Julie Davis - Senior Director, IR Bill Angrick - Chairman & CEO Jorge Celaya - EVP & CFO Mike Sweeney - CAO.

Dan Kurnos - Benchmark Gary Prestopino - Barrington Research.

Good day ladies and gentlemen and thank you for standing bye. Welcome to the Liquidity Services Q4, 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will host a question-and-answer session and our instructions will follow at that time.

[Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. Now it is my pleasure to hand the conference over Ms. Julie Davis, Senior Director of Investor Relations. Ma’am, proceed..

Thank you, Brian [ph]. Hello and welcome to our fourth quarter and fiscal year 2016 financial results conference call. Joining us today are Bill Angrick, our Chairman and Chief Executive Officer; Jorge Celaya, our Chief Financial Officer; and Michael Sweeney, our Chief Accounting Officer. 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 17, 2016, and will include forward-looking statements. Actual results may differ materially.

Additional information about factors that could potentially impact our financial results is included in today’s press release and in our filings with the SEC, including our most recent Annual Report on Form 10-K.

As you listen to today’s call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter. During this call, we will discuss certain non-GAAP financial measures.

In our press release and our filings with SEC, each of which is posted to 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 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 review our Q4 performance and provide an update on key strategic initiatives. Next, Mike Sweeney will provide more details on the quarter. Finally, Jorge Celaya will provide our outlook for the current quarter.

Liquidity Services reported Q4 results in line our GMV guidance and above the guidance range on adjusted EBITDA driven by improved asset pricing in our DoD scrap and energy marketplaces and higher service revenues. Compared to last year our energy marketplace GMV was up 45% in GovDeals GMV was up 13% during Q4.

While our retail and industrial marketplaces experience growth within key client accounts. Overall our DoD marketplace GMV was down 12%, reflecting lower volumes and a less favorable product mix.

We expanded the scope of our e-commerce offering by launching our new IronDirect marketplace in September which enabled global fleet customer and end users to purchase new heavy equipment, attachment, under carriage parts and accessories from proven suppliers in the global construction industry.

With the deployment of our first marketplace on our new e-commerce platform in Q4, we have continued to advance our LiquidityOne transformation initiative and demonstrated the potential of our platform investments to capture new market opportunities such as the $20 billion global construction equipment industry.

We expect to deploy our next marketplace in the spring of fiscal ’17 followed by phased rollouts thereafter. We exited the quarter in a strong financial position to pursue our growth initiatives with 134.5 million in cash and zero debt.

Our strategy remains focused on a long-term growth of our commercial and municipal government marketplaces on a global scale. Our ongoing investment and our sales channels and the deployment of our new LiquidityOne platform will enable us to deliver more value to more customers and scale more efficiently.

We expect to resume organic top line growth in our commercial and municipal government marketplaces in fiscal ’17, fueled by growth in our buyer network, investments in the sales channels, expansion of our service offerings and the phased release of our new e-commerce platform.

In our retail supply chain business, we continue to grow adoption of our fully outsourced returns, management and refurbishing solutions in the U.S. and Canada to drive volume on a platform.

Large OEMs TVs, consumer electronics and appliances, our realizing savings and transportation cost and higher net recovery for the products by using Liquidity Services sales channels by offering a one stop solution to track, manage, refurbish and resell goods in a reverse supply chain, we are further penetrating the OEM market and enabling clients to better control their brand image and free up space and resources to focus on their core business.

We expect to grow our retail supply chain business in fiscal ’17 by penetrating existing large accounts and adding new retailers and manufacturers to our platform in both the U.S. and Canada.

Our capital assets group continues to expand its coverage of the energy, biopharma, semiconductor and industrial manufacturing sectors by providing a turnkey solution to manage value and sell across all assets categories across the globe.

Our strategy is to leverage our large and growing base, strong expertise and high value equipment categories and our global footprint to growth this business.

Our fiscal '17 plan includes leveraging the phased deployment of our new e-commerce platform to drive a better user experience and more efficient operations and growing our sales channels in the U.S., China, and Australia in particular where we are currently serving numerous large clients and see tremendous growth opportunities.

We've also expanded our presence in distressed asset sectors where lenders and corporate clients are seeking liquidity for their assets in a professional compliant manner.

