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Ritchie Bros. reports first quarter 2019 results

VANCOUVER, May 9, 2019 /PRNewswire/ - Ritchie Bros. Auctioneers Incorporated (NYSE & TSX: RBA, the "Company" or "Ritchie Bros.") reported the following results for the three months ended March 31, 2019:

 (All figures are presented in U.S. dollars)

Net income attributable to stockholders increased 6% to $18.2 million compared to $17.1 million in Q1 2018. Diluted earnings per share ("EPS") attributable to stockholders increased 6% to $0.17 per share in Q1 2019 compared to $0.16 per share in Q1 2018.

Consolidated results:

  • Total revenue increased 17% to $303.4 million in Q1 2019 compared to $260.2 million in Q1 2018
  • Selling, general and administrative expenses ("SG&A") decreased 2% to $95.2 million in Q1 2019, compared to $97.5 million in Q1 2018
  • Operating income increased 2% to $33.6 million in Q1 2019 compared to $32.9 million in Q1 2018
  • Cash provided by operating activities was $71.9 million for the three-month period ended March 31, 2019


Auctions & Marketplaces ("A&M") segment results:

  • GTV1 of $1.2 billion increased 1% from Q1 2018. Excluding the impact of foreign exchange, GTV increased 3% from Q1 2018
  • A&M total revenue of $274.5 million increased 18% from $232.6 in Q1 2018


Other Services segment results:

  • Other Services total revenue of $28.9 million increased by 5% from $27.6 million in Q1 2018
  • Ritchie Bros. Financial Services ("RBFS") revenue of $6.3 million increased 32% from $4.7 million in Q1 2018


"We were encouraged by solid GTV growth in the US as a result of new customer acquisition in Strategic Accounts, 9% online GTV growth globally as Marketplace-E continued to build momentum, and a 32% revenue increase for RBFS in the quarter which was its 28th consecutive quarter of double-digit growth. We also achieved excellent operational metrics including 6 million unique visitors to our websites, up 17% versus prior year enhancing our network effects". said Ravi Saligram, Chief Executive Officer, Ritchie Bros.

Saligram continued, "We delivered 3% Total Company GTV growth on a constant currency basis, with Total Revenues up 17% driven by a higher mix of inventory sales revenue and delivered 6% earnings per share growth. An inflection in pricing in certain asset classes unfavorably affected underwritten business performance at our Orlando and Moerdijk auctions but we are confident of returning to normal At-Risk rates as we go forward. We were pleased to improve our operating cash flow and continue to be disciplined on cost control allowing us to continue to pay down debt to achieve an adjusted net debt to adjusted EBITDA ratio* of 1.7 times."

Saligram concluded, "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 high demand environment for equipment with high utilization rates, a reflection of the resurgent US economy. We remain positive about delivering strong earnings growth in the remainder of 2019."

_________________________

1

Gross Transaction Value ("GTV") represents total proceeds from all items sold at the Company's live on site auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in the Company's consolidated financial statements.


The Company presents both GAAP and non-GAAP measures to provide investors with additional information. Providing these non-GAAP measures along with GAAP measures allows for increased comparability of our ongoing performance from period to period. Non-GAAP financial measures referred to in this news release are labeled as "non-GAAP measure" or designated as such with an asterisk (*). Please see page 9-10 for explanations of why the Company uses these non-GAAP measures and, if applicable, the reconciliation to the most comparable GAAP financial measures.



Financial Overview
(Unaudited)


















Three months ended March 31,








% Change


(in U.S. $000's, except EPS)

2019

2018


2019 over
2018


Service revenue:








Commissions

$

92,280

$

101,294


(9%)


Fees


80,092


74,722


7%


Total service revenue


172,372


176,016


(2%)


Inventory sales revenue


131,057


84,162


56%


Total revenue


303,429


260,178


17%


Service revenue as a % of total revenue


56.8%


67.7%


-1090 bps


Inventory sales revenue as a % of total revenue


43.2%


32.3%


1090 bps


Costs of services


36,069


36,657


(2%)


Cost of inventory sold


120,475


75,791


59%


Selling, general and administrative expenses


95,184


97,470


(2%)


Operating expenses


269,841


227,305


19%


Cost of inventory sold as a % of operating expenses


44.6%


33.3%


1130 bps


Operating income


33,588


32,873


2%


Operating income margin


11.1%


12.6%


-150 bps


Net income attributable to stockholders


18,164


17,138


6%


Diluted earnings per share attributable to stockholders

$

0.17

$

0.16


6%


Diluted adjusted EPS attributable to stockholders (non-GAAP measure)

