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Edited Transcript of RBA.TO earnings conference call or presentation 10-May-19 2:00pm GMT

Q1 2019 Ritchie Bros. Auctioneers Inc Earnings Call

BURNABY May 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Ritchie Bros. Auctioneers Inc earnings conference call or presentation Friday, May 10, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian L. Glenn

Ritchie Bros. Auctioneers Incorporated - Senior VP & Head of Canada Sales

* James J. Jeter

Ritchie Bros. Auctioneers Incorporated - President of Sales - U.S.

* Karl W. Werner

Ritchie Bros. Auctioneers Incorporated - President of International

* Ravichandra K. Saligram

Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director

* Sharon R. Driscoll

Ritchie Bros. Auctioneers Incorporated - CFO

* Zaheed Mawani

Ritchie Bros. Auctioneers Incorporated - VP of IR

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Conference Call Participants

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* Ben Cherniavsky

Raymond James Ltd., Research Division - MD of Industrial Research

* Cherilyn Radbourne

TD Securities Equity Research - Analyst

* Craig R. Kennison

Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst

* Derek Spronck

RBC Capital Markets, LLC, Research Division - Analyst

* John Michael Healy

Northcoast Research Partners, LLC - MD & Equity Research Analyst

* Lawrence Tighe De Maria

William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure

* Maxim Sytchev

National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst

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Presentation

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Operator [1]

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Good morning. My name is Kim, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers first quarter conference call. (Operator Instructions) I will now turn the call over to Mr. Zaheed Mawani of Investor Relations to open the conference call. Mr. Mawani, you may begin your conference.

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Zaheed Mawani, Ritchie Bros. Auctioneers Incorporated - VP of IR [2]

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Thank you, Kim. Good morning and thank you for joining us on today's call to discuss our first quarter 2019 results. I'm joined this morning by Ravi Saligram, our Chief Executive Officer; and Sharon Driscoll, our Chief Financial Officer. Also with us today for the Q&A portion of the call will be other members of the leadership team.

The following discussion will include forward-looking statements as defined by the SEC and Canadian rules and regulations. Comments that are not a statement of fact including projections of future earnings, revenue, gross transaction value or other items are considered forward-looking and involve risks and uncertainties. These risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our SEC and Canadian securities filings available on the SEC and SEDAR websites as well as our Investor Relations website at investor.ritchiebros.com.

Our definition of gross transaction value may differ from those used by other participants in our industry. It's not a measure of financial performance, liquidity or revenue; it's not presented in our statement of operations. Our first quarter results were made available yesterday evening after market close. We encourage you to review our earnings release and Form 10-Q, which are available on our website as well as EDGAR and SEDAR.

On this call, we will discuss certain non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measure and a reconciliation between the two, see our earnings release and Form 10-Q. Presentation slides accompany our commentary today. These slides can be viewed through the live or recorded webcast or downloaded from our website. All figures discussed on today's call are in U.S. dollars, unless otherwise indicated. I'll now turn the call over to Ravi Saligram, our Chief Executive officer.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [3]

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Thank you, Zaheed. Good morning, everyone, and thank you for joining our first quarter earnings call. We delivered 3% GTV growth on a constant currency basis. Our reported revenue growth of 17% was driven by a higher mix of inventory sales revenue compared to last year and our earnings per share improved 6%.

In particular, we're proud of the performance of Ritchie Bros. Financial Services, which achieved 32% revenue growth, the 28th consecutive quarter of double-digit growth. We're also very pleased with our significant improvement in operating free cash flow and excellent ongoing capital discipline and cost control. From a channel perspective, our online business led the way, up 9% in GTV growth, with IronPlanet weekly featured auction up 4%, including strong GovPlanet growth and Marketplace-E up 14%. Our live business finished up pretty fast for the quarter, which was unfavorably impacted by the non-repeat of last year's $37 million U.S. Grande Prairie auction.

Regionally, across all our channels, our U.S. business posted 6% GTV growth, led by the strong volume in Orlando together with another solid performance from our Strategic Accounts group, delivering double-digit GTV growth and strong new customer acquisition. It's heartening to see solid GTV growth in the U.S. after 2 years of supply constraints.

Moving on, our Canadian GTV was significantly lower than last year, but the supermajority of that decline was driven by the non-repeat of last year's Grande Prairie auction and uncertainty stemming from both the Alberta provincial elections and the oil and gas sector. The overhang from the pending elections in Alberta concluded in April and then it's helped create some renewed energy and positive equipment flow in the rest.

The Canadian team was off to a very good start in Q2, notably with a flagship Edmonton auction last week, posting solid results of CAD 207.6 million with very strong FX performance. We also had a record auction in Toronto this week achieving GTV of CAD 46 million.

Our international GTV was up 8% on a reported basis and nearly 16% on a constant currency basis, driven by higher at-risk business and significant online volume growth led by Marketplace-E. International has led the way with Marketplace-E platform and in Q1 the group doubled its volume over last year.

A salient feature of the first quarter was an inflection pricing in certain asset classes such as excavators and reloaders. Excavator pricing has flattened out while reloaders have begun to decline. On the other hand, articulated dump trucks continue to hold up, material handling continues to be soft while the truckers continue to show strength with nearly 10% inflation in first quarter 2019.

Age of equipment is in a sweet spot of 3 to 5 years, went from 25.3% of GTV in 2018 to 24.7% of GTV, a reduction of 60 basis points. Price inflection in certain asset classes, age of equipment, combined with competitive pressures in a low-supply, high-demand market, caused of a larger unwritten at-risk packages, both inventory deals and performance guarantees, to underperform. To put this in perspective there, we had just 5 large deals out of a total of 373 global at-risk deals in the first quarter 2019 that did not perform up to expectations, and in particular affected our Orlando and Moerdijk auctions. Recognize a few of these deals were important strategic deals to act as start-up packages to seed these big auctions.

