Ritchie Brothers Auctioneers (NYSE: RBA), a global asset management and disposition company, has reported a robust beginning to the year with a significant increase in its first-quarter earnings and gross transactional value. The company's adjusted earnings per share surged by 58%, and total GTV grew by 10% on a pro forma combined basis. Despite facing a normalization in equipment supply and higher interest rates, Ritchie Brothers is maintaining its full-year GTV guidance and has increased its adjusted EBITDA forecast to between $1.2 billion and $1.26 billion.
Key Takeaways
- Ritchie Brothers' Q1 GTV increased by 10% on a pro forma combined basis.
- Adjusted earnings per share grew by 58%.
- The company is experiencing normalization in equipment supply in the commercial construction and transportation sectors.
- Ritchie Brothers has raised its adjusted EBITDA guidance to $1.2 billion to $1.26 billion.
- Plans to pay down Term Loan A and continue strategic investments.
Company Outlook
- Full-year GTV guidance reiterated, with expectations of a considerable moderation in GTV growth for the rest of the year.
- Adjusted EBITDA guidance increased, reflecting confidence in operational efficiency and market positioning.
- Focus on paying down debt, strategic investments, and integrating recent acquisitions.
Bearish Highlights
- Some customers are postponing investments due to higher interest rates, replacement costs, and political uncertainties surrounding the upcoming US election.
- Anticipation of a slowdown in year-over-year GTV growth due to equipment supply normalization and the impact of a customer loss.
Bullish Highlights
- Growth in market share and sales coverage is a priority.
- Omnichannel platform and physical presence continue to be a key competitive advantage.
- Successful hosting of IAA's Industry Leadership Summit in the automotive sector, attracting new partners.
Misses
- The company did not mention any significant misses in the earnings call.
Q&A Highlights
- James Kessler discussed the company's focus on running a profitable business and remaining open to potential acquisitions.
- Confidence expressed in sustaining high single-digit inventory rates due to strong data and analytics capabilities.
Ritchie Brothers' strategic focus remains on expanding its market share and continuing to enhance its omnichannel platform, which is a critical differentiator in the industry. While the company navigates through the normalization of equipment supply and external economic factors, it remains committed to its strategic vision, which includes paying down debt and exploring opportunities for growth through acquisitions. The company's net leverage target is approximately two times, indicating a balanced approach to managing its financials while investing in future growth. The reiteration of the full-year GTV guidance and the increase in adjusted EBITDA outlook demonstrate the company's confidence in its business model and operational strategies. With a focus on efficiency and profitability, Ritchie Brothers is poised to continue its trajectory of growth while delivering value to its shareholders.
InvestingPro Insights
Ritchie Brothers Auctioneers has demonstrated resilience and growth potential in its recent financial performance. In line with the company's robust start to the year, InvestingPro data reflects a promising outlook:
- The company's market capitalization stands strong at $13.34 billion, indicating solid investor confidence in its business model and market position.
- A significant revenue growth of 128.47% over the last twelve months as of Q1 2024 showcases the company's ability to scale and adapt to market demands.
- Operating income margin of 18.71% for the same period suggests operational efficiency, which is critical in maintaining profitability amidst economic fluctuations.
In addition to these metrics, InvestingPro Tips highlight key aspects of Ritchie Brothers' investment profile:
- Ritchie Brothers has a commendable track record of raising its dividend for 21 consecutive years, reflecting a strong commitment to returning value to shareholders.
- The company is also expected to see net income growth this year, which could further solidify its financial standing and appeal to investors seeking growth and stability.
For investors interested in a deeper analysis, there are 10 additional InvestingPro Tips available, providing a comprehensive look at Ritchie Brothers' financial health and market potential. To explore these insights further, visit https://www.investing.com/pro/RBA and remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
Full transcript - Ritchie Bros (TSX:RBA). Auctioneers (NYSE:RBA) Q1 2024:
Operator: Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll 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 afternoon. Thank you for joining us today to discuss our first quarter results. Joining me today are Jim Kessler, our Chief Executive Officer, and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, which can be identified by such words as expect, believe, estimate, anticipate, plan, intend, opportunity and similar expressions. Comments that are not a statement of fact, including, but not limited to, projections of future earnings, revenue, gross transaction value, debt and other items, business and market trends and expectations regarding integration of IAA, including the anticipated cost synergies are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this afternoon as well as our most recent quarterly report and annual report on Form 10-K, which are available on the Investor Relations website and EDGAR and SEDAR. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the two, see our news release, Form 10-K and Form 10-Q and investor presentation posted on our website. We are unable to present a quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all the necessary components of such measures. Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. At this time, I would like to turn the call over to Jim. Jim?
