Ritchie Bros. Auctioneers Incorporated (RBA) on Q1 2021 Results - Earnings Call Transcript
Operator: Good morning. My name is Mike and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers Inc’s. First Quarter Conference Call. All lines have been placed on mute for any background noise. After the speakers remarks, there'll be a question-and-answer session. . Thank you. I will now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.
Sameer Rathod: Hello and good morning. And thank you for joining us for today's call to discuss our first quarter 2021 results. Joining me today are Ann Fandozzi our Chief Executive Officer and Sharon Driscoll our Chief Financial Officer along with other members of the management team, who will be available for the Q&A portion of this call.
Ann Fandozzi: Thank you, Sameer, and good morning to everyone joining our call today. I would like to start the call by thanking and congratulating all our team members. It has been a difficult 12 months, and our team continues to focus on the needs of our customers with an unwavering commitment to health and safety. We continue to see the environment as dynamic. And despite the continued uncertainty our omni-channel platform continues to deliver strong outcomes for our customers and robust financial results for shareholders. GTV increased 11%, service revenue increased 13% and adjusted operating income increased 31%. These numbers underscore the leverage in our model and Sharon will walk you through the numbers shortly. Let me talk a little bit about how the quarter progressed. When you last heard from us in February, we indicated we were seeing uncertainty in the environment. Our published results for our Orlando auction clearly showed consigners were taking a wait and see approach. In response to constrained supply, conventional wisdom would have been to save costs and pull back on marketing. Instead, we've doubled down and our commitment to drive the very best outcome for our customers. And by increasing demand to higher levels of marketing spend. For our buyers, we continue to upgrade our digital experience. And for our sellers we continue to improve our digital marketing techniques and bundle regional events to bolster demand and drive used equipment pricing. Our auctions led to Orlando and Houston seeing strong improvements in pricing of used equipment compared to last year. And we leverage this strong pricing as a rallying for our sales organizations to help consigners gain confidence. We are very happy with the first quarter. However, I want to note that year-over-year comparisons will become less meaningful as we get later into this year as COVID heavily distorted our typical seasonality in 2020.
, : The customer remains the core to everything we do and we are executing in areas that are in our control. Our digital marketing team continues to deliver demand for our global buyer base with a 42% increase in bids per lot sold. We believe this demand generation is helping to drive increases of used equipment pricing. We also continue to drive strong operating leverage in the quarter with our COVID protocols very much in place. Last quarter, we talked about how we changed our organization to drive growth and execution at a global scale. And this quarter, we continue to follow through on that commitment. I am pleased to announce that Sam Lyons has accepted the position of international strategic accounts leadership to help bring the best practices he led in North America to our international markets. After Sharon discusses our financials, I will talk about how we are executing against our strategic pillars. And then we will do a Q&A. And now over to Sharon.
Sharon Driscoll: Thank you, Ann and good morning everyone. Overall, we are pleased with our total GVT growth of 11% year-on-year or 8% year-on-year on a constant currency basis led by geographic strength in Canada and international. All our channels contributed to growth, aided by strong used equipment prices for the quarter compared to last year. I would like to add some color around our GTV growth. First GTV sold in the U.S. grew by only 2%. However, this growth was hampered by the lack of internationally sourced equipment at our Orlando auction this year. Last year, a meaningful part of our GTV in Orlando came from international consigners. And that source of supply for 2021 was significantly reduced even continued COVID driven challenges.
Ann Fandozzi: Thanks, Sharon. I am very pleased at the progress we are making on our new strategy to become the trusted global marketplace for insights, services and transaction solutions for commercial assets. Let me run through the key developments by pillar in the last 90 days to help us drive long-term value creation. Customer experience, as described last quarter, we now have a dedicated seller and buyer team who are responsible for delivering the best customer experience. The seller team made enhancements to our regional events to drive more demands. While the buyer team continues to make strides digitally with virtual yard walks and enhanced videos of equipment to build buyer confidence. Employee experience, we are engaging with our employees by asking them what is important to them for our ESG related social giving initiatives. And we are in the process of crowdsourcing a list of those ideas. Modern architecture, in the quarter we completed the roadmap for our modern architecture and successfully launched our cloud-based inspection micro service. Inventory management system, we are taking our first step in creating an industry wide equipment, like system and enhancing our equipment valuation tools between Ritchie Brothers and Rouse Services. Lastly, accelerating growth. We are seeing very positive signs with our satellite sites internationally with not only incremental GTV, but new buyers and sellers. We are encouraged by the KPIs and are now rolling new sites into our third and fourth quarter plans.