Many of the other deals, in particular, those that comprise low-hour, late-model equipment, performed extremely well. While we are not happy about these 5 deals underperforming, we take it in our stride.

Ritchie Bros. have successfully underwritten billions and billions of dollars of deals in the last 10 years in an aggregate. We've delivered outstanding performance and have been profitable in our underwritten portfolio as a whole every single year. Our deals are best-in-class in the industry. Market and pricing inflections periodically occur due to the cyclical nature of our industry. Also, we often purchase inventory deals or offer guarantees 2 to 3 months ahead of a sale. Consequently, we cannot always predict what pricing will do when the hammer drops at the auction. That is the nature of underwritten business.

But as pricing inflects, we inflect based on the dynamics of the asset classes and age of equipment. In 2018, the sales heads and I exhorted our teams to chase volume aggressively given supply constraints. Our goal was to grow GTV. Rate was not a problem. In light of the recent inflection, we've already pivoted. In fact, we walked away from a few deals last month where the economics did not make sense.

We've tightened the approval criteria for deals and are striking a better balance between achieving rate and volume. We're also piloting algorithmic predictive pricing data based on machine learning for our at-risk deals in the second half of 2019.

We've already seen the benefits of our algo-pricing model when applied against straight commission deals to achieve better shoot prices. We're confident we'll be back on track with our at-risk rates as we go forward.

Now turning to our Q1 auction highlights. Our overall GTV mix between live and online continues to reflect our focus on growing penetration within our online marketplace and channel. Our online marketplace's GTV grew from 16% of total GTV in Q1 2018 to slightly above 17%.

In our live on-site channels, 48% of our live industrial auctions posted comparable increases over 2018. Some notable performances in the quarter saw Houston up 11%, just days before our massive Orlando sale in February; Los Angeles was up 25%; and internationally, Moerdijk was up 70%. We held 47 total live industrial and ag auctions events in the quarter, which was 5 fewer than last year.

Across all our channels, our buyers continued to leverage and embrace our auction technologies and take advantage of unprecedented access and flexibility. A 60% of our GTV was purchased by online buyers versus 56% last year.

Looking at our online marketplaces. New buyers on IronPlanet grew 54% in Q1, the highest ever. Our Marketplace-E GTV was underpinned by a 40% increase in buyers and significant growth at both listed items and bids up nearly 3-fold.

Finally, our government business and specifically, our non-rolling stock program is building momentum and while we don't have a count in last year, it was still -- as it was still a new program, we delivered strong growth across number of bids, listed items and buyers despite some sell-through challenges resulting from the U.S. shutdown, government shutdown during the first quarter.

We're seeing more instances of our base of buyers beginning to leverage the scale and breadth of our platform regardless of the channel which they entered into our ecosystem.

Our diversification strategy is starting to generate tangible network effects. There are a couple of examples to share with you. In example one, we had a buyer registered on the RB site in February and over the subsequent 45-day period, the customer transacted across Ritchie Bros. Marketplace-E and GovPlanet. In example two, a buyer registered in 2015 on GovPlanet, was active in '16 and again in '17, but in '18, the same customer doubled their purchase volume across GovPlanet and TruckPlanet channels. These are good examples, but it's not meant to suggest that all our customers behave like this, but obviously, when they do, the multiplier effect is enormous.

Now you can see why the focus on new business, because the lifetime value of customers is enormous. Let me leave you with a couple of interesting statistics. Of all active buyers on IronPlanet property since 2016, approximately 20% of buyers purchased on 2 or more IronPlanet properties. But that 20% of buyers purchasing on multiple platforms, the GTV per buyer on average is over 5x the level of buyers purchasing on just one platform. You can see why we're so excited that now Ritchie Bros. is truly a powerful multichannel platform generating strong network effects.

A final comment on multichannel. In order to make both sellers and buyers completely channel agnostic, we will be implementing full harmonization of buyers' fees starting in Q3 this year. Specifically, the one remaining fee structure in our live auction pertaining to smaller lots will be made identical to IronPlanet's fee structure. With that, let me pass on the call to Sharon.

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [4]

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Thank you, Ravi, and good morning, everyone. Total revenues for the quarter was up 17%, driven by 56% growth in inventory sales revenue, partially offset by a 2% decline in total services revenue.

Services revenue was impacted by a 9% decline in commission revenues resulting from a combination of lower services GTV volume as well as lower guarantee contract rate performance in the U.S.

The decline in commission revenues was partially offset by a 7% improvement in fees and other services segment revenue growth.

The fee increase was driven by higher mix of lower value live auction lots, growth in our GovPlanet channel as well as volume-driven growth at RBFS. The revenue growth from inventory sales was primarily due to a higher level of inventory deals transacted in Europe and the U.S., partially offset by significantly lower volume in Canada. Overall, the strong inventory contract growth in the quarter resulted in an inventory sales revenue mix of 43% of total revenue versus 32% of total revenue in the prior year. Our operating profit improved 2% to $33.6 million. The improvement was driven by the growth in total revenue, a 2% decline in SG&A expenses and lower acquisition costs.

Offsetting these improvements was a higher cost of inventories sold resulting from our softer at-risk rate performance in Orlando and Moerdijk and higher GovPlanet operating costs versus last year as the new surplus contracts started up only in Q1 of 2018.

Additionally, our depreciation and amortization expenses increased 6%, reflecting the continued investment in technology CapEx from MARS and other strategic projects. All in, we improved our net income by 6%, driven by our operating income growth together with lower interest expenses resulting from our diligent focus on debt repayment, partially offset by a higher tax rate in the quarter of 26.8%, primarily due to a greater proportion of income being taxed in jurisdictions with higher tax rates.