James Kessler: Thank you, Sameer, and good afternoon to everyone. We are off to a solid start to the year with first quarter gross transactional value growth of 10% on a pro forma combined basis. I am proud of the team as they continue driving GTV growth. This strong performance directly reflects our ONE Team all in culture and our dedication to over delivering on our commitments to our customers. Furthermore, our focus on continuous improvement and drive operational efficiency throughout the organization translate into strong adjusted earnings per share growth of 58%. Let's start by discussing trends in our commercial construction and transportation sector. The equipment consignment market remains strong. However, we are beginning to see a normalization of equipment supply following the surge we experienced post pandemic. Strategic accounts, specifically within the rental vertical, are carefully evaluating the cadence of their dispositions for the rest of the year as they access business conditions. Within the region's business, the higher interest rate environment, the higher replacement cost, and the upcoming U.S. election are leading some customers to postpone investments in new equipment, reducing their immediate need for transaction solutions. Growing our market share is a top priority and we're executing our growth algorithm by expanding sales coverage. In the first quarter, we actively recruited new talent to strengthen the Ritchie Brothers brand and to ensure we have the right coverage where we have identified the most significant growth opportunities. Our physical presence in digital omnichannel platform remain a key differentiator making us the partner of choice. The Yellow (OTC:YELLQ) Corporation bankruptcy demonstrates the power and versatility of our platform and how we over deliver for our partners. We complemented the broader logistical efforts of moving our assets to RB Global locations by utilizing VeriTread, a marketplace service on our platform to source competitively priced transportation services. Our extensive network of locations bolstered by IAA acquisition meant that 90% of Yellow's assets were within a 100 miles of one of our RB Global locations, enabling transportation cost savings and seamless care, custody and control of their equipment. At the end of the quarter, we had approximately 9,000 trucks and trailers at IAA locations, which were flexed as RB Global satellite storage yards. Our ability to flex these yards eliminated potential incremental expenses to execute short term leases for storage. To be clear, even with this transaction, we have more than enough capacity in our yards to effectively service all of our partners. Our omnichannel platform's full potential is being deployed to optimize price realization. We began with strategic bulk sales late last year. As those continue, we are directing assets across various regions and channels and hosting yellow dedicated auctions. This dynamic approach ensures we are constantly matching the supply of these assets with the best buyers. All of this is a testament to our marketplace's ability to cater to business of all sizes with a robust offering of services and transaction solutions. Moving to the automotive sector, we hosted IAA's 21st Industry Leadership Summit under RB Global, which shattered attendance records. The event attracted new and potential partners across North America's insurance, fleet, and remarketing sectors. This premier event served as a platform to introduce RB Global's leadership team, our culture, our unwavering commitment to exceeding customers' expectations through robust and consistent performance. As we maintain and grow our partnerships with those who share similar values and want to build long lasting partnerships based on trust and transparency, we hosted the inaugural session of the IAA Advisory Council in conjunction with the summit. It was a dynamic exchange between key insurance partners and our leadership team, yielding overwhelmingly positive feedback and actionable short- and long-term items. We're excited to keep the conversation going, tackle these initiatives, and solidify our industry wide partnerships. We also used this event to highlight our performance improvements in the accurate measure of our gains by launching our partner transparency program and dispelling any misconceptions. We laid out a framework and now communicate our service level agreement performance to the industry quarterly. The feedback from our partners, especially about our data driven operational improvements, have been very positive. Speaking of operational improvements, I am proud of the team and pleased that our continuous improvement program continues to drive meaningful SLA improvements in the first quarter. Our pickup compliance, an internal measure of our tow performance, continued to be strong at approximately 99% and our on time total performance, an internal measure of our ability to process vehicle titles that meet our customers' demands was approximately 98%. We also continue to make excellent strides in attracting new international automotive buyers to our marketplace, partially driven by IAA leverage and historical Ritchie Brothers relationships in Europe. In the first quarter, the percentage of vehicles sold to international buyers hit an all-time high. These advancements combined with our focus on continuous process improvement and investment in technology continue to drive average sell on price higher with automotive ASPs climbing an industry leading 3.3% year-over-year. We're focused on continuous improvement because consistent strong performance is the critical lever in our growth algorithm to unlock market share in this industry, and the results speak for themselves. Our partners are noticing the positive shift a transformed culture built on trust, transparency, collaboration, and clear focus on consistently delivering exceptional results. This momentum propels us forward and we're optimistic it will translate into market share gains in the coming quarters. Now, I will pass the call to Eric to review our financial performance and outlook.