Liquidity Services is more than doubled the size of our referral network to refer asset sales to our platform, and we are currently working on several projects in the energy vertical where our global buyer network and valuation expertise are highly valued.

Our GovDeals municipal government marketplace signed 274 new clients in Q4 and grew GMV 13% over the prior year. We expect continued strong growth for GovDeals in fiscal '17 across the Western U.S. and Canada and larger metro areas. We are investing in the expansion our GovDeals sales organization in the U.S.

and Canada to penetrate this $4 billion market opportunity encompassing over 85,000 individual municipal agencies. The power and reach of our GovDeals buyer marketplace is illustrated by a recent sale in the remote location of Kodiak, Alaska for 121 foot patrol vessel, which was sold for $366,000 by reaching our global audience of online buyers.

Finally, our IronDirect marketplace is an important milestone in the expansion of our e-commerce offering to new equipment in a global construction market. IronDirect is innovative because it removes unnecessary cost and inefficiency form the traditional captive distribution sales model, resulting in a smarter better way to do business.

IronDirect's multi-brand seller marketplace with real-time pricing and technical support part and service unlocks tremendous value in choice for buyers as new construction equipment items and for those who wish to trade in their old equipment as part of the transaction.

Buying customer can save up to 50% over the entire ownership lifecycle of high quality construction equipment by utilizing IronDirect's efficient turnkey solution to directly procure, finance, manage and dispose of assets.

IronDirect leverages liquidity service, e-commerce technology, asset management and disposal services and an established global infrastructure to meet the needs of its customers. Our fiscal '17 plan includes funding the go-to-market operation of IronDirect to capture a share of the $20 billion U.S.

construction equipment market with both large fleet customers and individual end users. Looking ahead to fiscal '17, we expect solid organic revenue growth in all of our commercial and municipal marketplaces.

However, we are guiding to lower EBITDA in Q1 due to the confluence of new DoD contract pricing, a seasonally low quarter in our growing GovDeals marketplace, our continued LiquidityOne investment and aggressive investment in growing our commercial businesses including a new areas such as IronDirect.

Our near-term outlook reflects significant current investment on our part, but does not yet reflect the benefit of the new products, capabilities and business expansion opportunities we are building at Liquidity Services.

We expect these investments will drive long-term growth and that result will strengthen over the course of fiscal 2017 as we grow our business. In closing, we recognized the uneven growth and visibility that a company, the transformation of our business.

We are confident that we have the right team and strategic plan to delight customers, capture new market opportunities and develop a more diversified scalable business. Macro trends and globalization, the growth of e-commerce and sustainability will drive the need for our platform and services.

Liquidity Services is committed to driving innovation and significant value creation for our customers and our shareholders as we execute our long-term growth strategy. Now, let me turn it over to Mike for more details on Q4 results..

Thanks, Bill. So as Bill noted, we finished the fourth quarter 2016 within our guidance range of GMV, above our guidance range our adjusted EBITDA and adjusted EPS. In the lower guidance range, per GAAP net income and GAAP, EPS as a result of a goodwill impairment charge and a valuation allowance on deferred tax assets.

The next, I’ll comment on our fourth quarter and fiscal year results with comparison to prior year period. Total GMV for the fourth quarter was $159 million as compared to a $171 million in the fourth quarter of fiscal 2015. Total GMV for fiscal year 2016 was 642 million as compared to 799 million for fiscal 2015.

Collectively, GMV in our municipal and commercial marketplaces increased 0.9% to $132 million for the fourth quarter and decreased 9.6% to $528 million in the fiscal year comparison to your exclude Jacobs Trading Company sold in 2015 and the wind-down of the NESA business in Canada.

GMV and our GovDeals or state and municipal government marketplace increased to $61 million or 13.4% for the fourth quarter and increased to $226 million or 13.9% for the fiscal year. The increases were due to the increases in the number of new sellers and additional sales volume from existing clients.

We now have over 9,000 total clients further penetrated $3 billion state and local government market.

GMV and our commercial marketplaces decreased to $71 million or 17.1% for the fourth quarter and decreased to $139 million or 31.6% for the fiscal year as a result of the sales of the Jacobs Trading Company to wind-down of the NESA business, and reduced product loads within our retail business as well as continued weakness in the energy sector despite recent improving trends in this sector.

Excluding Jacobs Trading and NESA, GMV was down 9.6% in the commercial marketplaces.

