RB Global Inc (RBA) 2006 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. Auctioneers 2006 conference call. [OPERATOR INSTRUCTIONS]. I'd like to turn the conference over to Peter Blake, Chief Executive Officer. Please go ahead, sir.

Thank you, and good morning. Thanks for joining us today and welcome to the Ritchie Bros. Auctioneers first quarter investor conference call. I'm Peter Blake, CEO of Ritchie Bros. Joining me today on the call are Randy Wall, our President for Canada, Europe and the Middle East; Bob Armstrong, our CFO; and Jeremy Black, our Senior Manager of Finance. Today, we will be with discussing our results for the quarter ended March 31, 2006. Our presentation will take about 20 or 25 minutes, and then we will open the call for questions. Before we get started, I'd like to make the Safe Harbor statement. The following discussion will include forward-looking statements as defined by the SEC rules and regulations. Comments that are not statements of fact are considered forward-looking statements and include comments comments about our projected future results and performance, growth initiatives, property development plans and other matters. Our actual results may differ materially from those projected in these discussions. Additional information concerning factors the could cause such a difference is included in our periodic filings, including our MBNA for the quarter March 31, 2006 that is being filed this morning. All of our securities filings are available on our website at rbauction.com and on the SEC and SEDAR websites.

In this call, we will be talking about gross auction sales. As a reminder, gross auction sales represent the total proceeds from all items sold at our auctions. It is not a measure of revenue and is not presented in our statement of operations. Auction revenues is the revenue earned by Ritchie Bros. We'll make a few remarks about our overall performance for the quarter and the state of the equipment market and our [INAUDIBLE] initiative before I pass the call over to Randy to get your property development update, and then to Bob and Jeremy to give you the financial overview. We'll then conclude the call and open it to questions. We were very pleased with our performance for the first quarter 2006, especially following the strength of our results in 2005. We continued to set growth auction sale records in 2006, including the largest sale of our history in Florida in February.

New records were also set in Arizona, Minnesota, and Saskatchewan, which helped us report another milestone quarter. First quarter gross auction sales surpassed the $570 million mark, which was 25% ahead of last year's Q1 gross auction sales of $456 million and our biggest Q1 sales performance ever. On a rolling 12 month basis, gross auction sales for the 12 months ended March 31, 2006 were up 14% over the 12 months ended March 31, 2005. The momentum that we experienced in 2005 has so far shown no signs of slowing. And given that this growth is coming in the face of tight equipment markets, we strongly believe that it's an indication of our increasing market share. We finished the first quarter with net earnings of $13.2 million, which is comparable to financial statement earnings in the first quarter of 2005 and an increase of 27% compared to the normalized first quarter earnings of 2005.

As a reminder, 2005 Q1 earnings included an abstract gain of $3.3 million recorded on the sale of excess property, which we highlighted because we do not consider these types of gains to be part of our normal operations. Obviously, we are very satisfied with this result. Once again, our gross auction sales grew faster -- at a faster rate than our operating expenses. We're often asked about our market share and why it's increasing, so I thought today I'd give you a little color on this topic. The global used equipment market is dominated by a direct sales channel, private sales between equipment end users, which is inherently inefficient. Other sales of used trucks and equipment take place through dealers and brokers or at auction; and as we increase our sales volume, we believe that we provide more compelling proof to equipment owners of the value that we add through our other [INAUDIBLE] to global buyers. But we are earning an increased [INAUDIBLE], primarily from [INAUDIBLE] direct sales channel. The used equipment market is [INAUDIBLE] as owners are working and their equipment is fully utilized. There continues to be shortages of good quality late model equipment in many of our markets around the world. However, despite this tight market, we have been able to increase our gross auction sales. Presently, fewer people are buying and selling, but we are seeing increasing numbers of buyers and sellers participating in our unreserved sales. We believe the real action will come when the equipment market starts to loosen and more used items hit the market at a quicker pace. Our simple model is effective on all points of the economic cycle, because we create value for our customers by matching local supply with global demand in an open and transparent manner. If we weren't able to create value for our customers, we would not be increasing our market share, and our gross auction sales would not be growing. Before I pass the call to Randy, I'd like to give you an update on our mission 2007 strategic initiative. As you may recall, the objective of this program, which we call M-07, is to put in place [INAUDIBLE], consistent of scalable business processes that will enable us to meet our growth objectives well into the future. Given the increase in volumes that we hope to be facing in years ahead, the M-07 program is very -- is a very high profile project to Ritchie Bros. Since our last conference call in February, we have continued to make progress. The first phase of our Oracle implementation is in full swing, and we are expecting that our new financial system will be up and running in Q3. Although this will not generate significant cost savings up front, it will allow us to be more efficient in how we process transactions and provide a foundation for our future growth. Future phases of the M-07 program will include new customer marketing tools, sales force automation tools, and redesigned auction site procedures, all designed to increase our efficiency and allow for future growth. The Oracle implementation is presently our main M-07 focus; and as with all the ERP implementations, there is considerable risk involved.