Operator: . We will pause for a moment to compile the Q&A roster. Your first question comes from Craig Kennison from Baird.
Craig Kennison: Hey, good morning. Thank you for taking my question. Really wanted to take a look at the second quarter and the balance of the year and get a sense for the number of auction sale days that you have in Q2 in particular, as we try to narrow down what the expectation should be for gross transaction value?
Sharon Driscoll: So Craig, hi, it’s Sharon. I can take that question. You know, I think our auction calendar is fairly fluid throughout the quarter. What I would project what we sort of see today is that it's probably in a similar range as what we experienced in Q1. Albeit I would point out that our current month anyway that's scraping would certainly see a shift in the other direction as the COVID related auction calendar shifts from last year start to cycle over each other. So particularly LA and Montreal. But I would say use a similar kind of outlook as was used for -- as we resulted in for Q1.
Craig Kennison: That's helpful, Sharon. But just to be clear, similar in that you expect roughly 7% growth in the number of selling days or similar in terms of GTV what's the metric you're anchoring on?
Sharon Driscoll: The number of days.
Craig Kennison: Not the growth in the number but the actual number.
Sharon Driscoll: Yeah, the actual number of days.
Craig Kennison: And I'm sorry to press though, what does -- how does that compare versus last year?
Sharon Driscoll: You know guide me if we've given that information out or if it's available on the website, you could certainly see it in terms of calendar days that we have presented on the website.
Craig Kennison: Okay, we'll take a look at that. Thank you so much. I'll get back in the queue.
Operator: Your next question comes from Michael Doumet from Scotiabank.
Michael Doumet: Hey, good morning Ann and Sharon. You know, we're obviously reading a lot about the tight heavy equipment inventories in the U.S., feels similar to 2017. Obviously, a lot of differences as well with COVID and shift to online and the completed integration of our implant but Ritchie's U.S. GTV has proven a lot more resilient to inventory tightness this cycle versus loss, can you comment on some of the major differences that is driving the better performance?
Ann Fandozzi: Yeah, so Michael hi, its Ann, I'll start and then Sharon can add some color having not been here in 2017. So the team really prides themselves on really looking at the world, the way you guys first met me, which is in our control and out of our control. So let's just use Q1 as the example. We were coming into the quarter, we got very, very clear signals that there would be equipment tightness. Orlando, if you kind of take out the pricing effects expos, we were looking at an Orlando down about 30%. And primarily driven by folks saying, hey listen I'm going to hold on, on to my equipment, and a Conexpo that we knew wouldn't repeat the Vegas Conexpo. So we were staring down a fairly healthy year-on-year comp and so the team stood tall and said, okay, what's our True North our True North is driving the best outcome for our customers. So instead of kind of saving costs, pulling back on marketing, kind of, we'll call it conventional wisdom we are going to double down, we are going to drive demand, we are going to drive the best outcome we can for whatever customers we have. We will then use that as a rallying cry to any customers that are sitting on the fence to bring them forward to say look, look at the results of driving so it’s a sort of like a shade of grey come on in very, very pleased by kind of that playbook playing out almost verbatim the way that I described it. And super proud of the team who for not flinching, standing tall, understanding the things that we can drive, which is really the demand side to then result in a great price for our customers, our consigners and then kind of bring them into the market. That was kind of the backdrop of how it played out. Let me pause here, Sharon, anything to add vis-à-vis kind of 2017?