GMV in our DoD marketplace decreased to $27 million or 12.3% for the fourth quarter and decreased $45 million or 28.4% for the fiscal year as a result of lower commodity prices and the shift in property mix to lower value properties provided under the scrap and surplus contract.

Total revenue was approximately flat at $79 million for the fourth quarter and was $316 million as compared to $397 million for the fiscal year and was primarily impacted by the same factors as provided for GMV.

Technology and operations expenses which include our LiquidityOne program expenses remain flat at $23 million for the fourth quarter and decreased $6 million or 6.4% to 93 million for the fiscal year due to the sale of the Jacobs Trading Company to wind down of the NESA business and a reduction in staff.

As a percentage of revenue, technology and operations expenses increased to 29.8% from 29.4% for the fourth quarter and to 29.5% from 25.1% for the fiscal year primarily as a result of the decrease in revenue described above.

General and administrative expenses remain flat at $10 million for the fourth quarter and decreased 2 million or 4.1% to $40 million for the fiscal year due to the wind down of the NESA business and the sales of Jacobs Trading Company in fiscal 15.

As a percentage of revenue, general and administrative expenses increased to 12.9% from 12.7% for the fourth quarter and to 12.6% from 10.4% for the fiscal year, primarily as a result of the decrease to start the volume.

Net loss decreased $10 million or 23% to $54 million to the fourth quarter and decreased $45 million or 42.8% to $60 million for the fiscal year primarily as a result of the larger impairment of goodwill in the 12 months ended September 30, 2015.

Resulting tax rate due to calculate fiscal year 2016 results was a negative 82.1%, reflecting a large decrease in our tax rate due primarily to the valuation allowance charge against our deferred tax assets.

Diluted earnings per share decreased 20.2% to a negative $1.75 for the fourth quarter and decreased 44.0% to a negative $1.96 for the fiscal year.

Adjusted diluted earnings per share decreased to negative $0.02 from $0.07 for the fourth quarter and decreased to negative $0.02 from $0.50 for the fiscal year, based on approximately 30.7 million diluted weighted average shares outstanding.

The Q4 of fiscal ’16 and for the full fiscal ’16, the tax rate is to tax effect stock compensation expense, amortization and contract intangibles and acquisition costs to 24.7%, which is the fiscal 2016 tax rate adjusted exclusive of the impact of the valuation allowance.

During to fourth quarter, Liquidity Services generated $10 million of operating cash flow an increase of 147.2% from the prior year, primarily driven by changes in working capital partially offset by the decrease in earnings.

We continue to have a strong debt free balance sheet at September 30, 2016 we had a cash balance of approximately $355 million, current assets of $185 million, total assets of $260 million and $99 million in working capital. Capital expenditures during the quarter were $1.5 million.

We expect capital expenditures for the third quarter of fiscal 2017 to be approximately $3 million. I will now turn it over to Jorge for the outlook on the next quarter..

Thank you, Mike, good morning. Looking ahead for 2017 as Bill highlighted, we expect growth will be driven during the year by our commercial and municipal government businesses. We are pleased to have secured long-term contracts with our longstanding DoD clients.

The new pricing for our DoD scrap contract and the complete transition to the DoD surplus contracts are expected to negatively impact margins compared to 2016. We expect our results to reflect this change in business mix and to continue to reflect our investment in our LiquidityOne transformation.

We also plan to accelerate investments in go-to-market growth activities for our commercial businesses that are expected to dampen short-term results. We anticipate 2017 to be a year of continued investment in our LiquidityOne global platform and in sales and marketing.

While having a negative short-term impact on our earnings, these initiatives are expected to create in-roads for long-term growth for our commercial capital assets and retail businesses and our newly launched IronDirect business as we built out capabilities in these markets and drive demand onto the platform.

We also anticipate our municipal government business to continue to grow throughout 2017 despite a seasonally low first quarter. Our first quarter guidance anticipates top line growth in our commercial capital assets and in our retail businesses.

This will mostly be offset by seasonally low quarter in our municipal government business and lower volume from our DoD surplus contract as we are completing the final sell-through of surplus property under our prior contract. Q1 will also mark the first quarter, we are conducting under our new DoD scrap contract which has lower margin.

