not be considered a substitute for or superior to GAAP results. At this time, I'd like to turn the presentation over to our CEO, Bill Angrick.

Thanks, Julie. Good morning, and welcome to our Q4 earnings call. I'll begin the session by reviewing our Q4 financial performance and recent strategic initiatives. Next, I will turn it over to Jim for more details on the quarter and then our outlook for fiscal year '14. During Q4, Liquidity Services reported results in line with our guidance range while also funding major investments in support of our long-term growth strategy. Growth during the quarter was driven by the expansion of our services with retail supply chain clients and strong growth in our public sector business, highlighted by 33% growth in our GovDeals marketplace. Both our retail supply chain and capital assets businesses grew sequentially during a seasonally low quarter for the company and we continued to make progress with our integration of GoIndustry to deliver profitable growth going forward. Our financial position remains very strong as we exited Q4 with 0 debt and recorded record operating cash flow during the quarter. While the growth of our commercial business during this past year was not consistent with our expectations, we continue to make progress positioning Liquidity Services as the trusted global partner to unlock value and opportunity in our clients' supply chains, using our proprietary market data, higher network and service capabilities. We recognize that driving industry transformation requires a long-term view, and we are encouraged that more clients are experiencing the benefits from reengineering the reverse supply chain using our scalable solutions. For example, in the retail supply chain, we enable retailers and branded manufacturers to execute re-commerce initiatives that protect and control their brands in the secondary marketplace while offering value to end consumers. Our multichannel approach integrates our own B2B and B2C marketplace channels with those of our clients to maximize value for every client product in…

Thanks, Bill. While we are not satisfied with our full year results, we've made significant progress towards achieving our long-term goals during the year. This progress is reflected in our solid fourth quarter results, which is normally a seasonally low quarter for the company. We had strong sequential growth in our retail supply chain marketplaces, driven primarily from new consumer electronic programs with existing clients. We also saw significant sequential growth in our commercial capital assets marketplaces, primarily as a result of new programs from our GoIndustry global platform. We have concluded the restructuring of the GoIndustry organization and are entering the second phase of the integration process during fiscal 2014, which is investing for growth. We will be combining the best attributes of the LSI technology platform with that of the GoIndustry technology platform, while we continue to invest in the sales and marketing team to drive long-term growth. Our outlook for next year incorporates these integration in investment activities as well as the uncertainty around the RFP process of the Department of Defense. Currently, the RFP process has been suspended and, during this period, we continue to provide services to the DoD under our existing contract. We will expect to have more information regarding our programs with the DoD over the next 30 to 60 days and we'll provide an update at that time. Next, I will comment on the fourth quarter full year results. Total gross merchandise volume, or GMV, increased to $250.5 million, up 4% for the fourth quarter and to a record $973.3 million, up 12.6% for the fiscal year. GMV in our GovDeals, our state and local government marketplace, increased to $42.3 million, up 32.9% for the fourth quarter and to a record $153.5 million, up 16% -- 16.7% for the fiscal year, as…

[Operator Instructions] The first question comes from the line of Jason Helfstein, Oppenheimer. Jason S. Helfstein - Oppenheimer & Co. Inc., Research Division: The 3 questions. So first, can you just talk about the timing of what you saw last year? As we saw weakness in retail, as that kind of moved through the year, where it would seem like it's part of the reason for the -- the retail business should actually take easier comps as we move through 2014? So that's the first question. The second, can you go into a bit more detail on the comments on how the first quarter is going to have lower value surplus and kind of how you expect that to play out for the rest of the year? And then lastly, on capital deployment and capital structure, how should we think about you redeploying capital to buyback versus acquisitions? Do you have a pipeline for 2014 or do you feel like this will be more of a harvest cash year? And then on the balance sheet, should you guys have some debt given where rates are right now and what you can lock in because it would create an efficient tax shield for you guys as you're a full tax payer?