Our Oracle project is currently on time and on budget and we believe it is being well managed. But there is a risk still of the project going off the rails; and after all, the European implementations are complex beasts. One mitigating factor in our favor is that we are easing into the new system starting with core financials first and then moving on to other modules rather than undertaking a big bang implementation of all modules at once. We will, of course, do everything in our power to make this stage implementation a success, but it would be irresponsible not to identify risk. Another aspect in M07 is the Ritchie Bros. operating system which we call RBOS, and we like to refer to it as our secret sauce. We expect that the implementation of various other MO7 initiatives like our RBOS modules and related business processes, we'll start rolling out once the Oracle foundation has been laid. Stay tuned for future updates.

We are very excited about providing improved tools for our people to service our customers more efficiently and effectively. We get lots of questions about the MO7 initiative and the impact it will have our financial results in the future. We believe that the main benefit of our M07 will be our continued ability to maintain our operating leverage to grow our gross auction sales without a corresponding increase in our operating costs. We aren't expecting the program to generate dramatic financial results in 2007 or any other single year; rather, we believe the significance of this initiative will be its impact on how we do things over the next decade. And we expect it to be the beginning of a continuous improvement process that will carry on long into the future. Now, let me turn the rent call over to Randy Wall.

Good morning, everyone, and thanks, Pete. As Pete mentioned, I would like now to give you an update on our property development initiatives. In March, we held the grand opening auction at our new permanent auction site in Nashville, Tennessee, and we're pleased with the way the sale came together. It's a beautiful facility and we're looking forward to growing our auction market share in that region. In April, we opened our newest permanent auction site in Saskatoon, Saskatchewan, at which we intend to have a regular agriculture equipment auctions. Construction of the permanent facilities have yet to start, but our Saskatchewan team has already held their first auction on the site.

Once completed, this will be a scaled-down version of our typical industrial auction site. Saskatoon now joins our agricultural auction site in Buxton, North Dakota, which we picked up through the acquisition of the assets and business of Dennis Biliske Auctioneers, which closed in January 2006. With the addition of Nashville and these two agricultural sites, our network now consists of 26 permanent auction sites and 7 regional auction units, for a total of 33 such sites around the world. We've mentioned previously that we've also acquired 3 parcels of land in Houston, Texas and Denver, Colorado; both of those sites will be replacement permanent auction sites for our existing facilities in those cities. We have started the site development process in both locations and we hope to have both new auction sites up and running in 2007.

We're also making great progress in Ohio, where we have recently acquired site of approximately 140 acres in size in South Vienna, which is located on I -70 between Springfield and Columbus, Ohio. We have been having regular offsite auctions in Ohio for a number of years now, including a recent auction in Toledo, which was our largest ever in the state, and to finally be making progress now on a permanent home in this region certainly has us pretty pleased. We're in the pre-construction stage now for a new permanent facility that we expect to open in 2007. We continue our quest for land in the United States and Europe and are getting close in a number of regions.

Our priorities continue to be the New England area of the United States, as well as France, Italy, the U.K. and Spain and Europe. We'll be sure to let you know as soon as we have news about any of these locations. And now, let me turn the call back over to Bob Armstrong.

Thanks, Randy, and good morning, everyone. The numbers that form the basis of the discussion that follows are included in our press release that we issued this morning, and in our quarterly MBNA and interim financial statements which we filed this morning and are available on the SEC and SEDAR websites. All dollar amounts referred to on this call and in our press release and securities filings are stated in U.S. dollars. As SEDAR mentioned, the gross auction sales for the first quarter of 2006 were over $571 million, which is an increase of 25% compared to our gross auction sales in the first quarter of 2005. Continued strong growth in our U.S. and Canadian operations contributed the majority of the increase. Cost of revenues were 56 million for the first quarter of '06, an increase of 15% compared to Q1 in 2005.

