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Edited Transcript of RBA.TO earnings conference call or presentation 21-Feb-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Ritchie Bros. Auctioneers Inc Earnings Call

BURNABY Feb 21, 2017 (Thomson StreetEvents) -- Edited Transcript of Ritchie Bros. Auctioneers Inc earnings conference call or presentation Tuesday, February 21, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jamie Kokoska

Ritchie Bros. Auctioneers Incorporated - Director IR

* Ravi Saligram

Ritchie Bros. Auctioneers Incorporated - CEO

* Sharon Driscoll

Ritchie Bros. Auctioneers Incorporated - CFO

* Randy Wall

Ritchie Bros. Auctioneers Incorporated - President, Canada

* Rob Whitsit

Ritchie Bros. Auctioneers Incorporated - Senior Advisor to the CEO and Chief Sales Officer in the US

* Jim Barr

Ritchie Bros. Auctioneers Incorporated - Group President

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Conference Call Participants

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* Sara O'Brien

RBC Capital Markets - Analyst

* Joe Box

KeyBanc Capital Markets - Analyst

* Ben Cherniavsky

Raymond James & Associates, Inc. - Analyst

* Scott Schneeberger

Oppenheimer & Co. - Analyst

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Presentation

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Operator [1]

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Good morning, my name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneer's fourth-quarter and 2016 earnings conference call.

(Operator Instructions)

Jamie Kokoska, Director of Investor Relations, you may begin your conference.

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Jamie Kokoska, Ritchie Bros. Auctioneers Incorporated - Director IR [2]

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Thank you, Melissa. Good morning everyone and thank you for joining us on our fiscal fourth-quarter and 2016 full year results conference call. We are hosting our call today from Orlando so we apologize in advance if there's any background noise.

Discussing Ritchie Brothers' performance today are Ravi Saligram, Chief Executive Officer and Sharon Driscoll, Chief Financial Officer. Joining them for the Q&A sessions following the formal remarks will be Jim Barr, Group President; Randy Wall, President in Canada; Rob Whitsit, Senior Advisor to the CEO and acting Chief Sales Officer in the US, as well as Doug Olive at CP evaluations and appraisals.

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

Our definition of growth auction proceeds may differ from those used by other participants in our industry, it is not a measure of financial performance, liquidity, or revenue and is not presented in our statement of operations. Our fourth-quarter 2016 full year results were made available earlier before the market opened. We encourage you to review our earnings release and form 10K annual report which includes our MD&A and financial statements 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. Please see our earnings release and form 10K.

Presentation slides accompanying our commentary today. They can be viewed live through the webcast or downloaded from our website.

All figures discussed on today's call our in US dollars unless otherwise indicated. While we may use million or billion dollars figures for brevity in today's discussion all percent changes have been calculated using full un-rounded figures.

I'll turn the call over to Ravi Saligram, Chief Executive Officer.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [3]

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Thank you, Jamie, and a very good morning to everybody. Thank you to everyone for joining us on our earnings call. I'm going to focus my remarks on our annual 2016 results today and let Sharon walk you through the fourth quarter specifically. I will then provide an update on our operations, Outlook for 2017, and how the IronPlanet acquisition is progressing.

As we disclosed in January with our monthly auction metrics, growth option proceeds for 2016 was $4.3 billion, a new record for Ritchie Bros. The reported growth for GAAP was 2% while this was lower growth than we had targeted, it was still a meaningful achievement for our team given the lower equipment pricing trends we saw in 2016 relative to 2015. Revenue for the year grew 10% to $566 million another record for the Company.

I am quite pleased to say that the health of our core business lines contributed meaningfully to revenue growth this year. In fact, revenue generated from our pre-existing business lines, namely RBA, E-one, and RBFS are those that do not require or started within the past 5 quarters, grew 5% in revenue versus 2015.

Of all our pre-existing business lines, Ritchie brothers' financial services saw the most significant growth with a 30% increase in revenue compared to what it generated in the year earlier. New business lines, channels and services including Mascus, Xcira, and Ritchie Bros. private treaty and tuck-in acquisitions contributed to just under half of the revenue growth or increase in 2016. So it's evident our diversification strategy is working and adding to revenue growth.

While foreign exchange did have an impact on our performance early in 2016, for the full year, the impact was relatively insignificant. Removing impact of foreign exchange, fluctuations from our reported growth, both GAAP and revenue would have grown an additional percentage point each. Specifically, GAAP grew 3.4% on a constant currency basis and revenue 11% on a constant currency basis versus by year.

As stated on our last earnings call, we're going to discuss our fourth quarter and full-year performance using reported US GAAP results, adjusted results, which remove nonrecurring items, and comparable results which remove both nonrecurring and acquisition related items. We believe and strongly believe that comparable results better demonstrate the true operation health of our business. Absent the noise from corporate development and non-operating activities.

Revenue grew 10% to a record $566 million. SG&A expenses rose 11% during the year driven largely by increased compensation costs related to an 8% increase in staffing levels, new executive hires, and mark to market adjustments related to stock-based compensation. $11.8 million of acquisition related costs were booked during the year, mostly related to our announced acquisition of IronPlanet but also related to that position of Mascus auctioneers and Kramer auctions.

Adjusted operating income in non-GAAP measure inclusive of acquisition related expenses decreased 1% to $164 million, producing an adjusted operating income margin of 28.9% for the year. Operating free cash flow decreased 19% relative to last year to $148 million due mostly lower more reported net income. The invested capital excluding the bonds which are inaccessible until the close of IronPlanet transaction increased 40 basis points to 15.5% in 2016.

Turning to our comparable results now, which we believe are a better demonstration of the health of our underlying business. As a reminder, comparable results remove the impact of nonrecurring items, acquisition related costs, debt extinguished from costs, and interest paid on the bonds currently held in escrow, excuse me, a reconciliation which can be found on slide 8. All comparable figures are considered non-GAAP measures.

Comparable diluted EPS, attributable to shareholders for 2016 was $1.24. Comparable operating income for 2016 was $176 million. Our comparable operating income margin was 31%. This translates to a 10% increase -- 10% growth in comparable EPS attributable to shareholders and a 5% increase in comparable operating income, though, a 140 point basis operation in margin.