Moving on, as you will recall, we implemented the new accounting revenue standard Topic 606 in Q1 2018. And we want to remind investors that this presentation of revenue is highly sensitive and volatile to fluctuations in inventory sales mix. As you can see on the slide, it highlights the last 9 quarters of year-over-year revenue growth broken out by service revenues, inventory sales revenue and total revenue, and clearly demonstrates the relative volatility on total revenue growth resulting from fluctuations in inventory sales revenue mix.

As you can see over the last 3 quarters, total revenue growth has been up 8%, up 22% and up 17% in the current quarter. And we felt it was important for you to understand how the inventory sales mix can swing total revenue, making forecasting extremely challenging.

Overall, to frame the next 2 slides, our auction and marketplace segment total revenues were up 18%, primarily due to this 56% increase in inventory sales revenue, partially offset by a 3% decline in service revenues.

Further breaking down the 3% decline in our A&M services revenue, the U.S. was flat versus last year with a lower volume of commission revenues and lower guarantee rate performance, offset by higher fee revenue.

Canada was down 9%, primarily due to a lower volume of commission contracts. And international was down 12%, driven by the change in revenue mix between service revenues and inventory sales revenue.

To measure revenue rate performance for the A&M segment, we look at 2 key A&M rate measures: a service revenue rate and an implied rate of return on inventory deals, which I will discuss in a moment.

Let's start with service revenue rate calculated as A&M service revenue as a percentage of total GTV. We have used this method of calculation because A&M service revenues include straight commission revenues, guaranteed contract proceeds and consignor and buyer fees related to both service and inventory contracts.

The A&M service revenue rate in Q1 was 12.2%, roughly 60 basis points lower than last year, but on a sequential basis, similar to Q4 performance. We saw a consistent rate performance in our straight commission contracts, but experienced lower rates on our guarantee contracts, as Ravi has discussed earlier.

Our fee growth positively affected rates in the quarter due primarily to the increase in mix of lower value lots.

Moving on to our auction and marketplaces segment inventory sales revenue. Regionally, the U.S. was up 248% over Q1 of last year primarily driven by the strong growth of inventory contracts at our larger live U.S. auctions and through our GovPlanet channel.

Conversely, our Canadian inventory sales revenue was down 90% as Q1 2018 included one large insolvency inventory deal that seeded our Grande Prairie auction event last year. Our international region was up 116%, driven by a higher mix of overall inventory deals with some volume resulting from macroeconomic conditions in parts of Europe, Asia, Middle East and Australia. This further highlights the impact in volatility that large, nonrecurring inventory deals can have by region, particularly when looked at on a single quarter basis.

A&M inventory sales revenue mix, a volume measure on GTV, was up -- was 11.2% in the quarter, down slightly on a sequential basis from Q4, but nearly 400 basis points higher than Q1 of last year.

Looking at our implied rate of return on inventory deals, calculated as inventory sales revenue less cost of inventory sold over inventory sales revenue. In Q1, this rate was 8.1%, which was lower than the 10% rate we achieved both sequentially in Q4 and in Q1 of last year.

Again, the rate compression this quarter was primarily a function of the softer price realization on a few of our larger underwritten inventory packages.

Moving on to our costs. Our total cost of services declined 2%, which was favorable considering our GTV growth and overall lot growth in the quarter. Our core costs of services decreased as a result of fewer live auction events in the quarter, partially offset by an increase in digital marketing and shipping costs to support our government business related to the ongoing non-rolling stock program.

Ancillary cost of services declined 6%, in line with lower repair, hauling and paint revenue services provided in the quarter. SG&A costs declined 2% or $2.3 million over last year. SG&A costs are virtually flat year-on-year when you remove the higher share unit expense in Q1 2018 due to the mark-to-market impact of the PSU amendments.

This flat result is still very positive when considered in the light of SG&A investments made to support our growth businesses, particularly Ritchie Bros. Financial Services, GovPlanet and our technology platforms.

We had seen reductions in controllable costs such as travel, advertising, promotion and professional fees through disciplined cost control and efficient spending.

Turning to our balance sheet and liquidity metrics. Our Q1 operating cash flow was $72 million, improved 7% over last year. The improvement was driven by higher net income and improvements in working capital from a decrease in inventory balances in the quarter as we sold through a significant amount of inventory in Orlando and Europe.

On a trailing 12-month basis, our operating free cash flow was up 170% from $43 million last year to $117 million this year, which underpins the tremendous cash generation characteristics of our business model.

Effective 2019, we will be discontinuing our Evergreen CapEx rate measure and are replacing it with annual CapEx dollar guidance range. For the full year, we expect our CapEx investments to be in the range of $45 million to $55 million.

Our CapEx spend will continue to be focused on technology investments led by our MARS platform initiatives and other technology-driven growth imperatives, in addition to our site maintenance capital and continuing investments to support our GovPlanet business.

Our debt reduction continues to be well ahead of schedule with an additional voluntary repayment this quarter of $10 million.

Our positive operating results in the quarter together with our debt repayment progress has resulted in an adjusted net debt-to-adjusted EBITDA ratio of 1.7x on a trailing 12-month basis, which is well within our Evergreen target range of below 2.5x.

Based on our strong cash flow performance and current leverage ratios, we are reinstating our pre-acquisition capital allocation priorities. We intend to continue to pay down current debt levels and will evaluate an increase in dividends on our normal annual cycle.

As announced yesterday, our Board of Directors authorized a share repurchase program for the repurchase of up to $100 million worth of common shares of the company over the next 12 months subject to exchange approvals. Share repurchases under our normal course issuer bid are aimed principally to offset option dilution.

In the quarter, we also implemented the new accounting lease standard Topic 842 and recognized a right-of-use asset and operating lease liability of $103.9 million as of January 1, 2019 as disclosed in our financial statement Note 1J. This present value of future lease payments under U.S. GAAP affects the balance sheet, but has no significant impact on the P&L, cash flow statement, debt covenants or return on invested capital.

We continue to see positive progress with our ROIC measure, improving on a trailing 12-month basis to 7.7% from 6.5% last year.