Our auction revenue rate for the quarter was 9.79%, which is less than the 10.65% experienced in the first quarter last year, but within our expected sustainable range. The unusually high revenue rate enjoyed in Q1 of 2005 can be attributed to the unusually strong performance of our underwritten business during that quarter. Direct expenses, being the cost that we incur specifically to [INAUDIBLE] auction were 1.12% of gross auction sales in the first order of '06, which compares to a direct expense rate of 1.20 om Q1 of 2005. The main reason for the decrease in the direct expense rate is the larger average size of the auctions that we held in 2006. As the average size increases, the direct expense rate tends to go down because of the economies of scale and other efficiencies inherent in our model.

The average size of our auctions in Q1 was $16.9 million, well above the average of $13.2 million for all of 2005 and above the 15.7 million average in Q1 of 2005. The $113 million Orlando sale in February '06 had a significant on the direct expense rate in Q1. We finished the first quarter of 2006 with general and administrative expenses up 26.2 million, which is an increase of 16% over comparable amount in of Q1 2005. The major contributor to increased G&A was the continued growth in our business. For example, our employee count increased 10% over the year, from 643 employees at March 31, 2005 to 709 employees in 2006. This led to higher wages and benefits, as well as other costs associated with bringing new employees on board.

Our labor costs, including salaries, benefits, stock compensation expenses and employee performance bonuses, represented approximately 63% of our total G&A expenses in the first quarter of 2006, which is roughly consistent with our experience for 2005. Also contributing to the increase in G&A in 2006 were changes related to our incentive programs for our sales and administrative employees, which we talked about in detail on our last conference call, and costs incurred in our connection with our Oracle implementation. Net earnings for the quarter were 13.2 million, as diluted net earnings per share were $0.38 per share, which compares to the financial statement net earnings of 13.7 million or $0.40 in Q1 of '05.

Now if you exclude the impact of the 3.3 million after-tax gain on the sale of excess land in '05, net earnings for the first quarter of 2005 would of been 10.4 million, or $0.30 per diluted share. And we highlight this gain because we do not consider it to be part of our normal operations. Before I pass the call to Jeremy to discuss our expectations for Q2 and the remainder of 2006, I want to talk a little bit about our recent capital expenditure project and the SOX 404 preparations. Our total CapEx for the first quarter of 2006 was 10.8 million, including maintenance CapEx.

The costs incurred in the first quarter of 2006 related primarily to the completion of work on our new permanent auction site in Nashville, Tennessee, which had its first sale in March of this year, and costs incurred in connection with the acquisition and construction of our new permanent auction sites in Houston, Texas, Denver Colorado, and Springfield, Ohio. We also incurred costs for ongoing upgrades of our computer and network infrastructure. Going forward, we're still expecting CapEx, including maintenance CapEx, to be in the range of 50 million for 2006, although our actual expenditures will depend on the pace of our auction sites expansion progress. During the first quarter of 2006, we also completed the acquisition of the business and certain assets of Dennis Biliske Auctioneers, which resulted in a cash outflow during the quarter of approximately 2.1 million.

Our Board of Directors declared a quarterly cash dividend of $0.18 per share, payable on June 16 to shareholders of record on May 26. The total amount that we expect to pay out for this dividend is approximately 6.2 million. And finally, we are well under way on our preparations to meet the requirements of Section 404 of the Sarbanes-Oxley Act, or SOX 404, as most people know it. As you are no doubt aware, SOX 404 compliance is a significant undertaking for most companies, and we are no exception. We will be required to comply with the 404 requirements by the end of this year, and we have added people to help us fulfill our obligations.

We believe that we will be successful in meeting our internal control reporting and certification requirements. However, there is additional risk for us because our Oracle implementation is happening right in the middle of our first year of SOX 404 compliance. We have designed our SOX 404 compliance plans with the Oracle implementation in mind, but it definitely poses some complications for us, and I wanted to bring that to your attention. And now, I will turn the call over to Jeremy Black.

Thanks, Bob, and good morning. I'd like to take a few minutes to give you our guidance for Q2 and update our guidance for the remainder of 2006. As Bob discussed in our last conference call, we will be limiting our guidance to the bigger picture of gross auction sales, auction revenue rate, and earnings growth expectations. On our last call, we indicated that we were expecting 2006 full-year gross auction sales to be in the range of 2.3 billion. We have [INAUDIBLE] our field managers, as we do at the beginning of every quarter, and based on their input we now believe that 2006 full-year gross auction sales will be in the range of 2.35 billion for the full year. Looking specifically at the second quarter, we estimate that Q2's gross auction sales will be in excess of $700 million, which would make it the largest single quarter in the Company's history.