As slide 11 demonstrates on a comparable basis, our 2016 performance was solid. The operating expenses, which consist of both SG&A and cost of services, increased at a higher rate than we would have liked. As mentioned, much of this increase was due to employee compensation related costs, including a larger employee base, new senior executive roles, and mark to market share-based payment adjustments related to the strength of our stock price during 2016.

So, how does our comparable performance compared to our Evergreen model targets? As you know, our Evergreen model is our expectation of how we believe our business will grow on an average annual basis over a 5 year to 7 year cycle. On a single year basis, that is 2016, we hit 7 of the 10 targets during 2016 but missed on GAAP growth, operating expense growth, and operating income margin improvement.

We exceeded our revenue growth target due to the strength of our revenue rate during the year, and for support of new fee-based revenue streams from business lines we acquired throughout the year or launched such as private treaty. Informally, revenue grew 10% and comparable diluted EPS grew 10% so that's 10 and 10. We also continued to be a strong cash generator and delivered adjusted operating free cash flow at 118% of adjusted net income in 2016, again reinforcing that Ritchie Bros. is a strong cash engine.

On an average basis, in the two years since we initially introduced our Evergreen model, we have met all of our targets but GAAP growth. To be quite Frank, as we grow revenue streams not associated with GAAP production, and I'm talking gross auction proceeds here, GAAP growth itself is becoming less relevant to the performance of our revenue net income and EPS. It's an important metric to track for the health of our core auction business. However, it is no longer representative of the strength of our overall quarterly or annual performance as evidenced by our fourth-quarter and 2016 full-year results.

As you see, gross auction proceeds growth fell short of our growth expectations in 2016, at just 2%, but we delivered 10% growth in both revenue and comparable EPS. As a reminder, we have provided you with the new the Evergreen model for expectations for our business performance following the acquisition of IronPlanet and the Evergreen model has been provided again in the appendix of today's presentation.

During 2016, we accomplished many milestones, key milestones. And I believe our business is in a far stronger position today to cater to a wider range of customer needs and to deliver stronger shareholder returns due to many of the initiatives and activities we under took during the year.

As I just went through, we delivered solid financial performance and met important Evergreen model targets. Much of this was driven by an improvement by underwritten revenue rate and through strong performance in Canada and Australia. Our performance and strategy throughout the year, alongside our dividend payout helped us to achieve a whopping 49.4% total shareholder return in 2016.

We spent a great deal of time and energy evaluating and negotiating our acquisition of our end product -- negotiating and announcing our acquisition of IronPlanet. A business combination we believe will be transformational for our Company and we will point out acquisition integration committees that have already built strong integration plans to help us deliver as seamless a business combination as possible, related to our acquisition of Ironplanet, we also successfully negotiated and completed an important long-term strategic alliance with Caterpillar for the combined Company. This was a significant shift from prior strategies undertaken by Ritchie Bros. and it's an indication we want to work more collaboratively with key OEMs to help meet their needs.

Under Sharon's leadership, we've already completed all financing departments to finance the acquisition of IronPlanet. This includes the refinancing of our current facility and successfully completing a $500 million bond offering, the proceeds of which are currently held in escrow until the acquisition closes. We are also quite busy building out our multi channel platform and sector coverage through acquisitions for Mascus, Protroski, and Kramer and we acquired the minority interest of Ritchie brothers financial services obtaining full ownership of this growth oriented loan origination business.

As a reminder, we do not leverage our balance sheet for loans provided to customers through our BFS. We act as a broker and intermediary, securing loans for our customers with our bank partners at competitive rates and with great speed.

We also invested in talent at the executive level as well as through our Vice President and Director levels with many important new hires and promotions. We believe these investments were required to adequately prepare our business and platform for expanding multi channel offerings.

I am particularly pleased with the meaningful progress and growth we are seeing from our private treaty offering. This sales offering provides a broker based service to privately match sellers of highly specialized, often high-value assets with qualified buyers. Not only is this channel proven successful in its own right, it's also driving business to our other channels as we approach RFPs with a true best channel for each asset approach.

And on the operational side we have made some important progress in fixing some of the pain points caused by some of the IT systems we use. Our investments in our systems and more specifically the data transfer and sharing of information between systems has provided for some new operational efficiencies and has effected in some increased CapEx spend during 2016.

On the auction site, 2016 was a banner year for our business. We held a new all-time record auctions in Denver; Columbus; and Tipton, California in the US and a new all-time record auctions in Edmonton, Grand Prairie, Lethbridge, and Toronto in Canada. We also held our largest ever under farm agriculture auction in Canada during the year in Bonaza, Alberta. The momentum of our private treaty channel delivered $46 million of GAAP during the year mostly through contracts with customers in Canada and the Middle East.

Regionally, Canada and Australia provided the most revenue growth of all the regions we operate in, increasing the proportion of revenue generated for our business in each of these countries. Canada generated 33% of our total revenue during 2016, up from 32% last year.

Our US performance was not what we had hoped to achieve. Given the significant growth opportunity we believe exists in that country. Territory manager turnover in the first half of the year, a greater mix of transportation lots, and an overall economic uncertainty due to the US election in the second half of the year contributed to the stunted growth. However, we are to take ownership that we could have executed our growth strategy better in the US during the year. As a consequence, we have made the appropriate leadership changes.

I fervently believe in the opportunity in the US and remain firmly committed to it as a top priority. We made excellent progress in strategic accounts in the US and in north-central US in 2016 with revenue growth in the high teens in both of these divisions.

We have a strong add team now in place in the US. Territory manager turnover continues to be an issue but has significantly moderated in the second half. I also brought back to sales veteran leader and visionary, Rob Vincent who is providing excellent leadership to the sales teams in the US.

Our operational metrics demonstrated strong option growth during the year. The number of industrial auction lots sold, the number of consignments, and number of auction registrants all roughly grew by 12% during 2016 and the number of registered bidders increased over 8%.