Our increased investment in sales and marketing across our commercial businesses are planned to begin during the first quarter including in the IronDirect business. As we moved for the next stages of implementation of our LiquidityOne platform, we will continue to have similar quarterly expenses throughout the periods rollout.

Management's guidance for the next fiscal quarter is as follows. We expect GMV for Q1 of '17 to range from 150 million to 170 million. A GAAP net loss was effected for Q1 '17 in the range of negative 13 million to negative 10 million with a corresponding GAAP loss per share for Q1 of '17 ranging from negative $0.41 to a negative $0.31.

We estimate non-GAAP adjusted EBITDA for Q1 of '17 to range from a negative 8.5 million to a negative 5.5 million. A non-GAAP adjusted loss per share is estimated for Q1 of '17 in the range of negative $0.31 to negative $0.22.

This guidance assumes that we have diluted weighted average shares outstanding for the quarter of approximately $31.8 million and then effective tax rate of 0% to 10%. We will now take the questions..

Thank you. [Operator Instruction] Our first question comes from Dan Kurnos with Benchmark. Please proceed with your question..

Just several questions from me, I guess on, let's start with the revenue side. The surprise result in the most recent election has obviously had a very positive impact on commodities and energy sector in general. Understanding that we don’t know what policy changes may or may not be implemented.

Are you getting any flow through and are you modeling that in your initial guidance?.

Dan, we did not have any direct impact in the last quarter from the lead us to the election.

Clearly, what’s new and different about our DoD scrap program beginning this year is the pricing model provides that we pay a fixed amount to the agency partner and that any improvement in results on the bottom line accrued 100% to Liquidity Services as the contractor.

In the prior scrap contract, we had a profit sharing model where the vast majority of the bottom line was shared by the government.

So, on the frontend more risk and that you’re taking all of the cost upfront, but in terms of long-term one of the reasons that we, as Jorge indicated in his comment is the one reasons we're pleased with securing this up to six year contract is that any improvement that we can drive in terms of competitive, improvement in price, operational efficiencies or a tailwind like inflation will be huge upside for us under that program.

Certainly in the energy market, we’ve had some stabilization in pricing that’s largely allowed companies to transact. There is more liquidity in that market place versus a year ago. We saw that we have nice growth in the September quarter.

We have not explicitly priced any change, any dramatic change in the commodity outlook in our fiscal 2017 Q1 guidance or longer term..

Great. And then on IronDirect, it didn’t get probably some of the attention that deserves, but understanding that this is relatively, you have experienced but still technically a new marketplace in essence in a way that you’re going about it relative to what is existed prior.

Could you just talk about when we should expect that to be material, my understanding is that you may take inventory at certain point.

So, how we should expect that impact the balance sheet and sort of the puts and takes there is that kind of scales up?.

Sure. Well, we look at large markets that are untapped as potential growth avenues for the Company. Historically, we have sold a lot of construction equipment through our government marketplaces. The equipment used to maintain roads and bridges at the same local level are managed and sold through our GovDeals marketplace.

Historically, we’ve also sold that type of equipment in the federal marketplace, but we also know that there is a big paradigm shift going on with manufacturers, manufacturers both in the consumer and the business world are increasingly looking to go direct, sell direct to their customers and drive more efficient sales channels.

And so as we began to look at industries where we don’t have significant presence, the opportunity to use our e-commerce platform with a knowledgeable team to bring value and convenience to both large Fortune 500 companies and individual end users became very appealing.

Remember that we selling a lot of equipment for the world’s largest manufacturers today, so the equipment is originally purchased through a procurement process then it used in projects, it includes construction projects, mining projects and then we’ll sell that.

We currently have projects in Australia, and in Asia, in the Middle East that relate to industrial equipment. So, we have relationships with procurement teams that acquire construction equipments.

So, we felt irondirect.com was a very interesting and differentiated value proposition for large fleet owners to source equipment directly in a more efficient manner to create value and convenience. And then on the backend of that, allow them to trade in their used equipment that naturally will position to manage and sell.

Given the direct selling process, there is a lot of information captured about the equipment and that includes rich media, video live streaming of that equipment on the irondirect.com platform.

We have created a live customer experience centre and actually in North Carolina where both large fleet owners and individual operators can physically go to test the equipment. Often we also are able to do webcast, demos of this equipment to facilitate the buying process.