So first, let me address the near-term outlook. As noted in my comments, there is a larger proportion of the property flow under the DoD surplus program that is lower value, more expensive to handle property, in effect, a large amount of things like fasteners, springs, nuts and bolts and individual envelopes or plastic sleeves, which all need to be jointly inventoried and individually screened. And I think this reflects the nature of the program changing to effect the DLA's overall missions around purging safety stock and the like. And that, I think, is a structural change that is likely to maintain itself through the year. In terms of the retail industry trends, we've commented that we're playing a more integral role in powering re-commerce programs with manufacturers and retailers working jointly together. And LSI playing the role of, essentially, the plumbing that connects these clients' products, examines the products in high-value categories, is able to sort and grade these products and then provide them to consumer channels which would value these items. And what we found in our work is that there is demand for refurbished items which allows our clients to grow their same store sales, meaning it's not cannibalizing the sale of A stock products. And I think that's a game-changing insight for many of our clients which we believe will be a positive trend as we move through the year.

Jason, let me take a shot at your next 2 questions. The first one had to do with the lower first quarter guidance due to changes in supplier mix for -- under our DoD surplus contracts. So we have, as you know, been managing that contract for almost 13 years now. And during that period, we've had times where there has been property flow that is just lower value mix as Bill indicated during his comments. So this property flow a lot of smaller-type items. Each of those items requires to be touched and dealt with under our compliance part of the contract and, again, has a lower value. So when you aggregate those products together, we are anticipating less revenue and margin from that business during the next quarter. That will continue to go through part of the year as well. The next part was really about capital deployment. As you know, we ended up the year with $95.1 million in cash. We continue to have a pipeline of acquisition opportunities. We are the only likely acquirer in our industry. We have, obviously, considered stock buyback. We've done this in the past. And the board and management will continue to review the best way to deploy cash to create shareholder value. And as far as debt goes, yes, I do agree, we do have significant debt capacity on the balance sheet, which we have not utilized because, at this point, we haven't had to utilize that. We're certainly not shying away from debt if opportunities arise that make sense for us to take debt to deploy more cash to generate a better return on invested capital for shareholders, we will do that.

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

Let me follow up on a few questions there. Since the company told the same store sales data, or your GSS data, can you give us a sense for what you're actually seeing in October, November? Bill, you seemed to talk a little bit, longer term, more positively about some of the things you can help with retailers and manufacturers. But given what we're hearing right now about inventory piling up in the channel, is there anything that you can do in the near term in the December quarter or do you expect some margin pressure in your retail business right now? And then around the technology investments, Jim, it's a pretty big step-up. I think you had us all out for an Analyst Day about a year or so ago and there were chances to talk about integration cost and spending on technology and platform that I don't think were laid out to this level. What's changed to drive up the spending this much? And is there something in the asset zone that you guys see that provides a bigger opportunity from a service fee perspective? Or just some more color around that.

First, on the innovation pipeline, I think, clearly, we're identifying opportunities based on the work we do with many of the largest organizations in the world, both in their merchandising area and in their procurement area. And I think they covet the type of data that we have in the secondary marketplace. We see the opportunity to be the bluebook, in effect, of what the value is for assets trading in the secondary marketplace and to deploy on-demand services or access to that data is one opportunity that's evolved over the years, over the last year, and we -- I would identify that we've continued to bring in talent, leading our technology organization and our product development team that is taking actions to help us monetize that opportunity. And that's something that continues to be an area of high return on effort and investment going into fiscal '14 and '15. We also see opportunity to offer our marketplace not only to the traditional customers, but also open it up to other partners that see a lot of value in leveraging our tech platform and access to our buyer base. And we're willing to do that when it's complementary to the demand our buyers have for goods. And so we'll be exploring ways that we can open up our marketplace as a service, allow third parties to leverage our investment in technology, even on a white label basis, as well as to help partners leverage our fulfillment network to bring value.

Shawn, I think, Bill really covered the question through as you directed to me, but let me take points 1 and 2, which are, one, your comment on October, November sales, your question regarding that. Our guidance for the fourth quarter reflects, obviously, October sales and what we've seen so far in November. I would say that we have run-rated that number, if you would. I will tell you that we are hearing from our clients that there may be assistance needed in the December month, and that we could see a stronger December than October, November has been so far. That was consistent with last year. I did not include that in my guidance because I don't have visibility on those numbers today. But your assessment of the retail market, we do agree with. And we think there's opportunities again to further serve our clients in times of need, and so we'll be happy to step up if that does occur. As far as the margins in the retail segment, we haven't really seen a change there. As you know, we were under margin pressure most of last year in our retail segment, particularly around the consumer electronics vertical. We haven't really seen that get worse. We also haven't seen any improvement. So we really consider that to be status quo at this point within the retail vertical.