Eric Guerin: Thank you, Jim. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison to the pro forma combined results of Ritchie Brothers and IAA for the prior year period. Total GTV increased by 10%, automotive GTV increased by 6%, benefiting from higher unit volumes and as Jim noted a 3.3% higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the first quarter, CCC estimated that the loss ratio increased to approximately 21.1% compared to 19.6% in the same period last year. The previously announced customer loss partially offset organic growth. Note that starting in the second quarter, we will see the full impact of the customer loss on GTV and unit volumes. GTV in the commercial construction and transportation sector increased 20% driven by increases in lot volumes partially offset by declines in average price per lot sold. The decline in average price per lot sold was due to asset mix as lot volume growth came from rental and transportation assets where asset values are intrinsically at lower ASPs and continued declines in pricing on an apples-to-apples basis. Note that GTV growth in commercial construction and transportation excluding the impact of the Yellow Bankruptcy, would have been approximately 13%. Moving to service revenue. Service revenue increased by 14% with our service revenue take rate expanding approximately 80 basis points to 20.8%. Service revenue increased due to growth in GTV, a higher average buyer fee rate and growth in our marketplace services revenue. Marketplace service revenue growth was driven by higher ancillary revenue and a higher auction related fee structure. As you think about inflation or deflation asset values, it is essential to note that our revenue model has been demonstrated to be resilient to swings in asset values in our marketplace. Historically, we have seen unit volumes and price move in opposite directions. GTV growth expansion have allowed us to grow service revenue above broader economic inflation. Inventory revenue declined 12% with lower revenue contributions from the automotive, commercial construction and transportation sectors. Inventory rate for the quarter contracted 100 basis points year-over-year to approximately 8.8%. The lower inventory rate was due to commercial construction and transportation and automotive, partially offset by strength in our government surplus business. As previously noted, we expect the environment for at risk deals to remain competitive in our commercial construction and transportation sector. Turning to earnings. Adjusted earnings per share increased 58% on strong operational performance and the full quarter impact of the IAA inclusion, partially offset by higher share count, higher net interest expense and the impact of the Series A senior preferred shares. At the end of the first quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately two times. This accomplishment comes nearly a year ahead of schedule, showcasing our commitment to over deliver, the strength of the strategy and our ability to execute. We wanted to lay out our guiding principles for deploying our capital to maximize shareholder value. Let me walk you through our priorities. We see our target net leverage around two times. That said, we could flex either way for a period of time. In the near term, we plan on continuing to pay down Term Loan A for the remainder of the year. We will continue to invest in the business strategically and are not changing our 2024 CapEx guidance. Historically, the company has grown through acquisitions and as we advance we will continue to monitor opportunities to help us accelerate growth and unlock our strategic vision. For 2024, we are principally focused on integrating and driving returns for the recent acquisitions. Delivering superior returns to our shareholders is a core principle. We believe in returning excess capital. This approach demonstrates our confidence in executing and exceeding expectations. Our financial strength assures our customers we can consistently over deliver on our commitments. Moving to the outlook. We are reiterating our full year GTV guidance as GTV growth in the first quarter broadly aligned with our expectations. As Jim noted in his remarks, we are starting to see a normalization of equipment supply in our construction and transportation sector. Additionally, we will see the full impact of the previously announced customer loss beginning the second quarter. Given these two factors, we anticipate that our year over year GTV growth for the remainder of the year will considerably moderate compared to the first quarter. That said, we are increasing our adjusted EBITDA guidance to $1.2 billion to $1.26 billion based on strong flow through from the top line and continued operational excellence. We're also tightening our tax rate guidance to reflect the lower-than-expected tax rate in the first quarter. With that, let's open the call for questions.