Sharon Driscoll: I think the only difference I would point here is the demand its environment is significantly different than 2017 is we are clearly seeing robust demand across all sectors whereas in ‘17, we were really relying on demand for products shifting between construction -- sorry, between oil and gas into construction. And we're really starting to see kind of all sectors demand is quite strong.
Operator: Your next question comes from Cherilyn Radbourne from TD Securities.
Cherilyn Radbourne: Thanks very much, and good morning. So the company is always press release the results with large auctions. And that's really all that investors have to go on to judge how the business is performing between quarters, which is pretty important. I think if we navigate an unusual cycle, and over the last two quarters, at least those large auctions haven't necessarily painted the full picture. So I'm just curious whether the company has given thought to the need to possibly disclose other metrics to provide better visibility to the investment community?
Ann Fandozzi: Yeah, hi, Cherilyn. I'm sorry. perfect. Hi, Sharon, over to you.
Sharon Driscoll: Okay. Okay Cherilyn. I will take that outlet and kind of close-off. I think one of the things that we have added to the press releases has been the regional sales. So I think that we have added some additional color, most recently with the releases of those events. You know, clearly we look at different opportunities. And, what we did incorporate into this queue is some additional metrics for comparison albeit is based on quarter releases not in quarter updates. But I think certainly, we're open to feedback in terms of any information that investors or analysts might find helpful, we're continuing to look at ways that we can make that more visible and helpful. But also in the quarter it is -- our auctions are very public. So that information is out there on a regular basis anyways. Then I don't have anything else to add.
Ann Fandozzi: Yeah, just echoing Sharon's words on our commitment is to help you guys with looking at the business the way that we look at the business, right. And so for us, really the headline is that we want to get to a place where and you actually saw it in our queue that instead of focusing on live and online, which is really an antiquated metric, when 100% of our transactions are online, we are focusing very much on what are the true metrics for sellers that we can be driving, which is really kind of the demand generation and the pricing? What are the metrics that we're driving for buyers? Which is selection and confidence? And how does that translate and translates in the digital world that kind of ultimately two bids per item, but how much people are clicking in? How long they're spending on each page like all of these kinds of digital metrics. So, completely echoing Sharon’s words, we -- in that new mindset, we are -- we stand open and want to provide metrics to guys to see the world that way, since we're no longer okay putting all our eggs in the basket of these large live events, but we're putting all of our eggs in the basket, so driving the very best experience for our sellers and the very best experience for our buyers.
Operator: Our next question comes from Gary Prestopino from Barrington Research.
Gary Prestopino: Hey, good morning, everyone. This statistic here bids per lot of 42% is pretty interesting to me. But I was wondering, do you have that comp against Q1, ‘19?
Ann Fandozzi: That is a great question, Gary, I don't have it in front of me. But we will pull it while we're still in the Q&A section. And so before we close out the call, we will pull this back.
Operator: Your next question comes from Larry De Maria from William Blair.
Larry De Maria: Hi, thanks. Good morning. A couple quick questions here. First, to clarify the auction dates to reference, which I guess we'll have to go back to the website to look for. Does that I assume that includes all the ag day auctions as well. If the first part. And the second part, can you just talk about the up 4.4% core SG&A growth? Is that what we should be modeling for Q2? Or somewhere in that 4% or 5% range? Is that the point of the comment? Or should we be looking at something different? Just to clarify that? Thank you.
Sharon Driscoll: Yeah, so Larry its Sharon. I'll handle both of the questions. So first, the auction days, yes, it would include any ag day selling as well. So it would be inclusive of everything online, as well as all the different formats. And then the discussion around SG&A was less a forward looking comment. It was more just to put third quarter SG&A performance into context versus revenue growth. So because there were significant puts and takes into that number, we just wanted to kind of unpack it so that you could look at it and then make determinations around how you would do it goes forward. A couple of things I would note, the FX pressure, just like we called out in normalization on GTV because of FX. The counter to that is that our costs equally increased due to FX particularly because of the headcount and the administrative operations teams that we have in Canada, as well as across the globe, particularly in the Netherlands. So that FX impact will carry on for future quarters, certainly, we are optimistic on our performance and hope that the bonus component also carries on. But that's not been given. And the severance would also have been more of a one-time event, albeit not unusual in the quarter, so therefore, it was not adjusted out, and the increase in Rouse employees that also will carry on and be non-comparable year-on-year SG&A add.