So, clearly, this is an innovative platform in a market that’s largely been driven by the captive dealer model which are assigned physical geographic territories to sell equipments. So, we think going direct has a lot of potential over the next many years. We’re excited to deploy the platform.

Our inventory position will include some demo equipment in parts. But as we grow in our supplier base in the short period of time that we announced that there is a lot of demand from suppliers around the world who want to leverage our OEM platform that we created on IronDirect.

And that additional supply is coming on a consignment basis where we facilitate this transaction, and the OEM supplier is shipping direct to that buyer.

So, we will continue to update investor and shareholders on the progress of IronDirect, but as we noted in our comments, it’s an interesting important milestone that allows us to leverage our investment in our liquidity in e-commerce platform and learn from this market on where we can create disrupted growth..

Great. If I can just ask one more on the expense side, it's kind of multipart question and I don't want to manipulate the call here.

Just to be clear here in Q4, I just want to know, if you ended up spending what you expected to spend or any of that was pushed into Q1? And then Jorge, I know you’ve kind of talked about service expecting similar pace of spend over the balance of the year.

If there is any way that you could give us anymore granularity on the dollar amounts of in those buckets between investing in a platform investing in the go-to-market strategies, investing in sales staff? And just any color on exactly what some of those go-to-market strategies might be would be very helpful? Thank you..

Sure, Dan. On the second part of your question, so what we said in the recent calls and we continue to see going forward is in our LiquidityOne transformation in expense of about $1 million to $2 million of quarter maybe here in the more close quarter is going to be on the high end of that.

The actual spending that we see from now until we finish the rollout of the multitier program and keep rolling out different market palace.

So that from a LiquidityOne standpoint, I don’t know if there is a material change sequentially, but it's something that people need to keep in mind that these are incremental expenses that once the rollout its complete these expenses of the $1 million to $2 million of quarter or expenses that will no longer exist.

Of course, there is other benefits to LiquidityOne transformation, we have now qualified those for you guys suddenly, but they are qualitatively speaking expenses as we rollout different market places maybe not the first one that as we got to the second or third or fourth that we start getting legacy systems offline and that creates an additional benefit, plus the benefits of the top line growth of our the functionality of the system, the leverage of the client base, the buyer base access and so forth, which are again benefit as we see in the long run that we've talked about in the previous calls.

So that's on LiquidityOne. In terms of investments in our commercial businesses, it's pretty much across the Board. It varies from business to business. IronDirect obviously is one of them, we're not disclosing the particulars of each business, but IronDirect is startup business in a new marketplace that we are growing.

To your previous question on inventory, I mean it is not a model where we load up on inventory and then full to dream it. It is a model where we are -- we may carry some inventory between deliveries, a lot of the inventory or lack inventory the sales are direct delivery from manufactures to our customers.

But we do carry demo equipment, we may carry some other features of equipment even the demo that we may sell and then replace. And we also carry spare parts for our support of our clients, but it's not -- at least not in the single short-term anything that you’ll see as material on our balance sheet..

And I would just add relative to the go-to-market strategies and questions, our team is seizing on opportunities that we'd like to identify to expand in a number of areas in the US and Canada.

So, our state and local government marketplace, GovDeals has done a very nice job, expanding West in the Mississippi into more high population centers such as State of California, State of Washington Denver, City Denver, Colorado, Arizona as well as high population centers in Canada.

So, we’re expanding the number of sales and account managers in that market. We also have an interesting opportunity to grow our business in China. China is a place we've been for many years on a smaller scale to support U.S. headquarter and European headquarter multinational companies have had subsidiary operations in China.

The team has grown steadily, has executed well for this clients, and I think we’re at a point where we now see potential opportunities in domestic business buying and selling on our platform, and that’s one of the things that LiquidityOne is uniquely engineered to allow for which is a multilingual platform that is extensible to market like China.

So, that’s an area where we’re investing in sales and marketing talent, and in the scope for the requirement under LiquidityOne to certify and sell in an efficient manner and markets like China.

In the core liquidation channel such as our retail supply channel and our industrial marketplace channels, again we see resumption of organic growth in both retail and industrial fueled by improved recognition of our service offering and the value and the bundle of services that we’re providing.

Our grow Garland, Texas facility was opened up for premier OEM clients, iconic brand that one want to take more control over its secondary market sales and refurbishing operations, and we’re now positioned to have product in the secondary market and return ship directly to our facility where products are certified in terms of their condition.