$

0.17

$

0.16


6%


Effective tax rate


26.8%


23.4%


340 bps










Total GTV


1,174,681


1,160,712


1%


Service revenue as a % of total GTV- Rate


14.7%


15.2%


-50 bps


Inventory sales revenue as a % of total GTV- Mix


11.2%


7.3%


390 bps












Segment Overview















(in U.S $000's)

Three months ended March 31, 2019


A&M


Other


Consolidated

Service revenue

$

143,437

$

28,935

$

172,372

Inventory sales revenue


131,057


-


131,057

Total revenue


274,494


28,935


303,429

Ancillary and logistical service expenses


-


13,759


13,759

Other costs of services


20,817


1,493


22,310

Cost of inventory sold


120,475


-


120,475

SG&A expenses


89,182


6,002


95,184

Segment profit

$

44,020

$

7,681

$

51,701

Total GTV


1,174,681





A&M service revenue as a % of total GTV- Rate


12.2%












(in U.S $000's)

Three months ended March 31, 2018


A&M


Other


Consolidated

Service revenue

$

148,405

$

27,611

$

176,016

Inventory sales revenue


84,162


-


84,162

Total revenue


232,567


27,611


260,178

Ancillary and logistical service expenses


-


14,580


14,580

Other costs of services


21,448


629


22,077

Cost of inventory sold


75,791


-


75,791

SG&A expenses


93,002


4,468


97,470

Segment profit

$

42,326

$

7,934

$

50,260

Total GTV


1,160,712





A&M service revenue as a % of total GTV- Rate


12.8%












 

Consolidated Performance Overview

GTV increased 1% to $1.2 billion; excluding the impact of foreign exchange, GTV increased 3%. GTV from live on site auctions was flat partly due to the Q1 2018 Grande Prairie auction of $37 million that did not repeat in Q1 2019, offset by growth in live on site auctions in the US and Europe.  Online marketplaces GTV posted consecutive quarter growth delivering a 9% increase in the first quarter.

Total revenue increased 17% to $303.4 million primarily due to a 56% increase in inventory sales revenue, partially offset by a 2% decrease in service revenue.

Inventory sales revenue increased 56% primarily due to an increase in volume of inventory sales contracts in the US and Europe. 

The decline in service revenue resulted from a 9% decrease in commissions revenue offset by a 7% increase in fees. Lower commissions were attributable to lower price realization on guarantee contracts as well as a decrease in the volume of straight commission contracts. The lower rates earned from guarantee contracts were partially due to softer price performance on specific assets in greater supply at the 2019 Orlando auction. Fee revenue increased 7% due to moderately higher GTV volume with an increased proportion of low value lots, online inspection fees and fees earned from RBFS.

Foreign exchange had an unfavourable impact on total revenue in Q1 2019 due to fluctuations in the Euro and Canadian exchange rate relative to the U.S. dollar.

Costs of services decreased 2% to $36.1 million compared to $36.7 million in Q1 2018 which was in-line with the change in GTV.

Cost of inventory sold increased 59% to $120.5 million, in line with higher activity in inventory sales revenue. A contributing factor to the higher cost of inventory sold in the quarter resulted from discrete lower price performance on certain categories of equipment which was in greater supply at the February 2019 Orlando auction.

Selling, general and administrative ("SG&A") expenses decreased 2% to $95.2 million compared to $97.5 million in Q1 2018. The decrease was primarily due to higher share unit expenses in Q1 2018 related to mark-to-market costs driven by growth in the share price and incremental compensation cost resulting from the modification of certain performance factors. The decrease was partially offset by on-going incremental costs related to the GovPlanet non-rolling stock program, and growth of RBFS.

Foreign exchange rates had a favourable impact on SG&A expenses in the quarter primarily due to fluctuations of the Euro and Canadian dollar exchange rate relative to the U.S. dollar.

Net income attributable to stockholders increased $1.0 million, or 6%, from $17.1 million in Q1 2018 due to higher operating income coupled with lower net interest expenses. This increase was partially offset by an increase in the effective tax rate.

Primarily for the same reasons noted above, diluted EPS attributable to stockholders improved 6% to $0.17 in Q1 2019 compared to $0.16 in Q1 2018.

New Accounting Standard

The Company adopted the new accounting standard related to lease accounting effective January 1, 2019. Prior periods presented here have not been restated as the Company adopted the new standard utilizing the "optional transition method," which permits the Company to apply the new lease standard at the adoption date.