To sum up Q1, we continue to demonstrate progress against key strategic growth and technology initiatives, and the financial health and fundamentals of our business model remain intact and continue to improve. We remain a strong cash flow generator and have made a significant progress on cost control.

With that, I'll turn the call back to Ravi.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [5]

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Thanks, Sharon. Now that most of the IP integration has been completed, we're excited about extending that road journey beyond the auction segment. As a result of the acquisitions of IronPlanet, Mascus (inaudible) and AssetNation, we now have an unbeatable product portfolio enabled by excellent technology that can cater to the different needs of customers to increase share of wallet of existing customers and acquire new customers.

We divide the used equipment market into 3 segments: the first, the auction segment, which is $25 billion and we have approximately a 20% market share. Our objective here is to protect our leadership position while growing share. Our key customer base in this segment are end users and our principal products are the RB live auction and the weekly featured online auction. We call the second segment midstream and it's over $140 billion. This segment is dominated by thousands of brokers, independent dealers and end users selling privately, that is, customers selling on their own through listing services or personal contacts and relationships.

Our objective here is to drive penetration of this segment. Our key product offering here is our rapidly growing Marketplace-E, which offers consignors complete control over pricing, who the buyer is, et cetera, through a variety of reserve formats. On a trailing 12-month basis, Marketplace-E is already over $275 million in GTV just 15 months after launch. MPE will offer consignors a strong alternative to selling on their own or using brokers by achieving strong price value through leveraging the RB platforms, global reach and network effects.

Finally, the largest segment is upstream, commonly referred to as retail and dominated by OEMs, OEM dealers, strategic accounts and rental companies. We have made a clear decision that we are not in the business of competing head-on with these players in this segment since they're very important long-term customers. Instead, our objective is to create enduring partnerships by embedding ourselves in their infrastructure through value-added enablers to create sticky relationships. Our key product offering here is RB Asset Solutions, which includes inventory management systems, pricing tools, inspection apps, et cetera. We're confident that this 3-pronged go-to-market segment strategy will be a key driver of growth in the next several years.

Consequently, we've realigned our organization structure to ensure we have strong sales leadership focus on each of these segments. Given upstream is our largest long-term market opportunity, Jeff Jeter will now focus on overseeing our upstream go-to-market strategy and oversee Strategic Accounts in North America as President.

Our Strategic Accounts team, while continuing to sell all our product offerings, will be the exclusive channel to sell RBAS. Our regional teams will handle all our core products including MPE, RBA and IP to protect and increase our share in auctions and penetrate midstream. The other key change is that we've brought in Kari Taylor, as our Chief Sales Officer, U.S regions.

In this newly-created role, Kari will assume responsibility for the U.S. field-based regional sales organization and initially focus on successfully implementing our new SAGE initiative to accelerate new business growth and enhance Territory Manager sales productivity. She will also work closely with the field teams to accelerate online momentum and take multichannel selling to the next level.

On that note, let me take a couple minutes to help you better understand SAGE. At the heart of it, this is an enterprise-wide sales effectiveness program, which is the hallmark of any world-class sales organization. SAGE stands for Sales Activity Generation Engine. And it’s an activity and behavior-focused sales process, overlaid with the data-driven mindset that provides our teams with the tools to succeed in a multichannel environment even in the fraught and difficult supplier market conditions.

We'll be using SAGE to focus on the key outcomes of new customer acquisition, multichannel growth and creating a common global measurement and KPI framework that sets clear expectations and generates timely feedback to our sales team.

SAGE will allow our teams to have increased customer face time as they pursue new business. We've already loaded lists of existing consignors and new customer acquisition targets by territory on salesforce.com, which we call sales hub, and have created a special new business incentive. SAGE will be launched later this month and globally in the second half of 2019.

Looking ahead to the rest of the year, we expect gradual easing of supply constraints as the year progresses while recognizing that we remain in a highly demanding environment for equipment with high utilization rates, especially in the U.S.

We're off to a good start in Q2. Edmonton and Toronto performed well and it's pleasing to see that Canada is regaining momentum. GDP growth in the first 6 weeks of Q2 is trending positively. We also have a large insolvency pipeline deal ahead of us in the United States, which we're building in partnership with Gordon Brothers in Q2 and we press released that a few days ago.

Given the new revenue presentation combined with the discontinuation of reporting agency proceeds, we recognize the difficulties that analysts and investors will have in modeling our business. However, we want to categorically state that nothing has changed in terms of the fundamentals of our business or the key drivers. We continue to hold ourselves accountable to all the same measures of the Evergreen Model as previously stated and continue to be incentivized on that basis. On the key measures in Evergreen Model that has not been affected in presentation by the discontinuation of agency proceeds is EPS growth, and to refresh your memory, that is in the range of low double digits to mid-teens. Although, we do not provide annual guidance, we have strong conviction in our ability to execute against our 5 key 2019 priorities, normalized at-risk rates and generate new business volumes. And consequently, we expect to deliver strong earnings per share growth for the full year of 2019.

Before we conclude, I want to thank our entire Ritchie Bros. team across the globe for all their hard work and dedication.

And with that, we're ready to take questions. Operator, please open the line to questions. And let's limit it to 2 per person.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Derek Spronck from RBC.

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [2]

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Are there any indications that the used equipment supply constraints are starting to loosen? Because looking at the age of the equipment, it looks like it continues to age. So I would assume that would indicate the opposite. But are you seeing any other metrics that would suggest that it's starting to loosen?

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [3]

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Derek, thank you for that. Two things. It depends, one, on geography. For sure, we are seeing loosening internationally, and whether it's places like Turkey and other parts of Europe, we're definitely seeing some loosening of supply, which is why we are also seeing more inventory deals. In the U.S. and in Canada, for sure, kind of there is a pause button in first quarter, primarily because of sort of, as my friend Brian says, politics and provinces. But -- as people waited for the elections. Suddenly, the pause button has been unpaused, and we're seeing, really, that's why we had a tremendous Edmonton auction, tremendous Toronto auction, and we're beginning to really see things flowing back in Canada, which is very encouraging.