This growth led to all-time annual records for each of these metrics. But also seeing more of our customers choosing to transact on our sign up cast online bidding solutions with 53% of our equipment buyers choosing to transact online, up from 50% in 2015 and 47% in 2014. Similarly in 2016, 47% of our gross auction proceeds were transacted either through online bidding or through EquipmentOne.

As we announced early in 2016, we have made investments in our IT capabilities and digital offerings to better cater to the shift towards online bidding and mobile technologies. Specifically, we officially launched the Ritchie Bros. app in July 2016 after months of customer trial and testing. While still relatively early on, we have seen a lot of momentum and received a lot of positive feedback from this new customer app.

In just the first five months of its launch, more than 22,000 people have downloaded and used it 11,000 of which actively use it monthly. More than 10,500 bids were made using this app, which resulted in 736 winning bids representing approximately 2% of our total gross auction proceeds during the period the app was live. Until now, the app has only been available in English, but it will soon be available for our customers to use in Spanish, French, Italian, and German.

We also recently launched a new way finding app to assist our auction participants in finding specific lots in our rather large auction yards. Much like Google maps, this new tool allows auction registrants to enter a lot number and the app will guide them to its exact location. We first tested the app at our Phoenix auction in February but we're pleased to have it available at this week's Orlando auction as well.

EquipmentOne and Mascus continue to be important growth engines to help drive our multi channel sales approach. Together, they comprise our other reporting segment but it's important to know that individually, each business line generated positive EBITDA.

During 2016, EquipmentOne generated gross transaction value of $148 million and produced $16.5 million of revenue. As you know, Mascus does not transact themselves but rather generates advertising and listing revenue from private equipment sellers and during 2016, Mascus generated $7.5 million of revenue.

Ritchie Bros. financial services was one of our star business lines in 2016 with 30% revenue growth relative to 2015. Its operational stats for the years were quite impressive as trade applications of 44% and funded loans up 30% relative to 2015. We continue to see a lot of opportunity at RBFS and plan on unveiling new products to meet customer needs in the coming quarters and years.

And with that overview of our 2016 performance, I will now pass the call on to Sharon to discuss our fourth-quarter performance in detail.

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

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Thank you, and good morning everyone.

During the fourth quarter, there were several noteworthy auctions including the CAD129 million four-day auction held in Edmonton at the end of October. But it was several private treaty transactions that completed during the quarter that helped to drive the strong revenue rate. More than $38 million of assets were sold through our private treaty offering during the fourth quarter.

As we called out on our third quarter earnings call, there were some significant auction timing differences that affected our reported GAAP in both the third quarter and fourth quarter of 2016. We reported just over $1 billion of GAAP in the fourth quarter of 2016, down approximately 8% from $1.1 billion in the same quarter last year.

Much of the year-over-year decline was due to the shifting of the Montreal and Columbus auctions that took place in the fourth quarter last year, being scheduled in the third quarter of this year. Together, these two auctions accounted for $53 million of GAAP last year. If we were to move this GAAP from the fourth quarter 2015 into the third quarter of 2015, to normalize the comp, GAAP in the fourth quarter 2016 what have declined only 3.8%.

Used equipment pricing relative to the year ago quarter was the other contributing factor for the lower GAAP. As log counts did grow relative to the fourth quarter of 2015, even with your auctions held inside quarter.

Overall used equipment pricing was down approximately 5% from the pricing we saw in the year ago quarter. However, pricing was relatively stable for the third quarter to the fourth quarter in 2016.

Construction sector assets continue to meet or exceed our expectations with excavators holding about 10% more value compared to what we saw at the dip that occurred in the second quarter. Transportation assets continued to face some pricing pressure with truck tractors seeing about a 5% decline relative to the pricing in the third quarter.

And in what we believe maybe a positive indication of pricing trend reversals, mining assets experienced some stronger demand and pricing in the last several months. Better than Ritchie Bros. has seen for a couple of years now.

We have also seen a notable shift in the US to stronger pricing in our US-based auction sales post the US election results. Due to renewed optimism in infrastructure spending, that Ravi will speak to later in his closing remarks.

Log count grew 3.5% during the fourth quarter relative to Q4 2015, while there was no real meaningful change in the number of consignors, bidders, and buyers. As I said before, there were two fewer large auctions in the fourth quarter than there was in Q4 2015. So flat growth of these figures still indicates underlying growth on a normalized option calendar.

In terms of where our lot count growth came from, they were off their meaningful upticks in the number of lots we received from the equipment sales and leasing sector and rental sector, the finance and insurance sector, and from the manufacturing and light construction sector. Similar to the trends that we have seen in recent quarters, lower value lots comprised the larger portion of lots sold compared to prior fourth quarters, 56.5% of lots sold in the fourth quarter of 2016 were less than $2500 in local currency up from 53.2% in the same period a year ago.

Moving to our financial results for the quarter, revenue for the fourth quarter was $147 million representing 8% growth relative to the same quarter in 2015. This was driven by a new all-time record quarterly revenue rate of 14.11%.

SG&A expenses were $74 million, a 10% increase from the same period a year ago. $4.6 million of pretax acquisition related costs were also booked in the quarter primarily related to ongoing legal and integration planning activities for the pending acquisition of our employment.

As we communicated on our last earnings call, there was a one-time charge related to the early extinguishment of debt in the fourth quarter totaling $6.8 million. Reported fourth-quarter diluted EPS attributable to shareholders was $0.26. Removing the impact of debt extinguishment costs, diluted adjusted EPS was $0.30, and also removing the impact of acquisition related costs and interest paid on bonds held in escrow comparable diluted EPS was $0.34 for the fourth quarter. A complete reconciliation of these figures is available on slide 28 of today's presentation.

On a comparable basis, operating net income was $45 million, a 6% increase from Q4 2015 and represents a 30.8% operating income margin. Comparable EBITDA for the quarter was $58 million an 8% increase from the same quarter of 2015. In comparable diluted EPS of $0.34 was 13% higher than comparable EPS in the fourth quarter of 2015.

Even though GAAP volume declined 8%, an exceptionally strong revenue rate and contributions from fee-based revenue streams helped to drive meaningful revenue growth during the quarter. As this quarter proved, GAAP growth is becoming less correlated toward true revenue and earnings performance given the spectrum of revenue inputs now driving our results. In fact, our revenue rate was 218 basis points higher in the fourth quarter than a was in the same quarter of 2015.