The next question comes from the line of Jordan Rohan, Stifel, Nicolaus. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: A couple of questions. At a very high level, can you talk about the status of the surplus contract, the process that you -- that remains here for renewal, and how much you would expect surplus GMV to make up of the $1 billion-plus GMV number for -- that you guided for the year? And secondly, this is, as you can see, from the stocks' reaction, somewhat tough medicine this morning as there doesn't seem to be that much organic growth and margins are going down. What do you see here that could get people really excited about the future? Or is this something we're just going quarter by quarter, hoping things get a little bit better?

So first, the procurement process with the Department of Defense, is a public process and it's run by the civilian agency. We don't have any other comments to make than what has been publicly posted by the sales contracting officer, Jordan. As you know, and I think Jim indicated in the overview, the procurement was suspended and there has not been any update to the public on the status of that. So as we learn, you'll be learning because it's all a matter of public record. I think the opportunity for us is to continue to provide the service level required even with more complexity. And as I mentioned, with the change in the nature of the property being sold there, we're flexible and adaptable and do our best to provide value to the clients. I think in terms of the Liquidity Services value proposition, it's a very unique business. The buyer base that we've assembled is clearly valued by not only our legacy retail supply chain clients in the U.S., but by industrial clients in more and more industry sectors throughout the globe. We've got substantial growth occurring in the Asia Pacific region from players in more and more industry categories. We have wonderful assets that have yet to be monetized in terms of our data; in terms of our marketplace platform; the ability to provide, on a more modular basis, third parties the access to a marketplace on a self-serve basis, it is something that's a natural evolution for us. And so I think we're taking opportunity with the addition of a new CIO about 9 months ago and the expansion of our product development team to provide more services on demand that will capture more supply in our marketplace, in our tech platform, than we've traditionally had because we've mostly been a Fortune 500 direct sales type of organization in terms of who we're engaging to use our platform. So that's, I think, a mid-term opportunity that we will be investing behind and feel very good about. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: I'm sorry to ask this again, but on the first part of that question, which is the status of the surplus contract, can you just review us over the course of the last 13 years when you've been working with the DLA, if this type of suspension of process has happened before? Is this some -- is this uncharted territory here? And from when you talked to the Department of Defense and such, why did this happen now as opposed to prior periods of extension? What catalyzed this?

So this is -- there is precedent for delays in the process, and we have occurred delays in prior years, so this is not new ground. I think when -- if you look at the federal government and the nature of the way the federal government has been run in the last year, there have been lots of delays in various programs. It is, I think, an extraordinary time in terms of -- you've had a number of people dealing with furloughs or temporary changes in the budget process, and that's undoubtedly affected the DoD, along with other federal agencies. And I think they're doing the best they can in light of debt ceiling and budget negotiations and government shutdowns. And all of those things, from an outsider's perspective, have to play a role. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And one -- there was one more question that -- and perhaps this is for Jim. Can you talk about the $1 billion-plus GMV guidance and give us some general buckets of how the components of that GMV, what percent do you expect to be government-focused as opposed to Go-Dove retail, NESA retail and, I guess, legacy Liquidity retail?

Sure, Jordan. We don't provide guidance on our specific marketplaces. For us, those are channels, so we operate it as one business. We're fully integrated now, particularly GoIndustry has been completely absorbed into the operations of the company. So we do utilize the buyer, selling marketplaces to try to drive the best value for our sellers. But at the end of the day, operationally, that's all together. I will address specifically the Department of Defense surplus contract, I understand the concerns of shareholders and analysts. For lack of better information today, I have assumed a similar volume to last year, although taking a discount to that just because of the uncertainty. So I don't have any new information to build into a model. So once something changes and, again, we would expect to have some new information in the next 30 to 60 days, we'll be happy to announce that. And to the extent that we think it's going to affect our guidance, we'll deal with that at that time. Jordan E. Rohan - Stifel, Nicolaus & Co., Inc., Research Division: And the gross profit from the Department of Defense part of the business is higher. I assume you haven't assumed a reduction in gross profitability of that business upon renewal, if that renewal plays out.