And in the U.S., the fact that we had 6% GTV growth after 2 years of real constraints, I mean, that 6% is -- and that's on the core business, that's pretty damn good. So those are definitely indications. Secondly, when we talk to dealers, we are beginning to sense. And now it's going be gradual. It's not like there is a huge surge in the U.S., that a tsunami is hitting us. But definitely, we're seeing step-by-step. And when we look at production levels, I think there is a demand -- supply/demand harmonization that is going on. So I'd say, all in all, gradual improvement. Definitely, it's not as bad as '17 or '18. What I can say is if we don't have tailwinds for sure, at least the headwinds have [relented].

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Derek Spronck, RBC Capital Markets, LLC, Research Division - Analyst [4]

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Okay. That's helpful. And just quickly, the full fee harmonization, when you move to that harmonization fee, I don't know if I'm allowed to say this, but the agency proceed rates went higher. Could we expect the same once you include the smaller lots, we'll see a little bit of a pickup in agency proceed rates or commission rates?

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [5]

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So Derek, you can say agency proceeds. I get that. So by all means, say it all that you want. You're not governed by the SEC, I think. But so -- but yes. We do look at the fee harmonization, ultimately is done by -- to really make sure that we are channel-agnostic. That's really the key reason we do it. And we're very conscious. We want to make sure that we still are at competitive rates for buyers. But yes, I think we did experience improvements on our top line due to the harmonization. And one can expect that similar effects, but maybe not to the same extent, because the first one was really the big one. This was the last piece. But yes, it should have a positive impact, especially if the smaller lots continue.

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Operator [6]

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Your next question comes from Ben Cherniavsky from Raymond James.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [7]

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I just want to just clarify the commentary around the Evergreen. So are -- what components of that are still relevant, or have they all changed? Are they all been pulled? Or what -- in particular, I know you emphasized that the EPS growth target is still intact. But I would assume ROIC is something that's unimpacted by the agency proceeds. Is that correct?

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [8]

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Yes. Ben, let me and then Sharon can add. All we are talking -- any -- the tenets of the Evergreen are completely unchanged, or the objectives or sort of the 5- to 7-year on average sort of tenets that we had set forth are all absolutely intact. Because we cannot talk about agency proceeds in our presentation, so we cannot present it as a percent of that. And if you start bearing things against revenue because the volatility of inventory, sometimes those are early [in this]. But clearly, things like EPS, dividend payout ratio, ROIC are all things that we'll be tracking and talking about. The one thing that Sharon did mention was that CapEx, because we used to express it as a percent of agency proceeds, that we felt -- and that has nothing to do with the presentation now. We just felt that people didn't thought of us -- didn't think of it as very relevant to do as a percent. So we just said, hey, easier just to give you annual guidance on sort of our range on that. Sharon, is there anything you want to add there?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [9]

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Well, I think the comment, too, that we made was internally, we're all still incentivized on kind of the original Evergreen Model metrics, as previously presented. So for our standpoint, we still are very committed to those targets and we'll look to deliver them.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [10]

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And our incentives still go on that basis. And so -- and those calculations, for instance, one of the key tenets was also EBITDA margins, and we're very committed to all of those. It's just we cannot talk about the former presentation and expression. But certainly, you can all look at our statements and come to your own views on how we are doing against those old measures because you have all the information.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [11]

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Can you remind me what the ROIC target is? And maybe -- and just, sorry, I know it's a new disclosure, but just what was it for the first quarter trailing 12 month?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [12]

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So for the trailing -- first quarter was 7.7%. And the Evergreen target is 15% by the end of 2021.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [13]

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And do you think that's -- like there's a wide gap there. You think that's still achievable? Is that in your sights?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [14]

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We're doing a very good job of reducing debt, so getting the kind of capital in the right shape. And it's predicated on earnings growth. And certainly, our estimate today is that is still certainly within reach.

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Ben Cherniavsky, Raymond James Ltd., Research Division - MD of Industrial Research [15]

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And the technology investments that you're going to be making in GovPlanet and some of these other initiatives, that's all part of the equation? Because that'll -- obviously, I know you guys generate a lot of cash, and I appreciate your debt will come down. But you've also got some capital investments that I'm not sure were sort of part of the original plan when that target was set 3 or 4 years ago.

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [16]

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The capital investments are still within our Evergreen Model CapEx range that we'd set out originally and certainly, all of the investments in technology are covered in that range estimate that we just provided for overall total dollar guidance. So that should not be an issue. And also, on an EBITDA margin basis, the depreciation attached to that does not -- is not impacting the number.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [17]

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In fact, that capital, I'd say, is below the range even with the guidance we gave, well below the range. So we are very careful on the capital expenditures spend and clearly, not investing in any new sites other than when we -- you have to make a change over, you have to do a lease (inaudible) because the lease expired. And we're also systematically trying to monetize closed sites and -- so yes, we're -- that ROIC is something, the EBITDA margins, the EPS growth, I think we're very laser-focused on.

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Operator [18]

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Your next question comes from John Healy from Northcoast Research.