The performance of our private treaty channel contribute 97 basis points of rate, fee revenue from Ritchie brothers financial services continued it 37 basis points of rate, while revenue from new fee-based revenue streams contributed 31 basis points. But just as important, our core auction business drove great rate improvement has well with auction commissions improving by 41 basis points compared to Q4 of 2015, and auction fees driving 46 basis points of rate improvement.

The proportion of underwritten business during the fourth quarter declined to 25.6% relative to 29.3% in the same quarter of 2015 and 34.6% in the fourth quarter of 2014. The underwritten business we did pursue performed exceptionally well during the quarter across many packages and many auctions. So while we are being disciplined in which underwritten contracts we are entering into, our approach is generating better results.

That said, we're still very open to doing higher volumes of underwritten business if the right economics and opportunities present themselves. As well, we are cycling over 2015's poor Q4 at risk performance, especially in Mexico, which resulted in us discontinuing underwritten contracts in that country.

On the expense side, SG&A grew 10% during the quarter, with 2% of that 10% growth due to new business lines that were not on our platform in the fourth-quarter of 2015. Removing the impact of these but new business lines expense growth within our pre-existing business lines grew 6.7% during the quarter.

Employee compensation saw the highest year-over-year growth due to an 8% increase in headcount, several new executive positions that were not on our payroll in the fourth quarter in 2015, and a separation agreement payment for an executive no longer with our Company. A $1.1 million net reduction in bonus and share-based payment expenses during the fourth-quarter was offset by a $1.3 million mark to market adjustment related to our share-based compensation and the increased value of our stock price at quarter end.

Auction timing as well as our efforts to contain costs throughout the organization helped to drive expense declines in our travel, advertising and promotion costs, which declined by approximately $250,000. Our approach and definition of acquisition related costs changed this quarter to also include the cost of deferred compensation related to earn outs for each of our acquisitions.

In 2016, the total value of these costs were $2.5 million. As a result of this change, we have reclassified these expenses that were previously presented in SG&A into acquisition related costs. For consistent modeling, we recommend analysts and investor's update your models to include this change in classification with the changes outlined on slide 34 of today's presentation, these changes are also outlined in our form 10K.

Adjusted net income attributable to stockholders for the fourth-quarter was $32.9 million, a 5% increase compared to the same period of 2015. Adding back the acquisition related and bond interest expense cost, comparable net income attributed to stockholders was $37.1 million a 16% increase relative to the same comparable results in Q4 2015.

Turning to our balance sheet and cash flow metrics, operating free cash flow at the end of 2016 was $147.8 million, or an adjusted basis 118% of net earnings, well above our Evergreen target, of greater than 100% of adjusted net income. The declined to last year's performance is due to the significant improvements and cash flow generated from working capital and 2015, when we first launched our Cash is King initiatives.

CapEx intensity or CapEx as a percentage of revenue increased to 5.3% in 2016. Mostly due to investments we're making to improve our IT infrastructure and proprietary programs. For comparable year-on-year return and leverage metrics, we have adjusted our ROIC and debt to EBITDA metrics to remove the impact of the bond that was issued at the end of 2016.

As it is capital that is in escrow and only available to the Company upon the completion of the Ironplanet acquisition. On this basis, ROIC excluding the escrow debt is 15.5%, up 40 basis points, and adjusted leverage ratio went up slightly 2.6 times adjusted EBITDA.

We successfully completed our bond operating on December 21, 2016, raising $500 million to partially fund the acquisition of Ironplanet. As mentioned, the proceeds from this offering are currently being held in escrow and can only be accessed when the transaction closes.

The bonds were issued at a 5 3/8% coupon rate and were issued at par. Interest expense associated with the bonds will be approximately $26.9 million annually and payable on January 15 and July 15 each year for the next 8 years.

Both S&P and Moody's issued ratings on our debt. S&P published the corporate rating of BB for Ritchie Bros. with a bronze rated BB minus. Moody's published a corporate family rating of BAAA for Ritchie Bros. with a bronze rating of BB.

Given our new capital structure with the issuance of bonds, our capital allocation priorities will shift slightly. We understand our dividend payments are sacred to many of our equity holders so we will continue to place our highest priority on continued dividend payments but our second priority will become paying down debt in order to get our net debt to EBITDA ratio post acquisition down to below 2.5 times as quickly as possible.

Our third priority will be pursuing opportunistic (technical difficulties) acquisitions if the right opportunities arise. Given recent acquisitions we have done to build a better platform in both US and Canada, future acquisition activity would likely focus on international markets.

Until we get our debt to EBITDA ratio in line with our targets, we do not expect to pursue share repurchases to offset dilution from management options. You will recall that share repurchases done in the first quarter of last year cost approximately $36.7 million so you should not expect a similar cash outlay to be incurred in the first quarter of 2017.

And with that overview of fourth-quarter performance and financial results, I will now pass the call back over to the Ravi

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [5]

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Thank you, Sharon. We are announcing a few operational updates today as our client in our earnings release issued this morning.

First, a few management changes will be occurring in the next several months, including the retirement of Randy Wall, our president of Canada operations. Randy is a longtime executive of Ritchie Bros. and someone who has become an amazing and good friend. He is one of the few executives who built on his past experience and remained open-minded to new ideas and embraced the vision that I've articulated it for the Company.

For example, Randy has done a tremendous job in growing our private treaty channel entire Canada. While I'm said he has decided to retire, I'm so grateful he agreed to come out of early retirement 3 1/2 years ago to help lead our Canadian group. He has been an instrumental member of our executive team and someone who has shared great insight and experiences with many of us who are new to Ritchie Bros.

Randy intends to retire during the second quarter following a smooth transition of his leadership role to a successor. We're currently considering internal candidates for Randy's succession and will provide an update on future leadership appointments for the Canadian business once a decision has been made.

Of course, I will continue to try to persuade Randy to continue to extend though I did promise him I would officially announced this on the call today. So if investors feel like calling Randy directly, you are welcome. He is an amazing executive.