Again, actually, in Bill's comments, and I made a little bit of mine as well, that we're seeing a reduction in the gross profit of that business right now simply just because of product mix. So I have assumed a lower gross profit in that business in the guidance, frankly, from product mix at this point. I would have no way to estimate any new contractual commitments because, again, that process is suspended, so I haven't attempted to make a guess to be frank.

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

So just a quick follow-up to Jordan's kind of line of questioning. Bill, at a high level, if we just kind of step back and look at the last few years, you guys have made several acquisitions. You moved into a bunch of new verticals, added services and added a significant number of buyers, yet velocity or the unit transaction, or whatever metric you want to look at, is declining somewhat dramatically. And you guys have called out supply constraints across various verticals and some macro stuff, but how do you get that supply going again? Is there areas within existing clients that you're not engaged in? Do you need to acquire new verticals and get just net new supply? How do we get the flywheel going again? And then just one last question on the re-acceleration in GovDeals, that looked like the bright spot in the quarter. Can you just talk about what's driving that?

Sure, Ross. Having had a history of building the business from a modest amount of initial capital, we've always focused on profitable growth. And during the last 18 to 24 months, we have been working very diligently to introduce a new way of thinking with retail supply chain customers on how to approach the problem of monetizing goods in the reverse supply chain and have moved away from this sort of purchase model, "who can pay the next nickel" type of arrangement, which we don't think is a sustainable way to build a business, to an incentive-aligned partnership model where we provide our clients access to technology, a buyer network, the opportunity to sell different types of conditioned products in different channels to maximize value, to do that both through our channels as well as through our clients' own consumer channels. And I think that's the patience that we've exhibited over the last 2 years where we've backed away from business that we didn't think was sustainable or couldn't deliver the margins. And so we haven't chased top line growth where we haven't gotten the framework established at a strategic level in the client organization that would have what we think is the winning formula for the long term. And so there is patience and persistence being exhibited by our management team to find those anchor partners who understand the upside creation from our model and want to use us more in the nature of a service and a revenue-sharing partner versus someone who can just pay the next nickel for a lot of goods. And that's, I think, the commentary on retail supply chain. I would add though that we're seeing a lot of interest, particularly in the manufacturer side of the supply chain, on our approach and we're…

Ross, on the second part of your question regarding GovDeals, we've had -- frankly, that's really been a long-term success story. We really started about -- with 1,200 clients in 2008. That business has grown, what I would say is, consistently, over a longer period of time, 20% or better. And I know that we've had quarters where we've grown significantly more than that and quarters where we've grown less than that. But at the end of the day, we continue to add new clients. We're approaching the 6,000 mark with the number of clients in the state and local sector. There -- just as a reminder for folks, there is 88,000 municipalities, townships, counties and so forth around the country, so we've got a long way to go as far as penetrating that market. But we continue to pick up momentum in that area, and that's certainly would be a point of growth for us going forward.

The next question comes from the line of Colin Sebastian, R.W. Baird. Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division: This is Rohit Kulkarni. I'm jumping in for Colin. On the surplus contract, I'm sorry if this was asked earlier, can you give any color about how much inventory you have already? You just mentioned that you have already -- you continue to support the contract. And so, how many days of inventory typically do you have? And what happens if there are any further delays? Are you baking any sort of that event happening in your guidance for the next quarter?

Sure, absolutely. Under the surplus contract, there is a high level of services that's provided. So inventory working through the system is typically, significantly slower than through our other channels. Normally, we have somewhere between 60 to 90 days of inventory on hand. So hence, our guidance for this quarter, we know the products that we've got available to sell that will move through this quarter. And again, that reflects a lower value property mix of numerous smaller items, if you would, than we typically have been selling over the last year, which was more heavy equipment and rolling stock. Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division: I see. And so you remain fairly confident that this slow-moving inventory would reasonably last until you hear from Department of Defense as far as the contract renewal is concerned?