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John Michael Healy, Northcoast Research Partners, LLC - MD & Equity Research Analyst [19]

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Wanted to ask you guys a little bit about the ancillary offerings in the business. Continue to be amazed at the growth that RBFS continues to post. I was curious if you can lend some comments on the penetration rate of RBFS in like the customer base as well as some of the other ancillary services just so we can assess how much more runway in terms of potential there is there. And then secondly, as you move to the omni-channel offering, does RBFS or the other service line, do those get helped in terms of penetration rates? Or are those kind of neutral? Or do you see those maybe -- a lack to able to attach them, those products to the different ways you can help your customer base?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [20]

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Yes. So I'll start, and Ravi can certainly add color. Certainly, we're very pleased with RBFS and how it has grown. Certainly, the penetrations that we've talked to previously, we kind of view it internally almost like capable of reaching kind of captive credit card-type rates within our business model. And so we're currently kind of in the, correct me if I'm wrong here, Ravi, but I think 17% overall penetration and private cards would kind of be in the 20s to mid-20 rates. So we still see a fairly significant opportunity just in the addressable gap of servicing our existing customers and items that are sold through auction. But equally, we have a Follow the Customer program so that basically as the customer is approved, if they are unsuccessful at auction, we will help them fund purchases that are outside of our channels. And so as a result, that opens up that potential to even more. And the team is very entrepreneurial in nature and looking at ways of continuing driving into other types of financial service products that can accelerate growth, and to your point, also add value to our existing customer base.

With respect to the other ancillary, a couple of other keys growth factors there is we've launched RB Logistics, which is in our international region, which is a shipping and hauling brokerage offer which is assisting and growing with a lot of these intercountry inventory-type deals that we're doing that are moving equipment through different places in the international network.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [21]

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So the only thing I'll add to what Sharon said, and she gave a very cogent answer was, look, captive OEMs who have their finance companies, et cetera, anywhere between 20% to 25%. So we still think we have runway. But it's also an issue of addressable GTV, as you pointed out. We now are offering financing to all IronPlanet customers for addressable, and that team's -- now the RBFS team's making real good progress in that front. Sharon also touched on Follow the Customer. So we allow now people who actually could not buy something at our auctions, and if they want to go buy [on a sonics], it's not a direct competitor, but if they want to go buy with their OEM dealer, et cetera, we'll allow them to take the financing approvals. So I think over time, the gov thing will also help. So as we build our addressable GTV, this is as part of the network effect that really helps. But RBFS is also a launching pad for us to do a lot of other things and connecting it, normal, how do you get to supply before it ever comes to the market because as we work closely with our vendor partners, knowing if things are leased for 3 years, hey, at the 2-year mark can go out and start getting to those people to say if you're going to replenish your equipment, why don't we take the used? And so there is a lot -- this is a gem. And that team, Blake and Jim Case do an amazing job with their teams. I'm very proud. 28 quarters of double-digit growth is just fantastic, and we're very proud of their efforts.

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John Michael Healy, Northcoast Research Partners, LLC - MD & Equity Research Analyst [22]

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Great. And just one question on the buyback announcement. I just want to make sure I understood the wording. So you've gotten board authorization for up to $100 million worth of stock to be repurchased. Is that expected over the next 12 months? Or is just that authorization end within 12 months? So do you expect to exhaust that whole $100 million by this time next year? And then secondly, are there any nuances to the pace at which you can do buyback with the dual listing? I was just hoping to get some color there.

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [23]

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Yes. So certainly, it is our expectation that we will do it, but we will do it over a period of time. And certainly, we are still subject -- we're just applying for it now through the exchanges, so we're waiting for their approval. When we -- we've done this before. This is no different than what we've done before. So I don't think there's any intricacies related to the dual listings. We are doing it through the NCIB, which is the TSX space, so that is the route that we are taking, but we will be able to purchase on both exchanges.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [24]

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And John, just to add, clearly, to be very clear, this is really to offset option dilution. So once we're -- we get the blanket authorization and to the extent that we need it to cover option dilution, so it may be couple of tranches because for this year, whatever is needed to offset the option dilution, we'll do it and then, next year, some more. So -- but we want to just get the authorization so that we have the NCIB in place. So -- but we have to be -- it's very much tailored to the capital allocation where we said offset option dilution, and it's just that and nothing more, nothing less.

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Operator [25]

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Your next question comes from Larry De Maria from William Blair.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [26]

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Question. As it relates to the auction marketplace, service revenue and revenue rates, I wanted to just understand your comments. I know you're -- you've taken some actions, and you said you're back on track going forward. So is that implying that, that 12.2% is probably the bottom and we should trend towards the mid-, upper 12% percent range? And then secondly, that the actual service revenue, given the kind of weaker performance in the first quarter, should reverse and will start comping up moving forward?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [27]

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Yes. So we've given you a historic perspective because this is a new measure. One, we want to make sure there's an understanding of how it's calculated, so that is service revenue divided by total GTV. So just to make sure there's clarity on the calculation. Based on the graph that we presented, we are operating at a low level with the focus that we expect to achieve in terms of improvement of guaranteed tech contracts. It may be safe to assume that, that range would be kind of in the 12% to 13% mark going forward. But again, this is a relatively new metric where we'll continue to show it, and you can draw your own conclusions on how best to estimate in your models.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [28]

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And as we get more experience with this metric, we'll give you our own perspectives as we go along. But I think Sharon is sharing just a good starting point.

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Lawrence Tighe De Maria, William Blair & Company L.L.C., Research Division - Co-Group Head of Global Industrial Infrastructure [29]

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And those actions that you guys have taken, Ravi, are they designed more around raising the revenue rate back to where it was? Or we're trying to get this service revenue to comp up -- start comping up again?

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Sharon R. Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [30]

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Yes. Well, so I'll -- when I look back at our historical ranges that we've guided at, this quarter's performance is actually still at relatively the top end of that previous range. So certainly we're not looking at a major correction that's necessary. I think it was just -- we had cautioned the market that kind of the lofty rates we experienced inside of 2018 were not necessarily going to repeat. I think what we're doing is we're now looking at how we're managing on that price inflection that we've now experienced in Q1 and looking to improve the rate of performance. And this measure does not pick up the inventory piece of our business but only relates to our guaranteed commission contract.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [31]

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If I could just reiterate what Sharon said, it's a pretty important point because all along, we've been very consistent with the previous rate guidance and have cautioned against over egging it because we do have something which is fundamental to our business, all underwritten business, which can fluctuate, sometimes you can really bounce up, sometimes you can bounce down. But overall, we adhere to that, including, while we can't talk about on the previous basis, we've adhered even this quarter to that rate range. And a lot also depends, if you get more strategic accounts growth, strategic accounts are usually at a lower rate. If you get more ag business, that is -- tends to be lower. If you get more of your international business, that's at lower rates. So it all depends. Whereas gov, the bell rates tend to be higher. So the mix has a view, but we feel have even in the past given a very clear range and did not really come off it. It's just we caution about either over-exuberance or getting overly pessimistic. We think that the past -- the way we have guided has always been a pretty good marker for us.