We will be able to offer more guidance on Q3 and Q4 expectations on future conference calls. In Q1, we achieved an auction revenue rate of 9.69%, which was consistent with our expected long-term sustainable range. We continue to believe that our auction revenue rate will be in the range of 9.5 to 10% for the remainder of 2006. On our last conference call, we indicated that we were targeting a long-term earnings growth rate of a 15% per year on average, but that earnings growth in 2006 likely to be closer to 10% due to the well above average EPS growth in 2005.

Based on our updated expectations for the year, we believe that our earnings growth rate will still probably be shy of 15%, but slightly better than 10%. On our last conference call, Bob gave you a pretax earnings target that the Compensation Committee had set for management [INAUDIBLE] calculations. The target was 82.5 million, being the level of pretax income needed in order for the base level of our executive bonus pool to be earned. Based on our Q1 experience and revised expectations for the remainder of the year, it appears at this time it may be exceeded; and as a result, our bonus accruals have been increased accordingly. Our incentive compensation is still a fairly small part of our total expenditures, and the impact on Q1 G&A was not dramatic.

Even if our actual earnings for the full year are significantly over or under this pretax earnings target, it is unlikely that bonus accrual changes would have more than a 2 or $3 million impact on G&A over the course of the year. And now I'll pass the call back to Peter.

Thanks, Jeremy. Before we finish our discussion today, I'd like to talk about some recent changes to our Board of Directors. As some of you may know, Ed [INAUDIBLE] decided not to stand for re-election at our annual meeting on April 13. After eight years of dedicated service to our Company, including serving as the Chairman of our Audit Committee, Ed decided it was time to retire. We're very grateful to Ed for his years of commitment and hard work to Ritchie Bros., and we wish him well on all his future endeavors. Our Board appointed [INAUDIBLE] to the position of Audit Committee Chair and we will look forward to looking with him in this role. Chuck Croft has also been appointed lead Director and Vice Chairman. Chuck is the guy to call if you want to contact the Board directly, and the redirected phone number and email address is included at the back of our annual report.

Before I open the call to questions, I'd like to recap the main points we covered on the call. Firstly, we ended the first quarter of 2006 with gross auction sales of over $571 million, which is growth of 25% compared to the first quarter of 2005. We are forecasting gross auction sales of approximately $2.35 billion for the full year in 2006. Secondly, net earnings for Q1 were $13.2 million or $0.38 per diluted weighted average share. This represents an increase of 27% compared to normalized earnings in the first quarter of 2005. And finally, our expectations for 2006 is net earnings growth of somewhere between 10 and 15% over the strong 2005 comparative. Now we would be pleased to answer any questions that you may have; so James, would you queue the question period?

Thank you. [OPERATOR INSTRUCTIONS]. And our first question comes from the line of Bert Powell from BMO Nesbitt Burns. Please proceed.

Thanks. Peter, we're hearing all kinds of admonishments around the Oracle implementation risk that we haven't heard. Was there development this quarter that is prompting this or is this just your lawyers called you up and said guys, let's get some better disclosure going on here?

No, no, our lawyers didn't call us. I just think it's more prudent and there's certainly nothing going on. Were actually quite happy with the way Oracle is proceeding and very confident that we're on the right track. Our comps have been well managed, the product has been very well-managed and we're biting it off in little chunks. So we just thought was sort of prudent to make sure you guys are aware of that, but it's certainly is not keeping me awake at night if that's your question.

Yes, because you think about most of the [INAUDIBLE]implementation guys are loading and thousands of skus in their inventory management, none of which is a big issue for you guys, would be on the grand scheme of things, would be a similar type implementation. Am I correct that?

Yes, you are. I mean, you got to keep in mind the business is quite simple so were just trying to make sure that we're covering off all the bases. And it's not the first time we've done a financial software package implementation. It's a stage 1 for us of rolling through and we're -- like I say, we're biting it off in chunks, so the financial statement [INAUDIBLE] Oracle is, you know, I think it's in great shape and we're looking to July 1 to go live with our financials. But there's lots and lots of testing and stuff involved in that. So just thinking that the probably the right thing to do would be prudent about it to make sure you guys are aware that we're going live, so I wanted -- it's a little bit more complicated when you're trying to make sure that your complaint with 404 as well for the year -- so I think we're in great shape on both, but we just wanted to make sure that you guys are mindful of that, that's all.

Okay. So I think, Bob, you had talked about Oracle costing -- or its implementation costing kind of 3 to $4 million in '06. Correct me if I'm wrong. And maybe can you give us a sense of how much of that is to come and how much is gone?