I am also very pleased to announce we have provided Kyle Warner to President International beginning on April 1, 2017. Carl has done an amazing job in the Middle East, and so I'm really confident that in his new role, Carl will oversee all regions outside of North America and Latin America including having PNL responsibility.

Carl is a long-standing executive at Ritchie brothers and has spent more than 20 years with Ritchie Bros. in a variety of leadership, operational, and sales roles. Most recently, Carl was Chief Operational Support and Development Officer and Managing Rep in the Middle East. I think his experience will really add value to our international businesses.

I am also very pleased to announce that Karen Home has been promoted to senior vice president of operational excellence and efficiencies beginning April 1, 2017. In this role, Karen will be responsible for driving cost reductions through implementing global procurement and sourcing strategies delivering site efficiencies for best in class benchmarking and transferring best practices while proactively optimizing the site network focusing initially on North America. Karen has spent nearly 13 years with Ritchie Bros. in a variety of sales and marketing and leadership roles, and most recently as VP and Managing Director of Asia Pacific, Karen has done a terrific job in Australia, articulating a strategy and his leadership has helped the growth of Australia and making it a high priority country.

We are also expanding Sharon Driscoll's role to have more oversight on our financial businesses and real estate assets. In addition to her current role as CFO, she will now chair of the board of Ritchie brothers financial services and also oversee our properties team and real estate assets.

Related to real estate and auction sites, we have been busy evaluating the returns and future strategy is several of our auction sites as a result of that analysis, our preliminary analysis, we have decided to close our Beijing China and Panama auction sites. Our Beijing lease was an early termination in December 2016, and we are currently in negotiations to exit our lease in Panama.

We will maintain a strong sales presence in China and intends to continue serving customers in that country through both off-site auctions and sourcing agreement for auctions held at sites in other countries. We see opportunity in China and long-term but not through a permanent auction site.

In Panama, we will consider holding off-site auctions if and when opportunities arise. After months of evaluating go to market strategies, building strong relationships with domestic customers and OEMs, and testing different business models we have come to the conclusion that our biggest opportunity in Japan is to position it as a source market for high-quality used equipment, that can be exported throughout the Asia-Pacific region and the Middle East. We also believe the most efficient way to serve the Japanese market is primarily through digital channels, while leveraging OEM relationships. As a result of this decision, we have made the decision to exit our Narita, Japan auction site and will begin marketing the site for sale at the appropriate time to maximize value.

As you are all aware, we are awaiting the Department of Justice to complete the review, of our acquisition of Ironplanet. We're still working closely with the DOJ to make sure they have the information and materials they need in order to complete their evaluation. Our best estimate for this process to complete is during the second quarter of 2017, so we believe Ironplanet transaction is likely to close by the end of the second quarter.

We continue to be very confident about the merits of the transaction and the benefits it will bring, customers in particular, both sellers and buyers in all the countries we serve. This is a very pro-customer acquisition.

While the review process has been underway, we have been very busy planning for the eventual integration of our businesses. We have established and integration management office with members from both companies, which meet frequently to ensure integration plans are progressing appropriately.

Some key highlights for our planning include the decision to have one integrated sales force that can offer an integrated sales solution offering to customers as soon after close as possible. We are also aggressively looking at cost synergies, and ways to improve the overall efficient of our combined organization.

As we've already defined clear IT plans for day 1, day 30, day 60, day 90 following the close of the acquisition to ensure our IT priorities are clearly set. We have already confirmed that we would be fully ready to extract and share the appropriate data with Caterpillar as part of that agreement when it comes into place with the close of the acquisition of Ironplanet.

As we near the completion of our integration planning, the appropriate organizational structure for the combined business is becoming very clear. Plans for reporting structures and future executive roles are now nearly final. We will share future appointments and executive roles for the combined business once the transaction closes.

As many of you have already likely seen, historical financial information about Ironplanet's business was disclosed until the end of November coinciding with the marketing of our bonds. Information contained in that 8-K filing does provide some increased visibility into the Ironplanet business.

We know that there have been some questions about determining what adjusted EBITDA was for Ironplanet in the 12 months trailing September 2016 period. To assist you with this reconciliation, we have included a detailed table in the appendix of today's presentation. As you'll see, we would calculate adjusted EBITDA for Ironplanet during this period to be approximately $19.2 million.

While we have held many auctions so far in 2017, those that we have have demonstrated very strong results. At our Phoenix, Arizona sale on February 9, pricing ended up being significantly higher than we expected. We were also encouraged to see that 9% of GAAP sold going to Mexico-based files.

At our February 4, 2014 auction at Dunnington Park in the UK revenues grew from the comparable sale last year while we experienced relatively stable pricing relative to Q4. Had our Houston sale on February 15, we surpassed last year's comparable auction and hit $43 million in GAAP and also saw strong pricing. And this week, we are holding a huge five day auction in Orlando, Florida and we're holding the call from Orlando today from our hotel so you'll hear some of the disturbance.

Only one day of the auction has currently been completed so far but based on what we are seeing at this point, I can tell you the pricing so far based on the first day of this five day auction, has been very strong and ahead of our expectations. We have more than 10,000 lots consigned to the auction and the mix of auction lots is trending positively in terms of the quality, and low hour brand-name equipment.

We have sold $2.88 billion of assets through our Orlando sight since it was first opened and I am confident we will easily surpass $3 billion over the next several days. I look forward to updating you on the outcome of our Orlando sales when we press release these results once the action completes.

A few other first quarter 2017 considerations to help you with your modeling and expectations. We have seen some softening of equipment supplies so far in 2017 due mostly to stronger confidence and contractor pipelines in North America. However, equipment pricing so far has also been stronger than we anticipated.

Let me just amplify, as I've been meeting and talking to customers, I am impressed that many of them have a lot of jobs or in the process of bidding for them. This is not just the Trump effect. It appears that special taxes such as the gas tax recently done in Georgia or other mechanisms are being used in certain states to finally fund infrastructure projects and we are seeing some confidence and momentum with contractors beginning in 2017, this also being aided by public private partnerships.