Operator: Your next question comes from Michael Finnegan from Bank of America.
Michael Finnegan: Hey, everyone, thanks for taking my questions. Just to be clear, are you not returning to live in person auctions or we're hearing at some smaller regional competitors are planning to open back up in person at least in the U.S.? I'm curious if you guys are not planning to do that and in 2021? And just to follow up, I think we saw something about implementation of a higher buyer fee. Sharon is anyway, you could help us quantify that, if that is the case? And how to think about that for the remaining three quarters of the impact that could have on rate?
Sharon Driscoll: So it's Sharon here, why don't I start on the fee question, and then I will pass the operations comment over to Ann. I think a couple of things I would say about the fee, fees are a journey around value that you provide to both sellers and buyers. And a constant determination of whether that fee structure matches the value that you're providing. And so clearly it is something that we do and we look at on a regular basis. In terms of assisting with modeling, we've done fee increases in the past, I would say that this fee is not dissimilar to kind of the most recent fee uptick that we took, but certainly we don't give forward-looking estimates of what this would do to our results that I would certainly look to past fee increases as indication of what this could do to our results.
Ann Fandozzi: And Michael it’s Ann. Let me just pick it up from there. So the way we look at fees like the last fee conversations that we had with you guys in the market was more around the fee harmonization, kind of bringing, the last pieces of the IronPlanet and Ritchie Brothers integration online. But the way we're thinking about fees is -- at the end, our costs continue to go up. And we look at a competitive environment on fees and judge ourselves against it. It's a normal practice. That's what most industries most people do on a regular basis, call it annual just kind of review where are we versus the market? And is there -- how do we stack up is there opportunity or can we need to go the other way. So just expect this to be kind of a normal course of an evaluation cycle with no obvious output because it's really going to be kind of market driven if you will. And that's what happened here, we saw small opportunities of kind of aligning more to general market practices with a backdrop of obviously as you've heard from everyone ever increasing cost base and us really driving really incredible solutions for customers, increased marketing, increased digital solutions, and we're proud to do them the resulting in the exact output which is great pricing. And the backdrop is the -- obviously our ability to cover some of that with this price increase. And for your first question, can you just -- I want to make sure I answer it as intended, can You just restate what is it you're trying to understand about the operations on the loss?
Michael Finnegan: Just give one moment, please. Online, I'm curious if there will be with vaccinations increasing the U.S. we're hearing some smaller players are having people back at auction houses in person. I'm curious how you guys are viewing that right now, as you guys have shifted during COVID with the safety protocols, if there's any shift back with the reopening that's underway?
Sharon Driscoll: Yeah. And so we have really gone to great lengths, kudos to our operations team, led by Jim Kessler, our Chief Operating Officer, to deconstruct sale day, and really understand, again, with our True North being the best experience for sellers and then the best experience for virus. So let's just kind of get on this journey together. So for sellers, what sellers really need by and large is an ability to easily drop their equipment, so that Ritchie Brothers can take care custody and control, right, sets it up, inspect it, appraise it, market it, sell it and get them the most money. And so we are very clear in those KPIs and driving to do exactly that, and get that equipment showcase the right way. And kind of drive demand. For buyers even before COVID 70% of the actual auction day transactions were happening online anyway. So we really dug deep into what is it the buyers need. And first and foremost, they need selection. So obviously, size matters greatly and you saw us taking steps in combining regional events into kind of more mega events if you will to give that selection to buyers. Buyers also in confidence. And so there's two ways to gain that confidence, right. One is in person and we've allowed even during COVID albeit with scheduling and social distancing buyers to come and kind of kick the tires of the equipment, they're making big bets. We literally have 1,000s of people come through Edmonton last week, 1,000s of people come to Orlando in a COVID safe environment. At the same time, we're leaning heavily on digital tools, right because again, even before COVID 70% of the buyers didn't come. So we are doing videos, I think you heard of say last time we talked, we broke YouTube. With the number of video uploads, we did. But we do our IronClad inspections, we do videos, we even launched a concierge walkthrough service of our yards. So that for customers that wanted to see what was out there are very knowledgeable staff that the yard can take them through it. So it's very much with an eye towards of that when it's safe to do so we're going to continue those practices of really driving what is it the buyers want and need in order to make their selections and what a seller's need. And we will take our queues from there. But for the key activities that are happening, we're bringing them in only digital formats and allowing the physical to continue while the bidding is going from 70% to 100% online. And before we take the next question, we have an answer that since 2019, so the bids per lot sold since Q1, 2020 were up 42%. They're up about 50% since ‘19, because we were almost flat, Q1, 2020, we had a very turbulent the start-up COVID if you will, in the back half of Q1 of 2020. Hopefully that answered your question, Michael.