To correct the first, Bert, I think the numbers we talked about on our last call were maybe 2 or 3 million and it was incremental G&A for two different things. Our Oracle implementation was one, and the other was changes to our compensation program. And we cleverly lumped those two together. And forecasted for the full year, it will probably have an impact on G&A of $3 million. And I think the secret hidden message in there is this is not that big. But we never actually have given a total cost for Oracle, for that is that Oracle is simply a single piece of the larger M07 program, which includes a lot of hardware, software, and not computer project all as part of a -- an overall program. Oracle is a foundational piece, and so we've never bothered for you guys to sort of break up just the Oracle component. Thing is, we don't really view it as a standalone project. It's the first step of a much larger program.

Okay, fair enough. And first quarter '06 already includes the bump up in bonus accruals for your expectations of better performance?

Yes, it does. But the way we do that is we look at our expectation for the full year, figure out what the bonus should be based on that current expectation for the full year, and then divide it by the number of quarters that are still to go -- so in this case, four -- and so the accrual for the first quarter reflects a portion of the expected overall increase and the rest is already -- if I planned this right for accruals of future quarters, those actual accruals will depend on our performance in the future.

And I'd like to clarify my answer to the previous question; Jeremy is reminding me that [INAUDIBLE] were capitalize. A number of the Oracle costs and other MO7 related costs are capitalized, depending on the GAAP rules. So in Q1, there were some additional expenses, but there were also some amounts that were capitalized.

Right. Okay. Thanks very much.

Our next question comes from the line of from Ben Cherniavsky from Raymond James. Please proceed.

Morning guys.

Good morning, Ben.

Can you -- you mentioned that your total employee count was up 10%. What's your sales for force headcount up to?

Right now, 215.

215. It was probably what, about 210 last year?

A comparable number for March of last year was 208.

208, okay. Now, I'm going to return to a common theme here with your gross auction sales outlook. You're up 25% in the first quarter. You're saying you don't see the momentum changing. And yet, you're talking about 12% for the year. I fully appreciate that your business is lumpy; but what is preventing you guys from being more aggressive on that number?

If I can just put it in perspective, Ben, we also gave the 12 month rolling average comparable because then we are scared by those quarter to quarter things. And the 12 months versus 12 months was about at 14%, so were not that far off that particular number and I'd say that's perhaps more indicative of the momentum -- 25% is off the charts. That's what happens when you compare 90 day periods, though.

Right, but you were looking at -- I mean, you significantly underestimated the first quarter, so what are the chances you're significantly underestimating the year?

Actually, we were very cautious when we [INAUDIBLE] on the first quarter -- we said over 500, and this time we're saying over 700. We decided that we -- we weren't getting any points for trying to be precise, so we're going with kind of round numbers just to give you ball parks. But we're not -- I don't see any benefit to -- for anybody else trying to nail it and then having to explain why we didn't, just because as you said yourself, it's lumpy. So we're sticking to a far more high level of guidance, we're focusing more on the full year and then just giving really round minimum numbers for quarters.

Okay, let me try and dig a little deeper then. Obviously, you guys strongly believe that your market penetration is going up; and there's good reason to believe that, for sure. But what -- have you tried to figure out what degree the pricing environment is benefiting you verses volume? You know, [INAUDIBLE] saying that used equipment prices are up double-digit year-over-year and sometimes quarter over quarter, like they're just seeing massive increases in that metric. And surely that must have a positive impact on the gross auction sales you guys report. So how much of your 25% in the quarter -- or call it 15% for the year, or trailing 12 months -- excuse me -- how much of that would be just what's happening in the price and environment?

Well, [INAUDIBLE], there's arm wrestling here to decide who gets to go first on this one. I get it since I'm closer to the phone. I'll speak about our mix of business and how pricing may or may not have much of an impact, then I'll let Pete and/or Randy or Rob speak maybe to what's happening in the market on pricing, because you raised some really important points. Our mix of business changes dramatically. I've also read that the average construction equipment is weak and it's tough to know what averages are; but in average, fleets are maybe up in the value of 10 to 15% -- there's your double digit number. And if that's true, you know, one might expect to see the average price of the Ritchie's auction up 10 to 15%; but in fact, over the last 12 months at least it's up less than 5%, maybe because our mix of business keeps changing.