Unfortunately, this also coupled with OEM inventory constraints which is causing both dealers and end-users to hold onto their used equipment. The corollary is the demand for used equipment is growing up there for driving up pricing.

So we think it's important to highlight to you that we do not have a large one-time auction scheduled in the first quarter of this year as we had in the last two years. As you will recall, we added a $62 million Canadian auction Grand Prairie in the first quarter last year and added a large $54 million offsite sale in Wyoming in the first quarter of 2015. So the auction calendar in the first quarter of 2017 will more closely resemble that of the first quarter of 2014.

I want to reiterate to you again that Ritchie Bros. is a lumpy business, given the opportunistic one-time auctions are regularly added to our auction calendar and these sales do cause lumpiness in our results. We strongly encourage you to review our business on an annual basis rather than monthly or quarterly when making investment decisions to smooth out auction calendar differences.

In terms of revenue rate, we are especially pleased with the rates we achieved in the fourth quarter but fully acknowledge that it was an exceptionally strong quarterly rate that was afforded both by underwritten packages and large contracts that were executed through our private treaty challenge channel so we do not believe the rate we generated in the first quarter should be used as a benchmark for future quarters. We continue to expect that our core auction business, excluding new fee-based business lines, will generate a revenue rate between 11% and 12% and we believe our total business inclusive of the new fee-based businesses will generate a revenue rate in excess of 12%. It's still a bit early for us to determine a range for the entire Company, especially when our private treaty channel is gaining momentum as contracts in this model take time to complete and the sales results of this can also be very lumpy.

On the macro side, infrastructure promises made by the new US administration is driving increased confidence and optimism in the US construction sector, which we expect will support equipment pricing but as I said earlier, lead to softer used equipment supplied. The approval of the Keystone and auto pipelines has also generated some optimism in the oil and gas services sector. This combined with the receding supply of oil and gas specific equipment hitting the market, should bode for improvement in the pricing of used oil and gas equipment.

So before we open up the line to questions, I will provide you with my priorities as CEO for 2017 that have been cascaded down in the organization. This will hopefully give you a sense of my key focus for 2017.

First, I am committed to driving out-performance to hit our stated Evergreen targets so I'm holding my team accountable to their forecasts and I am laser focused on executing our business strategies and monitoring our KPI's. And as I said earlier, on average in the two years, we have hit on our Evergreen targets except for gas.

Second, I intend on improving the overall customer experience offered through both our new multi channel offerings but also at our live auction sites where I believe innovation can help to expand our customer base, especially amongst younger demographics. Third, I am focused on driving our US growth, specifically, and working personally alongside our US sales leaders with Rob Whitsit to galvanize our US team on hitting their growth targets.

Fourth, I am reinforcing our commitment to operating as efficiently as possible and today's announced promotion of care and home as operational excellence and efficiencies demonstrates how committed I am to keep OpEx growth lower than revenue growth. We believe there are also significant cost savings we can capture by further integrating businesses we recently acquired with our existing platform. Finally, on the international growth, we see meaningful growth opportunities in many regions with Australia and Germany being key countries that have strong future growth potential.

And with that, we'd like to welcome questions from analysts and institutional investors. Given the level of participation on today's call, we would ask that you limit yourself to one question before re-queuing to provide time for others on today's call. Operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Sara O'Brien, RBC.

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Sara O'Brien, RBC Capital Markets - Analyst [2]

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Ravi, can you comment on the changes in management recently, in the US and now in Canada? And maybe what the impact is going forward -- are what you've seen so far in terms of employee response to this? And response to the IronPlanet deal?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [3]

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So, on the Canada thing, I wish Randy would stay forever. But he had retired once before and I have been so persuading. He wanted to only stay for 6 months I got him so far for 3 1/2 years. So I respect what he wants to do. He has been amazing. But one great legacy of a great leader is that he prepares successors, and we have some incredible talent in Canada. So I think Randy -- we have already been in the process of identifying both the structure and the right leader for Canada and I'm very confident that Randy's legacy will be preserved and continued, so I have no concerns about Canada.

In the US, look, sometimes I think we put the right structure. We have made some terrific hires, and sometimes you don't get the right leadership in place and we made the right decision both for the individual and for the Company. I think the team in the US is absolutely pumped up. The fact that I've brought back Rob Whitsit out of retirement, Rob is an amazing leader; he's helping me a lot with US teams, I think the US is just going to be -- the team is very excited. They have a direction; they have clarity; I am very involved with them; but Rob has been a tremendous help. I think the US will be just fine.

As far as the IronPlanet acquisition, I've got to tell you, the chemistry between our two teams is terrific. We just have to keep reminding ourselves we're still competitors and we compete in the field, but -- I have done many to many acquisition integrations. This by far is one of the very best of seen in my entire career. We are just united by a passion for the customer. They have terrific talent, we have terrific talent. I have a very clear idea. All of the organizational steps we're making are not reactive; they are very planned, very deliberate. I have had a phase 1 and phase 2. I know exactly how this is all going to come out and it's approved by the Board.

I can't tell you how excited I am about our people, our teams, and the acquisition going forward with IronPlanet. We think we have a very strong case for the DOJ and we just need to be patient and wait for the mechanisms to take their place.

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Sara O'Brien, RBC Capital Markets - Analyst [4]

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Okay, maybe just a follow-up. Is it as enthusiastic in the Canadian operations as the US in terms of the cross-selling necessities for the sales teams?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [5]

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In Canada, IronPlanet is not a significant factor today. But, having said that, Randy has been part of the team and the sales integration and so have Brian Glenn has been part of the sales integration. They are very excited because they see tremendous opportunity. The whole point about IronPlanet was not about trying to -- this is all about expanding the market. This market is $300 billion globally -- $360 billion -- our biggest competitor, frankly, is private sales. How do we stop -- we now have tools that will allow us to really -- because they are different customers with different needs, so I think it's very exciting and Randy and his team are very excited about taking IronPlanet into the fold.

Randy, do you want to say anything on that?

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Randy Wall, Ritchie Bros. Auctioneers Incorporated - President, Canada [6]

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I would sure would, Ravi. Thank you.