Well, at this point, again, we don't know what exactly is going on with the contract. We continue to operate under our existing contract terms which technically expires in February. Once we have some new information, we'll be happy to announce that information. Today, we haven't seen -- we don't see a change as far as the lower mix in product flows, meaning the lower value mix of products, so it looks like that will be consistent for a while. If we have an update on that, again, we'll be happy to provide that on the next earnings call. But this is not atypical. Again, we've been operating this contract for almost 13 years. And at various points in the contract, property flow changes. And as a service provider, you need to be ready to deal with that. It's a different buyer base. It requires much more facility space. It requires a lot more human handling of the product. And we just happen to be in that phase right now and we'll continue to provide a high level of service to the Department of Defense that we have for years when we've seen this somewhat surge in lower value product. Rohit Kulkarni - Robert W. Baird & Co. Incorporated, Research Division: Okay. And a more longer-term question. You reiterated about the $2 billion, 4 to 5-year GMV goal. Can you break it down, as in what needs to happen between now and end of next year in terms of product technology and individual components of a GMV, and over the next 18 to 36 months as to how are you thinking about investments and other growth opportunities as such?

Sure. Well, we've identified some pillars of investment at -- the global brand effort, we are not very well known in the markets we serve. We have great past performance credentials and client references. We will be investing in this global-aligned brand message. We brought on some senior leadership there. We've got a global brand council of people working on simplifying that message for the C-suite audience. We've continued to invest in the expansion of our sales organization and the tools and methods they use to sell to these enterprise clients. That's now global sales organization, so there's a lot of opportunity to penetrate existing clients in other geographies, sell new services to clients, cross-sell services to these clients that will propel that growth. Third, I think we talked a little bit about our product roadmap where new clients today are principally using sort of a full service integrated solution. There'd be opportunities for the middle-market customers to leverage our buyer liquidity and our data on a self-serve basis that doesn't require as much human intervention, and that will be another driver for our growth.

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

Jim, these additional expenses that you have for investments, are those going to be front-ended in Q1, Q2, or are they kind of linearly throughout fiscal '14?

Yes. Gary, at this point, I'd expect them to roll out during the year. There is some front-end loading as we ramp up these projects. But I do think it's going to take a full year to complete them, so I will update people as we move through the year. If that really changes dramatically, meaning one quarter absorbs more of the expense than another. But at this point, I would say it's going to be fairly similar.

Okay. And then in terms of what's going on with the DoD, is this a safe assumption to say that you really are starting to see the impact of the winding down of both wars as well as the reduction in overall defense spending? Is that a fair assessment? And would that -- that would kind of lead into the -- you would be seeing some kind of secular change in the absolute property flows that are coming through to you?

I think it's notable, the change in the mix of property, and so our guidance reflects that for the next quarter and year. And it's just the life cycle of what's in the supply chain.

Okay. But when you've experienced this before, where you've had mix changes, they -- you still were -- we were still involved in both of those wars, right?

Yes, Gary. So the mix change really is not a reflection of a reduction in the war efforts. So as you know, that's been going on for the last 12 to 18 months. Most of that equipment actually has stayed over there as has been documented both by the press and as we've addressed in prior earnings calls. This is really just, what I would say, is the normal ebb and flows over a long period of time of working with the DoD. You have these cycles where you're dealing with a lot of -- when you look at the number of products, a lot more, but when you look at the value of products, a lot less.

Okay. So if we look at fiscal '14, obviously, you've got this higher expenses that are impacting the numbers. And then you alluded to retail and DoD, is -- which -- x-ing up the higher expenses, which has more of an impact on what you're looking out for this year, retail or DoD?

Well, when you're saying retail, I think what you really mean is the IT investments that Bill indicated, correct? So I want to make sure I understand the question. You're really asking me...

No, hold on, Jim, you had said that you started, at least in this first quarter, you were seeing lower flows of goods from retailers and you were also did not -- last year, you had some increased flows in December because the retailers needed more help and you did not assume that in the guidance. So what I'm trying to get at is what is the bigger issue here? Is it DoD, retail? We know about the spending, but what is the bigger issue in fiscal '14?

Thank you for clarifying the question, Gary. Yes, you're absolutely correct. I did -- the bigger issue, to be specific, is the DoD. It's just a property mix change. I -- yes, I did not assume, again, that we felt we see a ramp-up in December. And we did see that last year, but again, I have not assumed that in the guidance delivered.

Okay. So your guidance is fairly -- you said it's conservative. If you were to see some changes on the upside, it would probably come on the retail side because the DoD is basically going to be set as it is with these lower property flows for, at least, the first 2 or 3 quarters of this year. Is that a correct assumption?