But if we sell an increasing number of multimillion-dollar pieces of equipment, or if we sell an increasing number of $400 pieces of something, that has a massive effect on our mix of business, and because that mix is changing all the time, changing prices of gear don't have a direct or at least a quantifiable impact on our business. I think when prices change, that's also indicative of supply patterns changing, which attacks the mix of assets we're selling at our auctions. And so yes, I won't deny that pricing is important and interesting, but it's lost in the [INAUDIBLE] for Ritchie Bros. which is, what are we selling? And what we're selling is what's available for sale. We don't -- we'd love to just go after nice, big juicy stuff, but end up selling quite a range.

Sure. I respect your saying that; I agree with that, but if the equipment prices are up broadly, regardless of your mix you're still going to benefit, because had those -- had you sold whatever the mix is that you've been selling at last year's prices, you're gross auction sales would have been lower than they have been. So it may be difficult to isolate, but it certainly is still beneficial.

Absolutely. I won't deny that. But I'm also focused on [INAUDIBLE]. If we did sell the same mix next year after year, then it would be directly relevant. But in fact, it didn't -- our prices of course went up this year. But Randy is clamoring over here, so go ahead.

One of the things [INAUDIBLE], the same asset that we talk about virtually every time the question comes up, [INAUDIBLE] and I'm not going to comment on the mix of business as Bob did, but prices are strong, yes. And a strong price environment typically means the volume is lower and it's more challenging to find the volume. All so what you're seeing is perhaps there's trade offs -- price goes up, your volume is otherwise not as high as it might be --

Your unit volume.

Unit volume. Sure, you bet. And as the market may change looking out in the future some time, over a long period of time, and the pricing becomes softer on a per unit basis. You may well be selling more units and that ebb and flow has never been that way. And I think right now the fact that the pricing has been high and overall supply equipment is somewhat lower, we tended to grow as we have been, and this very highly competitive and very busy economic environment is very good.

I'm not try to take the wind out of your sails for how impressive your numbers have been, but I'm trying to find some explanation for why they keep ending up being higher than most everyone expects. And to me, it just seems like the inflationary environment equipment certainly has got to be a component of that.

[INAUDIBLE], and I guess there's only one other way to answer that question, and all we can tell you is that we go out there and we try to get as much [INAUDIBLE] as we can for the auctions; and the environment today, as it has been over the last couple of years, is very challenging for us to build big auctions with lots of good, late model equipment., because it's just not been sold. People are hanging onto it because they're using it in their business. So --

[INAUDIBLE, OVERLAPPING SPEAKERS]. I'd much rather see lower prices than a whole bunch of volume going through, because that's really where we shine. So -- I mean, we've talked before and -- with many of the analysts about the industry environment and as it creeps up and the economy is tight, and those things are good. But we see global environment in the world today that's almost -- it's universally consistent in almost every country in that everything is firing on all cylinders and it's a very odd economy, yet we continue to our business. So you look at how we grow our business and it's more and more market share [INAUDIBLE] and we talked about that earlier in the call and I'm glad you think that's the right reason, because we do too. So I don't think there's any much more we can add to your question.

I won't belabor that. Thanks.

Thanks.

Our next question comes from the line of Sarah Hughes from Sprott Securities. Please proceed.

Hi guys. Just on the market conditions, given the recent rise in interest rates, are you seeing any -- any of that tightness coming off a little bit? And obviously your consignor growth year-over-year has increased.

This is Rob Mackay here. Recently, we have not seen any effect of rising interest rates. There is for sure a rising discussion point in the market as you go out talk to your customers, but that hasn't been significant enough that any of them are really being concerned about it right now

Okay. And in terms of the -- talking about market share gains, anywhere kind of in the U.S. are potentially international that you're seeing bigger gains versus other areas?

It's certainly broadly in the U.S., which is kind of our key growth market that we're trying to focus on. Our market share in Canada has been pretty healthy and I can't -- would have to really to pull the answer out of my back pocket, but it's been primarily in the United States.

I would also say, Sarah -- this is Randy -- that the ag is making faster market share gain, albeit it started from a very small number.

And that was leading to my next question. Obviously, your ag sales saw some pretty good growth in the first quarter. Is the majority of that coming from Canada?

First quarter actually is very small; typically, the cycle really is weighted toward the second quarter; and yes, most of the volume that we did have in Q1 was coming from Canada. But Q1 is very small traditionally and the real [INAUDIBLE] season begins in April.

I guess I was looking at kind of year over year in terms of the amount of gross auction sales from ag.

Yes, year-over-year, yes, Canada.

And if you can talk a bit about on the ag side of things, how your growth plan is in the U.S. now that the first acquisition has been made and how you see that transpiring.