Operator: [Operator Instructions] Your first question comes from Sabahat Khan, RBC (TSX:RY) Capital Markets. Sabahat, please go ahead.
Sabahat Khan: Great. Thanks, and good afternoon. So I guess taking the Q1 results into account and sort of the guidance increase, can you maybe just walk through, a bit more of the details around sort of the expected cadence for the rest of the year and how you settled on sort of the $30 million increase to the EBITDA line. Just any more color in addition to the outlook commentary you just provided would be great.
James Kessler: Yes. Thank you for the question. As I mentioned in the prepared remarks, Q1 came in pretty much in line with our expectations. So the guidance movement of $30 million was based on our forecast and where we were seeing the year flow out. So again, Q1 was in line with what we were expecting and the increase of the guidance was tied to that performance.
Sabahat Khan: Okay, great. And then Eric, a little bit of color on sort of the capital allocation philosophy here. With the leverage where it is today, I think indicating that you're at the levels, the two times and below levels, one year and early. Can you maybe just talk about, you know, the preference between sort of the organic versus I mean, how are you thinking about some of these opportunities that you have in front of you? And what is directionally a comfortable leverage ratio for you, as you look at the business mix?
Eric Guerin: Yes. So the two times is comfortable for us. As I said in the prepared remarks, we are going to flex a little bit probably on both sides of that too. Our focus for the remainder of the year is to continue to pay down on Term Loan A and invest in the business. So we're going to continue our investment in technology and our footprint as we evaluate that. So those are our priorities and as I noted as well, we'll continue to look at acquisitions, but that's not our focus this year. It's really to focus on integrating IAA and the other acquisitions we've done. So we'll continue focus in that space.
Operator: Your next question comes from Steve Hansen, Raymond James. Steve, please go ahead.
Steve Hansen: Yes. Thanks for the time guys. I appreciate it. Congrats on a great quarter. I just wanted to go back to the auto performance here and Jim, I think you referenced some of the things you've been doing to outperform on the ASP basis, but can you maybe just unpack that a little bit further and just give us a sense for where you think you're getting the best upside to the performance versus what we're seeing in the broader indices?
James Kessler: Yes, I will. Look, I don't think it's one thing. So it's a hard question to go through all the tactics that we're applying, but I'll just give you a basic one. We did a press release, and we've added, you know, trim level data, for the buyers. Right? A technology improvement. We were one of the first to implement something like that. We know when we can give the buyers more information, and we can achieve a higher ASP on the auto side, but our whole team is -- you know, we've heard from our partners, the areas where they deem very important to them and ASP is one that they're focused on. So as we think about our tactics, we have many different things we're trying from different auction channels, trim level data, data for buyers to make sure we maintain ASPs we can.
Steve Hansen: Okay. That's great. And then I think as you described, your SLA performance has been in the high 90s now, and it sounds like relatively consistent on a consistent basis. The discussions with the partners that you described at your recent event, I mean, it sounds like this is paving the path to potential market share gains over time, but I mean, any visibility on when that might come to fruition or any sort of color on timing in terms of some of these contracts coming due?
James Kessler: Yeah. No, great question and look, I'm going to stick to kind of what I went over last quarter when we had this question. As an organization, we're very focused on what's in our control and what is in our control is how we deliver against our commitments and our SLAs, and I am extremely comfortable that we're over delivering for our partners and as we do our quarterly QBRs with each partners, we're getting that feedback from them, but look, on the realist, when we talked about the U-shape, we just hit a year anniversary of the two companies coming together, but we're going to stay focused on what's important to us and our partners and that's what's in our control and then I expect good things to happen as we continue down this path and being consistent and my expectation is we're going to be consistent with where we're at right now.
Operator: Your next question comes from Michael Doumet, Scotiabank (TSX:BNS). Michael, please go ahead.
Michael Doumet: Hey, guys. Maybe circling back just to the guidance. I mean, if I use the midpoint of the guidance, you're effectively calling for zero GTV growth through the balance of the year and very little, EBITDA growth and I obviously understand the dynamic with the customer loss, but just trying to understand the assumption on the commercial side because it does feel conservative. Just the expectation for negative comps effectively in the second half?