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Operator [32]

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Your next question comes from Maxim Sytchev from National Bank Financial.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [33]

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Ravi, just a question in terms of the at-risk contracts. And I think when you started at RBA, there was a thought process to maybe dial it town. Then that kind got ramped up. Right now, it seems to be a bit lower. So in terms of the overall exposure and I mean, obviously, Q1 was not very productive from a churn perspective, at-risk. What can you do objectively to improve the performance in that bucket? If you can maybe point to some initiatives or internal analytics that you guys are generating.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [34]

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Yes. Max, I think, look, here's the thing, to be very clear about it. This team is very good at this stuff, and we do, as I said, billions of dollars of underwritten business historically. And we continue to do it. We really like underwritten business because that is a pretty critical area. It is ironic that while people ask these questions when the supply constraints were there, hey, why don't you give up on rate and go more after GTV? And occasionally when we try to do that, you will have a few deals that will go south when the pricing inflects. And -- but as I said, out of 373 deals, if you have 5, and they were not large and depended on their asset classes. So -- and there are a number of factors that go in. So I think the -- but I think the big pivot has been, last year, we told our teams, look, we don't have a rate problem. We have a volume goal here to try and grow volume, really be aggressive. And it was not just us. The whole -- we have 200 competitors in the U.S. alone who are all going after volume. So there are sometimes strategic deals that you need to take to seed auctions. So now that we have realized in certain asset classes there's a favorite, and I don't want to give the impression that all pricing is an issue. But we've now pivoted back, and we're just going back to kind of how we were running things in 2015, 2016 where there was a tremendous amount of focus. And we've just gone through that pivot. Doug Olive, my Head of Pricing, was sitting right here by me with all his valuation people, are now clamping down a bit, getting a little bit more into -- making sure that their valuations, they're taking a look at that to make sure that both the downside and the upside. But I don't -- this is fundamental to our business. But if there are deals that don't make economic sense right now, we'll walk away from them. And as I mentioned on the prepared remarks, we actually walked away from a few deals that some of our competitors struck. And good luck to them because -- but knowing that a deal will lose money, we really don't want to go after it. So I think that's essentially it. And the last thing I'll say is we are piloting this thing, and one of the issues has been all the taxonomies and stuff to get it together. But in July, we are going into a piloting a full (inaudible) pricing model, which came from -- IronPlanet has been refined and defined by the data analytics team. And we'll use that for at-risk to have one more voice, if you will, with machine learning to aid our judgment. But overall, I see this as a temporary phenomenon and we're not too worked up about it. Hey, did I like the fact that we lost -- we had a little underperformance on a few deals, and it affected rates a bit, yes. But am I saying, oh my God, that's the end of the world, no. Because this is what we do. We're good at it.

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Maxim Sytchev, National Bank Financial, Inc., Research Division - MD and AEC-Sector Analyst [35]

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Yes. For sure. No, that's very helpful. And last question, just in terms of, if you can provide an update on either any unusuals on -- versus Q2 of last year in terms of the auctions' pacings? Anything that we should be aware of for the upcoming quarter?

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [36]

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Did he -- did we put that up on the...

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Zaheed Mawani, Ritchie Bros. Auctioneers Incorporated - VP of IR [37]

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We can share it. I can share it.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [38]

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Why don't we just put that on the website? And we'll -- because we're just going through that, and let's get that put together here.

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Operator [39]

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Your next question comes from Craig Kennison from Baird.

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Craig R. Kennison, Robert W. Baird & Co. Incorporated, Research Division - Director of Research Operations and Senior Research Analyst [40]

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Wanted to ask about your sales leadership changes and SAGE and that conversation. In the last few years, you have asked your sales force to embrace a lot of change with IronPlanet and other changes. And now you are introducing this SAGE. Just how receptive has the team been to all of this change? And has it had any impact on turnover or productivity? Just trying to get a sense of the pulse of the team here.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [41]

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Right. I'll -- let me give a quick view on that, and then I think you should hear directly from Jeff and Brian who are both on the call who really are close to the whole case and Karl. Look, I think ultimately, our salespeople want to win. And we've got amazing salespeople around the world who are very committed, very passionate. And so yes, the multichannel is new, but they're all taking on to it, whether it's an IronPlanet person who's trying to sell now live or a Ritchie Brothers person trying to sell online. You can see the tremendous success we've had in that marketplace even on a new brand, $275 million plus in just 1 year, I mean, I think that's fantastic. So SAGE is just -- look, at the end of the day, this is what -- this is the next evolution of our sales force. And it is essentially -- we are the world's best dealmakers. And what we need, though, is to make this business more predictable you need a very routinized, regular way to go to market. And so we've done this whole program in -- we created a [PM] council to get there, imports, we have created RSMs. It's all been as much top-down as bottom-up, and we are launching this with their full support. I think they're looking at it [very] enthusiastically because, the end of the day, our salespeople want more customer face time. And so we are just trying to take all the things that come in the way, because the old Ritchie Brothers, they used to be cradle to grave. We're now saying, look, spend all of your time on the road plus face time and how can we enable you to do that, and we're putting a lot of enablers in place. So I -- and productivity is improving. So all in all, I feel pretty good. But why don't you hear directly from the guys who manage the sales forces? Jeff, do you want to have a quick comment and then Brian?