I totally concur with what you just said. We see the addition of the IronPlanet and the different solutions we can bring from their channels to our customer base and really expand the entire offering that we have to the customers at large. And gaining market share, if you will, from other channels, private dealers and private sales. And the team is very excited to have the extra tools at their disposal, and we see this as a wonderful positive for both organizations and groups.

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Sara O'Brien, RBC Capital Markets - Analyst [7]

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Okay, thank you.

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Operator [8]

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Scott Schneeberger, Oppenheimer.

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

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Let's try the next caller.

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Operator [10]

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Joe Box, KeyBanc Capital Markets.

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Joe Box, KeyBanc Capital Markets - Analyst [11]

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So, given the importance of the sales force, can you guys talk about why you decided to modify your strategy to now have a fully integrated sales force between Ritchie and IronPlanet? And maybe just how you see the consolidated sales department selling the various channels?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [12]

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Let me kick it off and then I will have Rob also comment on it.

First, you said, modified our sales strategy; it's not a modification. We have just articulated -- now, this was for me, from the day we did the acquisition, this was very clear; because the acquisition represents really having multi channel offerings to provide a full set of solutions to customers based on their usage occasions, based on the type of customer, based on the psyche. So truly, this is about expanding what we can do. And really, for those customers who want a reserved option, you have both EquipmentOne and IronPlanet Daily Marketplace, and those two brands will likely come together.

Then you've got -- if you don't want to move the equipment, but want flow business, which is every week, the weekly unreserved auction from IronPlanet is great. And then, when you want an event-driven live auction, which is unreserved, then we've got Ritchie Brothers, traditional RBA. I think you've got three; and we want our salespeople to really be trusted advisors who will provide the optimum solution. So that is the whole intent here, and that's why we're doing integrated sales force. And clearly, they will be trained on each other's models, but we think there's not a single person in my management team who thought we should do it differently.

Rob, do have anything you want to comment?

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Rob Whitsit, Ritchie Bros. Auctioneers Incorporated - Senior Advisor to the CEO and Chief Sales Officer in the US [13]

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No, I think that's absolutely right, Ravi; and it's exciting to see the enthusiasm from both sides, and are anxious to get together and perform as one team. That's the selling solution we have, is performing as one team and adding on. It's not an acquisition to get rid of; it's an acquisition to increase our footprint in the marketplace today. That's what our intention is, and that's what's driving the business.

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Joe Box, KeyBanc Capital Markets - Analyst [14]

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Got it.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [15]

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They don't want multiple salespeople calling on them, Joe. They want one face of Ritchie Bros.

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Joe Box, KeyBanc Capital Markets - Analyst [16]

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I agree. I will leave it at that. Thanks, guys.

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Randy Wall, Ritchie Bros. Auctioneers Incorporated - President, Canada [17]

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Thank you.

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Operator [18]

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Ben Cherniavsky, Raymond James.

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Ben Cherniavsky, Raymond James & Associates, Inc. - Analyst [19]

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Just on the IronPlanet performance, in the customer equity incentives you guys have eliminated those numbers in the performance statements. And I'm just curious if you can speak to -- I mean, I understand that you would stop offering those incentives, but weren't those incentives linked to equipment that was coming into the yard? And so does it affect your ability to still attract iron? And maybe could you elaborate a little bit on how those incentives work?

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

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This is Sharon.

I think it's important to note that the reason those equity incentives were there were results of an agreement on the purchase of Cat Auction Services. So it was seen more as an earn-out program for dealers. The reason it gets the presentation on the financials that it does is, it was a program that was extended to all dealers, not just the dealers that had an ownership position in Cat Auction Services. That agreement also naturally expired at the end of December 2016.

So certainly we did look at that particular element when we were in due diligence, and we were satisfied that it had more to do with the acquisition of the company as opposed to driving the behavior. Certainly the value that, I think, the Cat dealers really get is the information and the data from IronPlanet, and that's really what was driving the results. And so that's why it has been eliminated.

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Ben Cherniavsky, Raymond James & Associates, Inc. - Analyst [21]

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So you expect the revenue to continue because of the data you are offering? (Inaudible)

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Sharon Driscoll, Ritchie Bros. Auctioneers Incorporated - CFO [22]

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Yes, it was a non-cash; they were just getting more shares in IronPlanet.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [23]

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I think they had made that decision to eliminate that incentive even before we came into the picture. And we're pretty confident, really, as I have renegotiated the whole agreement for the combined Company with Cat dealers, that there are a lot of things in the agreement that make this alliance work, and part of it is data sharing, part of it is telematics. We get different things from them. So I think this is going to be very attractive, and so we didn't see any need, since they had already make the decision. And even if they had not, I don't know that we would have continued it anyway. But I think that they had made it, so we don't see that as an issue going forward.

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Ben Cherniavsky, Raymond James & Associates, Inc. - Analyst [24]

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Okay, thanks very much. That's my question.

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Operator [25]

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(Operator Instructions)

Scott Schneeberger, Oppenheimer.

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Scott Schneeberger, Oppenheimer & Co. - Analyst [26]

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Can you hear me this time?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [27]

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Yes, Scott.

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Scott Schneeberger, Oppenheimer & Co. - Analyst [28]

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Sorry about that last time. Technical difficulty.

Ravi, question about outside of the Americas, the international strategy: obviously, some things going on by China, Japan; and then I saw that you are looking to bolster Germany and Australia. Just how are you thinking about outside the Americas, the international development? Thank you.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [29]

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So Scott, just to clarify: you want me to amplify more on the international?

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Scott Schneeberger, Oppenheimer & Co. - Analyst [30]

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That's right.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [31]

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Okay. I think, I am pretty familiar, as you know, with the international markets, having lived in 6 countries and work in about 50. So the big thing for me for international business is not to go on the map sort of thing, with a lot of breadth; it's the depth that is quite important. As we have looked at it, Europe has been in the doldrums for the last several years because it's been very supply-constrained. We've got a terrific team there on the (Inaudible) there, so the key is, how do we crack the code? And when Kieran was in Asia, I think we looked at Japan and, I think I've said this before, I'm not sure really Japan is not a place where -- the Japanese are not big on using secondhand cars or used equipment. They are more exporters, so they've got great OEMs. So we came to the conclusion it's really best sold as a source market as well as digital channels were better. In retrospect, maybe we should never have put the site their but that's neither here nor there. We have come to a view that, over time, we're going to exit the site once we get the right value for it.