Okay. The group that's anchored by Dennis Biliske and his team that we hired will expand that group as we would any other divisional operation with quality people. And that will emanate from the -- in that northern Midwest area outwards from there. We will be looking to grow that business aggressively, just like we've done. We will do offsite farm style auctions and will continue to use the Boston facility as a regular central place to hold equipment auctions. I can see that some time in the future that we may well look to having another small ag facility somewhere in the Midwest, but we haven't really zeroed in on that yet. But we'll continue to grow it much like we've done and our other areas by adding quality people and then aggressively chasing the business -- and there's a lot of business to be had So we're quite optimistic about it.

Okay, great. Thank you.

Our next person comes from the line of Bruce Simpson from William Blair. Please proceed.

Good morning, gents.

Good morning.

Following up on the prior question about ag, now that we're all together in a public format and April has come and gone, can you give us some kind of picture of how April was on an ag basis, both in Canada and the United States?

What are we allowed to say and not allowed to say? [INAUDIBLE].

I think we sold a lot of stuff.

Well, let me tell you a couple of things. We had a spring ag auction calendar booklet that was a marketing publication that's -- they were all broadcast and there was, I think, 102, 103 auctions that were featured in that, which is quite a large increase from the year before -- was big enough that we almost considered splitting it into two different volumes like the Sears spring catalog of the auction world. We've been selling a large amounts of farm land as well with great success. We've had very good results generally speaking in Alberta and Saskatchewan, Manitoba, which is where the bulk of the businesses is. We're pleased with the Biliske team and what they're doing in the northern U.S., and I would say that we're -- were happy.

So you have begun to get some traction in the moving down into the United States in ag sales?

Certainly, Bruce.

Okay. And is the proceeds from the sale of land a significant portion of the gross auction sales of all these ag auctions? Like is this 50% or greater of the total gross auction sales of the ag pieces?

It's less than 50%, but it is a significant portion.

It probably less than 50 in the range, Bruce [INAUDIBLE], but it can range -- less than 50 it fair, but it's probably more than 10. And it can fluctuate up and down in that range.

Okay. And then is the United States, like Canada, primarily the springtime ag season?

It's a little bit different cycle. In that area and the Northern Midwest area of the U.S. it tends to be weighted towards the end of the year when the money is earned for crops that are harvesting at the end of the summer. So we'll have to live through our first season there to confirm whether in fact that's right. But that's what our intelligence tells us, that they fourth quarter should be a little bit bigger than that what it would otherwise be in Canada.

Okay. And then on a different tack, a whole different subject, I think about a year ago you guys made a little bit of noise about potentially getting into fixed equipment auctions, like inside the building, and I haven't heard any about that since then. Is there any effort being made on that front?

No significant effort. This is Rob here. We exported during the course of '05, we've put a few resources to it. It's a very segmented market with many players in it; and at this point in time, we do not have any significant focus on it.

What we've found so far that our payback is higher focusing on other things.

Okay. My last question has to do with general and administrative expenses as a proportion of gross auction sales, which I believe in this quarter were about 4.6%. That's by my reckoning a little bit of an improvement over the year-ago period. Can you give us some sense -- and I know that it varies dramatically from quarter to quarter -- but can you give us some sense on -- without giving us formal guidance -- what kind of target levels or improvement levels do you think the implementation of Oracle or the full Mission '07 might bring, so that when we look out 18 months or so -- I'm trying to get some sense of how a significant of a factor in bottom-line leverage that's going to contribute.

Sure. Chris, this is Bob. The first of all, I appreciate the way you asked the question because you recognize that looking at G&A as a percentage of gross auction sales on a quarterly basis is a little bit dangerous. G&A, of course, is far -- sort of flat through the year -- or more flat -- than our gross auction sales, which are pretty seasonal; however, yes, I think you're right. We're pleased that the fourth first quarter was up year-over-year, but it did sell part of the trend in the right direction. Our sales are growing faster than expenses, and that's the trend that you're hinting at with Oracle.

The main benefit we expect to get from all of our M07 Initiatives, including Oracle, is the ability maintain our operating leverage. Now the operating leverage is demonstrated for Ritchie Bros. in our ability to grow --or where we think we can grow well into the future -- the top talent topline that 10%, bottom-line 15%. And really, the we pulled that off is by having our G&A continue to decrease as a percentage of gross auction sales. I don't have a target for your other than lower than last year. Because we believe that long-term we'll continue to see the percentage decrease -- gross auctions -- G&A as a percentage of gross auction sales -- so that percentage will continue to decrease on an annual basis in order for us to continue to deliver 10% topline, 15% bottom line.