I mean we recovered value for that client using a variety of our channels.

So, being able to remove the friction from consumer referring goods that are bought on e-commerce marketplace or even physical source, and then allow brand to take all of that product bring it back to Liquidity Services where we add value to it, greatly simplifies the reverse supply chain for our OEM clients. They can outsource that function.

They can free up people. They can free up states, resources to focus on our core business. So, that’s fueling growth, remember that e-commerce growth is the catalyst for many businesses, and we’re beneficiary of that because of the amount of products that returned in those channels is 3x, what you would see in brick-and-mortar retail.

So, we continue to find opportunity there. We know that our industrial marketplace business is benefiting from globalization, asset pricing that’s buoyant at this point. And we have terrific reference clients and large industry verticals, and yet we think we can be even more efficient.

We think we can with our LiquidityOne investments bring together multiple branded buyer base marketplace and have even cross selling and penetration of the buyer base, which will drive higher recovery.

So the team is doing a great job in getting our liquidity services name out there, but on the buyer marketplace we see opportunities to improve monetization, which is why we don't make any investment in LiquidityOne..

Thank you. Our next question comes from Gary Prestopino from Barrington Research. Please proceed..

Hi, I’ve got a series of questions, I am not sure that these you've answered, this is in the last set of question. So, I want to make sure that we can get something that’s fairly concise to an answer. In fiscal ’17 you're talking about $1 million to $2 million of incremental expenses for LiquidityOne.

So, somebody of these other initiatives that you’re doing to grow the business which is fine with us, I am just trying to get an idea of what are the expense levels that you’re going to be or that you’re thinking about within a range, beyond what you’re doing for LiquidityOne this year?.

So Gary, just to be clear, the LiquidityOne that we’ve indicated in the past and we’re saying is going to continue is of 1 million to 2 million is per quarter..

Right, I understand..

Good.

So, that’s it, the other expenses we’re not going to get into that level of line-by-line detail, but I can say that if as we look in the first quarter just to kind of level at this, the first thing if you’re looking sequentially between the fourth quarter that we just completed and our first quarter 2017, the first thing to look at and I apologize I am stating the obvious, but I think quietly maybe I should do so.

The first thing is that our scrap contract has been re-fetched, right. There is upside in the scarp contract probably more than downside for the things that Bill said in terms of general market conditions, inflation and the commodity pricing and so forth, and own performance in the contract.

On the surplus contract, we are effectively over on the prior contract inventory that we’re selling through there is very little up, so I think that we’re seeing a normalization in Q1 of both DoD contract.

The DoD surplus contract is difficult to predict on a quarter-by-quarter basis because we have very good for example, we had very good performance in the fourth quarter because halfway through the question we had a lot of unexpected inventory material that came to us, and those high volume that come and go.

Over the long-run that we’re pretty comfortable on year -over-year basis, how that’s going to look, but on a quarter-by-quarter the timing is very unpredictable.

And depending on the volume that we get, will depend on the performance that we have in our particular quarter, and that happen to be in Q1, I mean sorry in Q4 where we exceeded where we thought we’re going to be partly due to this DoD surplus phenomena, right.

And we try not to predict in the next quarter that we’re going to have an unknown high volume of inventory coming in. So, I think we’re trying to be reasonable in our expectations for that.

So our DoD we put that aside, that’s a big kind of a effect where I think in the long-run or even in the short-run it can have some differences in what we are looking and we are predicting here for the coming quarter. For the commercial business is one of the big impact on our Q1 is our seasonally low municipal business.

In that business, it's one of our larger GMV business and this seasonality effect has does have an impact on our margin in our top line. And you don't see the top line as much because we are offsetting that with growth what we expected an option in growth in those in the commercial business.

So that leaves us with our capital asset group and our retail group, IronDirect and so forth where in all cases, we are expecting growth sequentially. However, as we want to leverage the LiquidityOne platform as we do the rollout and we want to grow the top line significantly is our hope over the coming quarters and years.

We have to do some investments in sales and marketing. So, each business in the commercial businesses each one is showing growth in sales as a percent of top line. In the first, at least in the first half of year, over the fourth quarter that we just passed.