Dividend Information
Quarterly dividend
The Company declared on May 8, 2019, a quarterly cash dividend of $0.18 per common share payable on June 19, 2019 to shareholders of record on May 29, 2019.

Share repurchase program
On May 8, 2019, the Company's board of directors authorized a share repurchase program for the repurchase of up to $100 million worth of common shares of the Company (subject to TSX approval) over the next 12 months. The share repurchases will primarily be used to offset dilution from options. The Company intends to make an application to the TSX for approval of a Normal Course Issuer Bid in May 2019.

Q1 2019 Earnings Conference Call
Ritchie Bros. is hosting a conference call to discuss its financial results for the quarter ended March 31, 2019, at 7am Pacific time / 10 am Eastern time / 3pm GMT on May 10, 2019.  The replay of the webcast will be available through June 10, 2019.

Conference call and webcast details are available at the following link:https://investor.ritchiebros.com

About Ritchie Bros.
Established in 1958, Ritchie Bros. (NYSE and TSX: RBA) is a global asset management and disposition company, offering customers end-to-end solutions for buying and selling used heavy equipment, trucks and other assets. Operating in a number of sectors, including construction, transportation, agriculture, energy, oil and gas, mining, and forestry, the company's selling channels include: Ritchie Bros. Auctioneers, the world's largest industrial auctioneer offers live auction events with online bidding; IronPlanet, an online marketplace with featured weekly auctions and providing the exclusive IronClad Assurance® equipment condition certification; Marketplace-E, a controlled marketplace offering multiple price and timing options; Mascus, a leading European online equipment listing service; and Ritchie Bros. Private Treaty, offering privately negotiated sales. The company's suite of multichannel sales solutions also includes RB Asset Solutions, a complete end-to-end asset management and disposition system. Ritchie Bros. also offers sector-specific solutions including GovPlanet, TruckPlanet, and Kruse Energy Auctioneers, plus equipment financing and leasing through Ritchie Bros. Financial Services. For more information about Ritchie Bros., visit RitchieBros.com.

Forward-looking Statements
This news release contains forward-looking statements and forward-looking information within the meaning of applicable U.S. and Canadian securities legislation (collectively, "forward-looking statements"), including, in particular, statements regarding future financial and operational results, including growth prospects and payment of dividends. Forward-looking statements are statements that are not historical facts and are generally, although not always, identified by words such as "expect", "plan", "anticipate", "project", "target", "potential", "schedule", "forecast", "budget", "estimate", "intend" or "believe" and similar expressions or their negative connotations, or statements that events or conditions "will", "would", "may", "could", "should" or "might" occur. All such forward-looking statements are based on the opinions and estimates of management as of the date such statements are made. Forward-looking statements necessarily involve assumptions, risks and uncertainties, certain of which are beyond the Company's control, including the numerous factors that influence the supply of and demand for used equipment; economic and other conditions in local, regional and global sectors; the Company's ability to successfully integrate IronPlanet, and to receive the anticipated benefits of the Acquisition; and the risks and uncertainties set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2018, which is available on the SEC, SEDAR, and Company websites. The foregoing list is not exhaustive of the factors that may affect the Company's forward-looking statements. There can be no assurance that forward-looking statements will prove to be accurate, and actual results may differ materially from those expressed in, or implied by, these forward-looking statements. Forward looking statements are made as of the date of this news release and the Company does not undertake any obligation to update the information contained herein unless required by applicable securities legislation. For the reasons set forth above, you should not place undue reliance on forward looking statements

 

GTV and Selected Condensed Consolidated Financial Information

GTV and Condensed Consolidated Income Statements – First Quarter
(Expressed in thousands of United States dollars, except share and per share amounts)
(Unaudited)













Three months ended March 31,


2019



2018

GTV

$

1,174,681


$

1,160,712

Revenue:






Service revenue

$

172,372


$

176,016

Inventory sales revenue


131,057



84,162

Total revenue


303,429



260,178

Operating expenses:






Costs of services


36,069



36,657

Cost of inventory sold


120,475



75,791

Selling, general and administrative expenses


95,184



97,470

Acquisition-related costs


669



1,633

Depreciation and amortization expenses


17,115



16,191

Gain on disposition of property, plant and equipment


(149)



(345)

Foreign exchange loss (gain)


478



(92)

Total operating expenses


269,841



227,305

Operating income


33,588



32,873

Interest expense


(10,816)



(11,310)

Other, net


2,039



913

Income before income taxes


24,811



22,476

Income tax expense


6,639



5,269

Net income

$

18,172


$

17,207

Net income attributable to:






Stockholders


18,164



17,138

Non-controlling interests


8



69


$

18,172


$

17,207

Earnings per share attributable






to stockholders:






Basic

$

0.17


$

0.16

Diluted

$

0.17


$

0.16

Weighted average number of share outstanding:






Basic


108,765,489



107,355,381

Diluted


110,044,213



108,643,897

 

Condensed Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share data)
(Unaudited)














March 31,


December 31,


2019


2018

Assets












Cash and cash equivalents

$

266,491


$

237,744

Restricted cash


56,743



67,823

Trade and other receivables


220,452



129,257

Inventory


75,529



113,294

Other current assets


66,553



49,055

Income taxes receivable


7,823



6,365

Total current assets


693,591



603,538







Property, plant and equipment


469,068



486,599

Other non-current assets


127,079



29,395

Intangible assets


241,968



245,622

Goodwill


671,797



671,594

Deferred tax assets


16,159



15,648

Total assets

$

2,219,662


$

2,052,396







Liabilities and Equity












Auction proceeds payable

$

322,358


$

203,503

Trade and other payables


181,015



201,255

Income taxes payable


3,838



2,312

Short-term debt


8,687



19,896

Current portion of long-term debt


15,648



13,126

Total current liabilities


531,546



440,092







Long-term debt


687,689



698,172

Other non-current liabilities


129,205



41,980

Deferred tax liabilities


37,109



35,519

Total liabilities


1,385,549



1,215,763







Commitments






Contingencies






Contingently redeemable performance






share units


984



923

Stockholders' equity:






Share capital:






Common stock; no par value, unlimited shares






authorized, issued and outstanding shares:






108,958,906 (December 31, 2018: 108,682,030)


189,297



181,780

Additional paid-in capital


50,054



56,885

Retained earnings


646,614



648,255

Accumulated other comprehensive loss


(57,899)



(56,277)

Stockholders' equity


828,066



830,643

Non-controlling interest


5,063



5,067

Total stockholders' equity


833,129



835,710

Total liabilities and equity

$

2,219,662


$

2,052,396

 

Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
(Unaudited)













Three months ended March 31,

2019



2018

Cash provided by (used in):






Operating activities:






Net income

$

18,172


$

17,207

Adjustments for items not affecting cash:






Depreciation and amortization expenses


17,115



16,191

Stock option compensation expense


1,539



2,343

Equity-classified PSU expense


2,368



3,035

Deferred income tax expense


1,057



1,265

Unrealized foreign exchange (gain) loss


(48)



263

Gain on disposition of property, plant and equipment


(149)



(345)

Amortization of debt issuance costs


934



1,066

Other, net


3,510



948

Net changes in operating assets and liabilities


27,405



25,265

Net cash provided by operating activities


71,903



67,238

Investing activities:






Property, plant and equipment additions


(2,801)



(2,564)

Intangible asset additions


(5,625)



(7,034)

Proceeds on disposition of property, plant and equipment


262



1,066

Other, net


-



(4,674)

Net cash used in investing activities


(8,164)



(13,206)

Financing activities:






Dividends paid to stockholders


(19,568)



(18,245)

Issuances of share capital


1,628



4,313

Payment of withholding taxes on issuance of shares


(2,047)



-

Proceeds from short-term debt


6,741



308

Repayment of short-term debt


(17,946)



(1,754)

Repayment of long-term debt


(12,235)



(29,237)

Repayment of finance lease obligations


(1,269)



(802)

Net cash used in financing activities


(44,696)



(45,417)

Effect of changes in foreign currency rates on






cash, cash equivalents, and restricted cash


(1,376)



1,627

Increase


17,667



10,242

Beginning of period


305,567



331,116

Cash, cash equivalents, and restricted cash, end of period

$

323,234


$

341,358

 

Selected Data
(Unaudited)

Industrial live on site auction metrics




















Three months ended March 31,









% Change



2019



2018



2019 over 2018

Number of consignments at industrial auctions


11,550



10,750



7%

Number of bidder registrations at industrial auctions


143,000



119,000



20%

Number of buyers at industrial auctions


30,750



29,000



6%

Number of lots at industrial auctions


86,250



81,000



6%










 

Non-GAAP Measures
This news release references a non-GAAP measure. Non-GAAP measures do not have a standardized meaning and are, therefore, unlikely to be comparable to similar measures presented by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles.