So as we have been going trough this process, China again: I think it's a long-term thing. You really have to say where are we -- where can we really drive revenues and profits? For me, Australia, and Kieran did some great work here, and I have spent a lot of time in Australia in my career. Australia is a lot like Canada, a lot of natural resources, [home of mining], so we have been doing some private equity deals, plus our private treaty deals. And so I think Australia has a lot more potential and we have built the unreserved model, but there are a lot of other models you can build. So we actually said, hey, get some of the resources -- we had probably too many resources in China, so we started diverting some of that to Australia and building depth. So I'm a big believer in drive depth, have a few key drive countries, [clearly] US and Canada does, and then, to me, Australia, with down the road it should start resembling Canadian performance over the next 10 years or so. There is a lot of potential. And we have got the right foundation in Australia to do it.

Germany, on the other hand, is a huge market. We have just not cracked the code. Because our unreserved auction model does not fit with the cultural mores and the temperament of the German customer. And to me, IronPlanet acquisition will be a great sell-up for us as we enter that so we really need to put some focus on that country, because long-term, that can be great. It's big in construction, big in transportation, et cetera. Clearly, we have got a good foundation in the UK. We will continue to build that. We've got a good agricultural foundation in farms. We will build that. We're very strong in southern Italy, but those economies of Spain and Italy are right now really problematic, so we've got to really say where is this going to come from?

To me, it's also interesting what Karl has done in the Middle East. Very interesting. We are just doing a thing called three-in-one, which is private treaty, EquipmentOne, and live auction in the Middle East. I think that is also beginning to get us more GAAP and bringing some business.

I think international is going to be exciting. My first focus was getting US and Canada going, and now I think is the appropriate time, hence the appointment of Karl as President of International.

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Scott Schneeberger, Oppenheimer & Co. - Analyst [32]

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Sounds good, thanks. I will pass it along.

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Operator [33]

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Sara O'Brien, RBC.

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Sara O'Brien, RBC Capital Markets - Analyst [34]

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Just wanted to ask about the Shell agreement that was signed last week and how material that can be. Maybe if you can comment on other such types deals that might be in the pipeline?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [35]

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I'll have Randy first comment on the Shell deal, and then Jim Barr more about our whole ESS strategy on EquipmentOne, because they are linked.

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Randy Wall, Ritchie Bros. Auctioneers Incorporated - President, Canada [36]

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Thank you, Ravi.

The Shell is a great example of using the multiplatform solutions that we have for larger organizations. And we're developing an enterprise solution that first provides the platform for shelter redeploy within their own divisions globally. And failing that, to go to the external marketplace. And they want a simple solution that can handle all those things, and our products can do that. So we were already doing business with Shell, even before that transaction, both on private treaty as well as live auction and E-one. And that will expand and focus on the enterprise or online solution.

So it's in the $10 millions a year, and could be much larger than that. But it all depends on realization; and in many cases, the assets are in challenged locations globally around the world. So we are being cautious in terms of our expectations. But it could also be a proving ground for us to be able to service the energy sector in a much larger way with these super-nationals. So we believe the upside can be fairly significant, Sara, but we are learning as we go in the beginning end here, and building a platform that really works to service their needs. And as we said, we've already been doing business with them to date, using our other channels without the special solution crafted just for them.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [37]

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And I would just be careful about taking any numbers and putting that in the model. This is really more indicative of the strategy, because we talked about asset management and disposition; this covers really as much asset management side. And again, these things are lumpy; you never know when they will come. And these are all the innovative things we're doing as a Company, and it shows the change, the sea change that has occurred. We keep bleating about multi channel, but this is the manifestation of, what does that really mean?

Jim, do you want to add some color?

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Jim Barr, Ritchie Bros. Auctioneers Incorporated - Group President [38]

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I think it's been spoken about correctly so far. Really what we're looking for is to really take another step in being trusted advisors to our customers and give them more alternatives. This one is very much in an asset management model, where we get it could look at our customer's overall asset portfolio and that puts us in a position to help with being a trusted advisor, helping them determine the best ways to dispose of equipment, the best time to dispose of equipment, the best channels to dispose of equipment. It's part of our overall strategy.

We do it for companies like Shell, but we've also done it for dealers as well. Dealer and OEM networks, where we are able to get into the asset stream of dealer-to-dealer transfers, which is another part of the $360 billion industry we are after, and a set of our revenue stream and assistance to customers that have not been able to do before. So we're getting deeper into our customers in order to give them more options and to help them do more parts of their business. And obviously that gives us great visibility into other ways we can help them.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [39]

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It's at the heart of strategic account customers. Some of these may be big on GAAP but may actually, with the dealer side, may be very small margins. But the important thing is, once you get in, you are really becoming part of the fabric, and so when the need arises for auctions or EquipmentOne or whatever, then you become preferred in their mindset.

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Sara O'Brien, RBC Capital Markets - Analyst [40]

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Okay, so it is a graduated approach to commission versus just a fee-based deal with the customer?

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [41]

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It varies, right? The Shell thing is on a whole different platform versus what we do with dealers. We don't comment specifically on how we do these. I think the important thing to look at is, with the multi channel offering, we are really becoming closer to our customers and offering them a variety of solutions which, over time, should help us -- What I am trying to do, the vision is, how do we create models which are a little bit more predictable and add, in addition to our lumpy businesses.

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Sara O'Brien, RBC Capital Markets - Analyst [42]

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Okay. Thank you.

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Operator [43]

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There are no further questions at this time. Mr. Saligram, I'll turn the call back over to you.

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Ravi Saligram, Ritchie Bros. Auctioneers Incorporated - CEO [44]

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Great. Well, I think I'm very proud of what the team accomplished in 2016 and we look forward to 2017 and thank you all, investors, for your support. Onwards and upwards.

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Operator [45]

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