And then as we grow the top line, we are looking for getting that leverage up of the sales and marketing investments that we are making. And I am going to quantify this, no, not at this time, but you know if you bridge the gap, you'll kind of get a sense of, we are putting some significant investment on a quarterly basis in sales and marketing..

Okay, does IronDirect take trading?.

Is that part of your model?.

Does IronDirect take trading?.

We will facilitate the sales of used equipment to enable a buyer to buy new equipment..

Okay.

And do you have to finance that trading I mean with IronDirect, does it have its own fore play in financing mechanism or you going to finance any kind of demo equipment or trading through the cash on your balance sheet?.

If you look at the IronDirect site, you will know a partnership that we have with Wells Fargo for the financing of equipment. So the third-party institution will be providing financing.

Now, in Liquidity Services, the overall business, Gary, as you know we will take title to assets where we have a lot of experience and robust buyer base, and that is pricing to those situations. But the IronDirect model is not predicated and that's financing trading..

Can IronDirect you leasing as well, Bill?.

It could very much, so absolutely..

Okay..

Again that’s one of the classic solutions provided by Wells Fargo..

Thank you. [Operator Instructions] Our next question comes from the line of Colin Sebastian of Robert W. Baird. Please proceed..

Hi guys. This is actually Ben on for Colin. Two questions so with the investments that you're talking about on the commercial side of the business.

Are you going to be devoting most of that spend to penetrating existing buyer base or seller base or attracting new users to the platform? And then secondly, on the rollout of new marketplaces, are you targeting new verticals there or is it a re-launch of existing marketplaces that's just on a new platform?.

So we have plans to penetrate the market of both manufacturers and retailers that will certainly include new customers and both the Fortune 500 customers that we’ve historically worked with in selling our platform, but also we launch our e-commerce platform under LiquidityOne, we’ll have the opportunity to provide both large do-it-yourself customers and small businesses with self service tools, that enable them to low their own assets into the platform.

That’s a winning formula that we’ve used for many years in the municipal government marketplace and it is a solution that we believe will be attracted for a segment of the retail and the industrial marketplace.

In terms of new marketplaces, the next several marketplaces will be within existing verticals that we serve today and deploy our existing marketplaces on to the new platform..

Thank you. We have a follow-up question from the line of Gary Prestopino with Barrington Research. Please proceed with your follow-up question..

I just wanted to ask, what was the first marketplace that you put on the new platform? I don't know if anybody asked that.

And then what's been the experience so far with users on the platform, the new marketplace?.

Right, so the headline on the press release focused on the IronDirect marketplace going live in September, so that was the first marketplace..

Okay..

And the second one is coming, it's actually undergoing user acceptance testing right now. So, we will really value the customer feedback every step of the way in fact customers are brought in before we go live to get their feedback..

Thank you. We have a follow-up question from the line of Dan Kurnos with Benchmark. Please proceed with your follow-up..

I might as well just ask then, Bill, if this is a fair cadence for the phased rollout of these platforms every six months or so?.

Well, one thing I would tell you is that the next platform will have a broad international scope and that’s an existing business that we have with fires in many places in the world. So, the level of complexity in the next platform is greater than the first platform.

So, we think that the appropriate thing for us to optimize in the first launches are quality and reliability and not the speed, so that’s what is driving our cadence today. But I would tell you the learning curve is such that we would expect to be very well positioned to improve our cadence once we get through the first international marketplace..

So not to pigeonhole you here, but could this thing be completely rolled out by the end of FY18?.

It’s one of those inherently changed management driven type of program that you really don’t want to be focused on speed as much as quality and reliability, that’s not unreasonable, but I wouldn’t be giving you an ironclad commitment at this juncture..

Thank you. We have a question from the line of Sam Schaefer of Global Value Investment Corporation. Please proceed..

Hi, thank you for taking my question this morning.

As IronDirect continues to roll out and the new platforms come online, are there any legality issues with certain states in selling directly instead of using a distribution model?.

Not that we’re aware of..

Thank you. There are no further questions in queue. So at this time, I would like to hand the call back over to Julie Davis for closing comments and remarks. Ma’am..

Thank you, Brian. That completes our call for today. Please reach out to me if you have any additional follow-up questions..

Ladies and gentlemen thank you for your participation on today’s conference. This does conclude the program you may all disconnect. Everybody have a wonderful day..