The non-GAAP measure diluted adjusted EPS attributable to stockholders* eliminates the financial impact of adjusting items which are after-tax effects of significant non-recurring items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, and certain other items, which we refer to as 'adjusting items'.  

There were no adjusting items in Q1 2019 or in the comparative prior period, and, accordingly, diluted adjusted EPS attributable to stockholders* was equal to diluted EPS attributable to stockholders, the most comparable GAAP measure in our consolidated income statements, for Q1 2019.

Adjusted EBITDA* and Adjusted Net Debt/Adjusted EBITDA* Reconciliation
The Company believe that comparing adjusted net debt/adjusted EBITDA* on a trailing 12-month basis for different financial periods provides useful information about the performance of our operations as an indicator of the amount of time it would take the Company to settle both the short and long-term debt. The Company does not consider this to be a measure of liquidity, which is the ability to settle only short-term obligations, but rather a measure of how well we fund liquidity.

The following table reconciles adjusted EBITDA* and adjusted net debt*/adjusted EBITDA* to debt, cash and cash equivalents, net income, and debt as a multiple of net income, which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements.

















(in U.S. $ millions)

As at and for the 12 months ended March 31,








% Change



2019

2018


2019 over 2018


Short-term debt

$

8.7

$

5.9


47%


Long-term debt


703.3


780.3


-10%


Debt


712.0


786.2


-9%


Less: cash and cash equivalents


(266.5)


(278.9)


-4%


Adjusted net debt*


445.5


507.3


-12%


Net income

$

122.5

$

82.1


49%


Add: depreciation and amortization expenses


67.5


58.6


15%


Add: interest expense


44.0


41.5


6%


Less: interest income


(3.4)


(2.6)


31%


Add: income tax expense


32.4


-


100%


Pre-tax adjusting items:








Accelerated vesting of assumed options


-


4.8


-100%


Acquisition and finance structure advisory


-


9.1


-100%


Severance and retention


1.5


3.6


-58%


Gain on sale of equity accounted for investment


(4.9)


-


100%


Impairment loss


-


8.9


-100%


Adjusted EBITDA*

$

259.6

$

206.0


26%


Debt/net income


5.8x


9.6x


(40%)


Adjusted net debt*/adjusted EBITDA*


1.7x


2.5x


(32%)










(1)

Please refer to page 10 for a summary of adjusting items during the trailing 12-months ended March 31, 2019 and March 31, 2018.

(2)

Adjusted EBITDA* is calculated by adding back depreciation and amortization expenses, interest expense, and income tax expense, and subtracting interest income from net income excluding the pre-tax effects of adjusting items.

(3)

Adjusted net debt* is calculated by subtracting cash and cash equivalents from short and long-term debt.

(4)

Adjusted net debt*/adjusted EBITDA* is calculated by dividing adjusted net debt* by adjusted EBITDA*.


 

Adjusting items during the trailing 12-months ended March 31, 2019 were:

Recognized in the first quarter of 2019

  • There were no adjustment items recognized in the first quarter of 2019.


Recognized in the fourth quarter of 2018

  • There were no adjustment items recognized in the fourth quarter of 2018.


Recognized in the third quarter of 2018

  • $1.5 million ($1.1 million after tax, or $0.01 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $4.9 million ($4.9 million after tax, or $0.04 per diluted share) due to gain on sale of an equity accounted for investment.


Recognized in the second quarter of 2018

  • There were no adjustment items recognized in the second quarter of 2018.


Adjusting items during the trailing 12-months ended March 31, 2018 were:


Recognized in the first quarter of 2018

  • There were no adjustment items recognized in the first quarter of 2018.


Recognized in the fourth quarter of 2017

  • $2.2 million ($1.6 million after tax, or $0.02 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $10.1 million (or $0.10 per diluted share) benefit on remeasurement of deferred taxes due to the Tax Cuts and Jobs Act.


Recognized in the third quarter of 2017

  • There were no adjustment items recognized in the third quarter of 2017.


Recognized in the second quarter of 2017

  • $4.8 million ($4.8 million after tax, or $0.04 per diluted share) of stock option compensation expense related to the accelerated vesting of certain IronPlanet stock options assumed as part of the Acquisition;
  • $9.1 million ($6.6 million after tax, or $0.06 per diluted share) of acquisition and finance structure advisory costs;
  • $1.4 million ($0.9 million after tax, or $0.01 per diluted share) of severance and retention costs in a corporate reorganization that followed the Acquisition;
  • $8.9 million ($6.6 million after tax, or $0.06 per diluted share) impairment loss recognized on various technology assets.



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