Operator: Your next question comes from Bryan Fast from Raymond James.
Bryan Fast: Thanks. Good morning, everybody. I'm always just hoping to get more color on the alliance formed with Gordon Brothers. What can we expect to see from that partnership?
Ann Fandozzi: Hello, Bryan, it's Ann. Let me start – would take this question. So we are very proud with our partnership with Gordon Brothers. We partner with them for some time, it's not new. We did however, formalize it in our Australia region. And there it's really targeted at the kind of bankruptcy and insolvency space. So we're bringing the two best elements of the companies where Gordon Brothers really focuses on bankruptcy and insolvency. We focus on the disposition of those assets. When they come through, we have formalized that partnership, and are very, very excited to bring that to life. Again, this is a tried and true partner for us all around the world. We work together in other regions. And in Australia, we have just strengthened that partnership and kind of needed the basis of the way we go-to-market in that region in the bankruptcy and insolvency space.
Operator: And your next question comes from Michael Finnegan from Bank of America.
Michael Finnegan: Hey, guys, sorry, just a follow up. I'm curious. And if you guys can give any color on IMS and return manage that like, anything you need to provide from the beginning of the year in terms of fleet uptake, cost base funding of any KPIs around that. So we can have an idea of how that initiative and strategy tracking?
Ann Fandozzi: Yeah. So Michael, we are still committed to giving you guys KPIs kind of on a regular basis. And we're working on what those should be. So really, the way to think about IMS is the underlying functionality and then kind of the usage. So in terms of usage, we're looking at a metric of unique monthly users. And looking at that metric on a rolling basis, looking at on a year-on-year basis so kind of on a rolling basis we’re up. Since Q4, we're up just a little bit over 10% in unique users. But candidly, the bigger story in IMS since the acquisition of Rouse, we're really focusing on the fundamentals. So Rouse had pricing tools in the marketplace, they're the defacto leader and kind of third-party agnostic, pricing information, Ritchie Brothers, we went to great lengths, and obviously publish our valuation tool. So we spent a great part of Q1 really bringing the methodologies together to ensure we are giving customers the very best, the greatest, the latest real time information. At the same time, we've spoken before about the need to kind of get a point of view on so that for buyers there's a transparency to equipment, so getting a VIN like a common way for customers to be able to understand the equipment and access it and spend a great deal of Q1 putting those plans in place. So really, as we take a look at IMS, think about kind of the fundamentals of IMS, the pricing the kind of cloud solution, if you will the VIN system on the one side. And then on the other side, even while we get those fundamentals in place continuing to drive unique users and monitoring how they're using the data and to inform us on what are the value-added pieces to keep adding to the equation.
Operator: There are no further questions at this time. I will turn the call back over to the presenters.
Ann Fandozzi: Thank you so much for joining us. I'm going to close it out. Because I believe Sameer dropped off -- the call dropped on him. So how about Suzanne and I will thank everyone on behalf of Sameer, Sharon and I and the Executive Leadership Team. And once again, thank our entire team member base for driving an incredible quarter but really being there for our customers and each other every step of the way. Thank you so very much.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