James Kessler: Look, I just want to remind everyone, I'll start with the auto side, of the obvious thing that we're going to experience in the back half of this year of the carrier loss that we announced last year. Those cars are out of our network at this point or they're very small as we are into the second quarter. So an obvious thing of what everyone is already aware of on the auto side of what's going to happen and then when you get into the construction industrial side and we said this in our remarks, when the pandemic hit and people couldn't get equipment, they held on to the equipment longer, new equipment started to come in. So last year, we got an influx of rental equipment, certain sectors that really came to us and rental transportation. So as we go into the back half of the year, it's a heavy comp that we have to go up against. We believe our partners are going to normalize in the back half of the year, which is still a great place for us to be. It's just not the place where we were a year ago when you had the pandemic and all that pent up equipment and everything came in. So that's what we're using to set the guidance.
Michael Doumet: Understood. And then maybe just flipping the cost. If I look at the SG&A, I mean, look, you've been on a flat trend for several quarters here. How much more can you do with this cost base? Or has the rationalization kind of run its course here? Or is there maybe more you can do either way, depending on whether you want to support more volumes on it or rollover costs?
James Kessler: Yes. Let me just answer that by just from a philosophy that we have as a leadership team. We are never going to stop managing this business effectively and efficiently. It's core of what we do every day. It's part of what our directors, our vice presidents, our extended leadership team. So we are never going to stop of how do we optimize this business. Right? And that goes to margin expansion, that goes to SG&A management. It is what we're building in the culture. So we're just never gonna stop. So I really don't have an answer of a start and stop. We're going to be diligent and constantly look to make sure we're as efficient as possible.
Operator: Your next question comes from Maxim (NASDAQ:MXIM) Sytchev, National Bank Financial. Maxim, please go ahead.
Maxim Sytchev: Hi. Good afternoon, gentlemen. Jim, just one question for you, if I may. I mean, given the context and the difficult of completing IAA, what are your thoughts regarding the size of any potential transactions and sort of the need to do that? And where it will be the most accretive, whether strategically or financially? Thanks.
James Kessler: Look, it's a great question and again, we're very focused as a leadership team on the business that we have, the verticals that we have and look, all the verticals that we're in right now, we love the margin profile and the financial outlook of each of them. Right? So as we think about what we want to do in the future, and Eric talked about this, as we think about the future, we know there are certain places where there are holes on the map, right, that would fit in nice with us as we think about the future, if that's M&A, but right now, we want to make sure we're driving the business that we have, we're running it effectively and efficiently and we're always going to be opportunistic of what fits in for us, but right now, we're so focused on running this business and running a very profitable effective company and that's where our focus is right now.
Operator: Your next question comes from Steve Hansen, Raymond James. Steve, please go ahead.
Steve Hansen: Hey, guys. Just a quick follow-up. The one thing that struck me as interesting on the inventory rate was the sequential improvements. I know it's down year-over-year, but on a sequential basis, we saw a nice improvement. I mean, you described that business as still being competitive in the broader landscape, but how do you feel about the sustainability of that sort of high single digit rate?
James Kessler: Yes. Look, I think we're going to just go back to the same guidance that we've been given quarter after quarter. Look, it's a competitive market. Sometimes the deals go in your favor, sometimes they don't, right? And each time a deal is different depending on it's Canada, the U.S., international, who we're competing against, we're in this to grow share. We have the best data to make the best decisions of where to use that data. So the guidance that we kind of said that low to middle historical end, I think is still a place where and we're expecting, but I think there's going to be times when you see what you saw this quarter where it's going to look like that, but look, I think we're in the best position for any of these competitive deals with having the rails and the data and analytic tools that we have to make the best decisions and we're very confident that it's a place where we can compete and be successful at.
Operator: There are no further questions at this time. Please proceed.
James Kessler: Alright. Hey. First and foremost, I want to thank the RB Global team for everyone's hard work, dedication, commitment to our customers and over delivering on those commitments. Thank you so much for your hard work, and I just want to thank everyone on this call. Thank you for your confidence in RB and we look forward to talking to you the next time. Thank you so much.
Operator: [Operator Closing Remarks].
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