I think for the last few years it's been flat followed by down. Last year it was down a little bit. This year, we expect to go down again, and as the M07 initiatives mature, we would expect continued downward pressure on that. It's just the operating leverage.

Okay. No, that's fine, I appreciate it, but you could try to make it a bit more quantitative, given that we've got one quarter on the books and you guys have already begun the process of increasing your reserves for incentive comp. Is it too early to give us some kind of sense of what G&A might be for full year '06 if you do post gross auction sales in line with what you're expecting?

I think what I'll do, I'll restrict my comments, saying we expect it should be lower as a percentage of gross auction sales than it was last year. Just kind of in keeping with our idea that to be more precise in our guidance doesn't really help anybody.

Okay. That far enough. Thanks, guys.

[OPERATOR INSTRUCTIONS]. Our next question comes from Gary Prestopino from Barrington Research. Please proceed.

Good morning, everyone Hey, could you give me what the total of internet sales were last year? As a comparison?

Last year for the [INAUDIBLE].

No. [INAUDIBLE] this year. What were the last year?

Go ahead with the second part of your question while I look that up.

How about gaining market share and all that? Could you maybe kind of rank order what you think drives that? Is it the [INAUDIBLE] service levels? Are you -- comparatively, are you measuring what percentage increases you're getting from your consigners on the sale of equipment versus your competitors? Could you just talk a little bit about that question

Yes, sure, Gary. It's Pete here. I think that the first part of your question about what is it that's driving that increase share -- is it -- you know, is it location or is it internet or is it whatever? And it's pretty hard to nail down precisely. We just -- the things that we look out most closely are the number of risks, the bidders, number of buyers, numbers of consignors at the auction. Those numbers, we believe as they go up, will continue to support our theory that we're gaining market share and our theory that we're growing the business by adding value. We keep getting new customers and new consignors, new buyers. Those other people that can get exposed to the talent and see how efficient it is and say, hey, this is the right thing for me to do. It's kind of like, you know, you can think of it as sort of like the [INAUDIBLE], and some of them are going to try to go and sell their own house.

They can certainly do it, but there's a lot of work involved that they might not understand. So they will try once; but once they try it once and then thy see the alternative of doing it a different way, and can they add value by getting a person in the middle who is an expert at that to create the -- penetrate the global markets and create value, and we continue to get more and more of that. We were -- actually, it was at an auction during the quarter and asking customers -- new customers -- how they found out about the auction, and it was more word-of-mouth. And you know, all our marketing guys were a little bit chagrined I guess by the fact they keep penetrating and trying to send brochures out.

We do sensational ads and we've the big auction sites on the freeway with signage and equipment volume flowing. But a lot of it is just simply word of mouth and growing reputation of being -- operating the business with high integrity and ethics and all these sort of motherhood statements that all businesses like to say. But, you know, we live that every day. So those are the of things we just keep doing. Were very purposeful in how we grow our business and just hammering away at consistently providing great customer service, and we have grown up that way for the last 15 or 20 years, so we just keep doing that. I don't know, Bob, did you find your numbers yet?

I know were there are, but they're not with me right now, so Gary, I'm going to give you a phone call 5 minutes after this conference call is. It was less than 90.

Have you been able to -- last question -- have you been able to put in any kind of fee increase, commission increase on what your doing since you seem to be the worldwide leader in this business?

You know, we're already -- I think we're already the most expensive guy in town, if you want to call it that, but we believe we create value by providing a decent service. There's no program for us to go and materially increase our commission rates on anything, because we think were earning a fair condition sort of at 9.5 to 10 that we deliver now, that that's not part of our model going forward just to wrap up to 11, 12, 15. So there's nothing in the works right now that would -- anybody else want to comment on that?

I'll take -- this is Rob again -- the market is very, very price sensitive to that. And they see us as the leader in the market, and any significant attempt by us to go up there and to increase commission rates for the purpose of earning more money would provide for a couple of things. One, it would provide for the entry of others to come in, because they see us charging higher rates so they can get higher rates. And it would be seen by many of your customers as being less than desirable. The market is acceptable paying you a fair commission for the risk you take in the deal, and any attempt to increase it may be detrimental.

Great. Thank you.

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

Thanks everybody --- thanks, James, and thanks everyone for attending. Bob will follow-up on this internet question and you can phone him if you want the answer, too, [INAUDIBLE]. But thanks, everyone. We'll get back to work here, so we'll look forward to talking to you at the end of Q2. Bye, all.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.