Yes. I think that's a fair assumption, Gary.

The next question comes from the line of Dan Kurnos, The Benchmark Company.

Bill, 2 high level questions. Last quarter, you talked about some new customer wins. Is there anything else to call out there and any update on new customer ramp time that's been an issue in the past? And also you talked about possibly affecting a shift away from the PC market, maybe to get more mobile-focused, have you made any progress there? Is that -- could it be an area of opportunity for you guys? And then Jim, just a point of clarification on GoIndustry. I know you're not breaking it out, but could you at least give us a sense of where it's finished for this year in terms of GMV, and if your guidance includes any expectations for GMV growth in '14?

So the nature of these engagements in some cases are multiple quarters of rollout. We've had some come online and the ramp has been more back-end loaded for this quarter, but we are seeing progress. We're excited by some new wins with the manufacturer side of the supply chain, wanting more control over their brand in the secondary marketplace and asking us to be able to partner and bringing that consolidation and best practices to that. So that I think will power potential upside as we get through the end of this quarter and to next year. In terms of the product shift, I think we're serving our clients in all categories. Some of our manufacturers are making the transition to more tablet devices, hybrid devices, away from pure legacy PC technology. That product velocity and change, ultimately, is an opportunity for us. There's a lot of new product introduction, not all of which are successful, so they need a quick and easy way to ramp up new products and sell the less-than-current technology without damaging their brand. We've been able to do that successfully in this market. And that, I think, is a growth catalyst for us going forward.

Yes. On the second part of the question, Dan, yes, I think as we indicated really on our last call, we had a low point, if you would, within GoIndustry as far as volume in the June quarter. We saw a nice sequential growth this quarter in that business as we're moving forward now. We have really completed all of our restructuring. To give you some ballpark numbers, as we indicated last quarter, we were run-rating around $150 million to $120 million, let's say last quarter, the June quarter. This quarter, we're back up to like around $140 million, $145 million of run rate, and we expect to grow off that base from there. So that business is clearly going to be a 15% to 20% grower for us over the long term. When you hit the global aspect, as Bill indicated in his comments, we've already seen a nice lift in Asia, where we did do a fair amount of restructuring at the beginning of last fiscal year, but there is a lot of growth over there for us. So that global platform will be benefiting all of our marketplaces as we move throughout the year and we expect it to be a contributor of growth.

[Operator Instructions] We have a question from the line of Nat Schindler, Bank of America.

This is Jason Mitchell, here for Nat Schindler. I just have a couple of quick questions. So you're rolling out this new -- you are investing in this new technology platform for your retail clients. Are you not seeing much uptake with your existing services, like expanding them with your existing clients to more stores or anything like that? Is that part of what's driving you to invest in this? And then secondly, last quarter you announced a lot of international contracts that you have started to sign. Do you see that kind of making up some of the retail and DoD, GMV value loss through the fiscal year '14?

First, on the tech platform, I think anyone who's running web-based services knows that you're always going to be investing in your platform to continue to provide efficient reliable services. We've been doing things like building out a private cloud to support our current marketplaces, integrating our marketplaces. We feel very good about our current marketplaces, at the value that it's delivering to current clients. So this is more about accessing new segments of the market with new services to enlarge the supply and revenue streams in our business. If you think of the Fortune 500 as one segment, typically more integration, more full service, more customer intimacy, which is appropriate. And then you have a larger base of middle-market customers that are seeking on-demand self-service applications, and that's an area that we have a lot of upside to penetrate in the future.

Okay. And just to -- my second part there...

On the international? Yes, we continue to think and observe with the new client wins that this is a very unique offering to our multinational clients looking to support a uniform process with a single partner, selling assets in all 3 major hubs that we're in, the European, East Africa area, North America and Asia Pacific, that's a business that will grow this year nicely for us and provides opportunity, in your terms, to offset maybe some of the less attractive growth in our DoD surplus business.

At this time, ladies and gentlemen, we will turn the call over to Ms. Julie Davis for closing remarks. Please proceed.

Thank you for joining our call today. Jim Rallo and I will be available this afternoon for any follow-up questions. Have a good afternoon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.