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James J. Jeter, Ritchie Bros. Auctioneers Incorporated - President of Sales - U.S. [42]

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Yes. Sure. Craig, I think a key thing that Ravi mentioned and why I feel good about this is, look, we've been very thoughtful about this initiative from the standpoint of really listening to the sales organization, the territory managers, the sales leadership team as what we can do for them, how we can simplify, how the enterprise can support their efforts so they have more selling time, right? So I don't look at this as something that we, at corporate, have come down and are instituting. I look at this as this is what the organization is asking for. That's how we've built it and constructed it. And that is the intent, to make it tools and the ability for them to have more time, for them to be more productive, for them to make more money by being in the market more. So I feel very good about it. My team feels very good about it. Like with any initiative, it's -- it will be a journey. Is not a light switch that just flip on. But I feel confident that it will get embraced because of the way that we've approached it, by really taking our cues from the people that will be living with it every day.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [43]

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Brian?

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Brian L. Glenn, Ritchie Bros. Auctioneers Incorporated - Senior VP & Head of Canada Sales [44]

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Yes, Craig. Just to, I would say, echoes -- echo Jeff's statement. I mean we went across our company, and we took our team's best and brightest stars, and we brought them in to help design and manufacture this to ultimately make our sales teams better. And with the coming together of the 2 companies, IronPlanet and Ritchie Bros., there was a lot of learnings on both sides. And as we continue to refine and improve our processes, all of this is just simply designed to be able to capture more business. And from a turnover perspective, no, that's not a concern that we're faced with. And like I said, with our brightest stars in the field helping design and refine some of these processes, I think it's going to be a great success.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [45]

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Karl, did you have anything internationally to add on that?

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Karl W. Werner, Ritchie Bros. Auctioneers Incorporated - President of International [46]

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Yes. Even in the international group, it's the same outlook. So it's the best practices of both companies. And as Jeff said, it's a field-driven project, not a top-down thing. But it's mainly a consistent proven approach for all -- from our top producers to share, because our teams like to win, and this will definitely help support that.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [47]

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We'll take our next question from Cherilyn, I think. But before that, I think the question was asked about number of auctions. So in Q2, we have a total of 152 auctions, 59 industrial, 93 ag. And that's the same number as last year, which is 152. But it's 50 industrial, 102 ag. So the composition varies. So you have 9 less ag auctions but more industrial auctions. And -- but overall, the numbers are the same in terms of -- we're talking about the live business. So -- and this doesn't include gov and IP and so on. Hope that answers the question. Cherilyn?

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Operator [48]

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Your next question comes from Cherilyn Radbourne from TD Securities.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [49]

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So wanted to ask, this is the second quarter in a row where the GTV coming out of the live on-site auctions has been relatively flat year-over-year, and online has driven most of the growth, and I'm just wondering how we should interpret that.

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [50]

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Yes. I think, Cherilyn, we are -- we -- I would not look at that as, hey, that we're trying to drive a channel shift. We go where the customers want, and there's so many puts and takes in terms -- if you look at Q1, the primary reason why live was down was Grande Prairie, which was $37 million. That's a huge number when you look at it on 1 quarter. And that's really what brought live down. Online's growing a lot because we have the MPE as a new offering. So that's the reason why we are kind of channel-agnostic, and the good news is, hey, as long as we're getting overall growth. But I think -- and also recognize we have fewer auctions in -- we said 5 fewer auctions in -- live in Q1. So that certainly had an impact. And Q1's a soft quarter. And also, you've got this big Orlando auction, so everything kind of went in there. And then with this pricing inflection which also affect GTV. There was also exchange rates that affected GTV. So it's a lot of things. But I think our live business, we feel very, very good. One of the things you should take some comfort is, one, is '18, I think 65% of our live sites comped positively. And I think in first quarter, we said 45% or 49%. So we feel that business is strong. We're just trying to make sure where we have auctions, we have bigger auctions, and we also closed a few sites. That definitely had an impact. But if you were picking that up on online. But overall, our thing is making sure we're growing overall GTV and overall revenues.

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Cherilyn Radbourne, TD Securities Equity Research - Analyst [51]

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Okay. And maybe just as a quick follow-up. Of the 60% of GTV that I think you said was purchased by online buyers, do you have a sense for what percentage of those buyers actually come in physically, inspect the machine and then make their purchase online versus people who totally transact online without ever physically visiting your site?

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Ravichandra K. Saligram, Ritchie Bros. Auctioneers Incorporated - CEO & Non-Independent Director [52]

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Yes. I think the last survey that -- we periodically do that survey with customers to get a sense of that, Cherilyn. But historically, if using the live auction business, a lot of people do come, at least 2/3 to 70% of people actually. And if they don't -- the owner doesn't come, they send a mechanic or some [techs admit] prior to the auction. One thing that has changed dramatically, right, is you could be in the auction theater, but we have now made technology so prevalent because that percent includes the simulcast portion because you may have your smartphone, you may be in the auction theater and bidding your smartphone, and that, in itself, would show as online. But then they'd be actually in the live theater. So -- or they may have come and inspected and -- for anonymity because yes, buyers are bidding against each other, so they want anonymity, and online provides them that. So I think this is the advent of technology. We still think having the live auctions, creating the events, creating the community, the excitement, I mean, what we just saw in Edmonton was a great example with -- where we had the live auction -- I think it broke all sorts of records as did Toronto. At the same time, we ran an MPE event in conjunction. The whole weekend, we actually had some MPE equipment parked in the lots that people could see. And then they had the whole week. So we're using -- all of this is about driving the network effect and using all 3 of our channels, we think all 3 of our channels are very valuable, and they are interacting with each other to produce the best results.

Thank you very much. We -- that was the last call -- last question. So with that, it is a wrap. We appreciate your support, and we look forward to chatting with you next quarter. Onwards and upwards. Thank you.

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Operator [53]

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This concludes today's conference call. You may now disconnect.