RB Global Inc (RBA) 2007 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Ritchie Bros. Auctioneers 2007 Q1 earnings results conference call.

During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded this Tuesday, May 1, 2007.

I would now like to turn the conference over to Mr. Robert Armstrong, Chief Financial Officer and Corporate Secretary. Please go ahead, sir.

Thank you, Bridget. Good morning and thanks for joining us on the Ritchie Bros. Auctioneers first-quarter investor conference call. I'm Bob Armstrong, CFO of Ritchie Bros. Joining me today on the call are Rob Mackay, our President for the United States, Asia and Australia, and Jeremy Black, our Senior Manager of Finance. Our CEO, Peter Blake, is also on the line from Europe. Normally, Peter would share this call but with him being in Europe, we thought it best to run the call out of Vancouver to minimize any line quality issues. Randy Wall is traveling in Asia this week and is unable to be on the call.

Today, we will be discussing our results for the quarter ended March 31, 2007. Our presentation will take about 20 minutes, and then we will open the call for questions.

Before we get started, I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined by SEC and Canadian Rules and Regulations. Comments that are not statements of fact are considered forward-looking statements that involve risks and uncertainties and include statements about our projected future results of operations and financial performance, growth and other strategic initiatives, property development plans, and other matters. These risks and uncertainties include the numerous factors that influence the supply of and demand for used equipment, fluctuations in the market value of these equipment, seasonal and periodic variations in operating results, actions of competitors, conditions in local and regional markets, and other risks and uncertainties as detailed from time to time in our SEC and Canadian Securities filings, including our Management's Discussion and Analysis of financial condition and results of operations for the quarter ended March 31, '07, which was filed this morning and is available on the SEC and SEDAR and Company Web sites. Actual results may differ materially from those contemplated in these forward-looking statements. We do not undertake any obligation to update the information contained in this call, which speaks only as of today's date.

I'd also like to remind you that, during this call, we will talk about gross auction sales, which represent the total proceeds from all items sold at our auction. It is not a measure of revenue and is not presented in our statement of operations. Auction revenue is the revenue earned by the Ritchie Bros. and is presented in our financial statements.

I'm going to get Peter to make a few comments about our overall performance for the quarter before Rob gives you a property-development update. Then Jeremy and I will give you the financial overview. I will then conclude the call and open it to questions. Peter, over to you.

Thanks, Bob, and good morning, everybody.

We're very pleased with our performance for the first quarter of 2007, especially following on the strength of our results in 2006. It's gratifying to see that the momentum we experienced over the last several years continues to work in our favor.

We continue to set gross auction sales records in 2007, including a new record for the largest auction in our history in Orlando, Florida, during February. At $172 million, the Orlando auction came in ahead of our expectations, and it was an impressive sight to see more than 6500 lots lined up in our yard and more than 5800 registered attendants. All our people did a superb job of pulling off this incredible sale together, and for the largest sale in our history by a wide margin, our systems and processes ran very smoothly. With the sales volume, it's wonderful to see such growth in the short three years since we opened the site. This, combined with all the other strong auction results during the quarter, propelled us to first-quarter gross auction sales of $700 million, which is 23% ahead of last year's Q1 gross auction sales and our biggest Q1 sales performance ever. On a rolling 12-month basis, gross auction sales for the 12 months ended March 31, 2007 were up 29% over the 12 months ended March 31, 2006. We saw strong results across the board in all of our geographic markets in the first quarter of 2007, and we remain confident that we are on the right track and well-positioned to achieve or possibly exceed our EPS growth goals.

We finished the first quarter with net earnings of $17.6 million, which was 33% ahead of earnings for the first quarter of 2006. While it would be overly aggressive to extrapolate this growth over the whole year, we are certainly off to a great start.

We are confident that our continued strong results are largely due to our increasing market penetration. We believe our business model and consistently high level of customer service are adding solid value for our customers by connecting local supply with global demand in an open and transparent manner. Our feeling is that, if we weren't able to deliver this level of service and create this value, we would not be increasing our market share and our gross auction sales would not be growing.

Our strategy for growing this company is basically the same one that we have been following for almost 50 years. We are pushing forward simultaneously on three fronts. First is the expansion of our infrastructure. Second is the continued growth for a sales force. Third is an effort to increase the quantity and range of assets that we sell. We continue to believe that this is the right strategy for delivering our target of average 15% earnings per share growth over the long term.

Before I pass the call over to Rob, I would like to make a few comments about our ongoing succession plans and the changes that we announced in our press release this morning. In order to increase our focus on the execution of our business model and the less-flashy but critically important -- as critically important nonsales or the operational side of our business, it is our intention to re-establish the role of Chief Operating Officer at the beginning of 2008, and we expect to appoint Bob Armstrong to this position. As a result of this change, Rob and Randy will devote their time and focus to our sales team. We wanted to let you know about this pending change now, since it's all part of a planned progression and we will be commencing our CFO search efforts in May with a goal to have a suitable candidate to succeed Bob in place before January 1, 2008. I'm very excited about the dedicated focus that Bob will bring to the operational side of our business. Bob has been with us now for over ten years and has lived and seen all facets of the organization. I am extremely confident that he will add tremendous value in his new role. Just to clarify, each of Rob, Randy, Bob plus our new CFO, or our new CFO, will continue to report directly to me, and will also continue to run with a very flat and very nimble senior management team. So, a well-deserved congratulations to Bob on the pending promotion to COO effective on January 1, 2008.

I will turn the call over to Rob Mackay.

Thanks, Pete. I'm going to give you an update on market conditions and provide you with recap of our recent property-development initiatives. We get lots of questions about the impending doom in the U.S. residential construction market and what this might mean for Ritchie Bros., so I thought I would take a few comments about our markets.

Let me start by saying that change is good for us. We like uncertainty in the market because it stimulates the need to buy and sell equipment. As long as there is change, either good or bad, we are happy and there's equipment for us to sell. Well, when there is a softening of an economic or geographic sector and related uncertainty about the future, it alters equipment buying and selling patterns and usually in a positive way for us. The supply side of the used equipment market is impacted in obvious ways. A softening typically leads to an increase in used equipment being available for sale. On the demand side, if the contractor loses confident about the volume of work, he will have for the foreseeable future, he is less likely to buy new equipment when he needs to add to his fleet. However, he still needs equipment, so he's more likely to turn to the aftermarket. This is a situation we are facing right now.

Although there is uncertainty in the market, we are continuing to see strong prices for equipment at our auctions. Supply may be increasing in some sectors, but demand remains strong and we haven't noticed any significant pockets of weaknesses. We often get asked about what equipment associated with home-building, such as (inaudible), skid-steers, (inaudible) and the like. Almost without exception, pricing in these categories has held up quite well in recent months. Some of the larger equipment used in the southwest to prepare land for massive housing projects, such as motor scrapers, has stabilized.

One of the reasons people like to sell at our auctions is that we are able to transcend local market conditions. If a category of equipment is out of favor in a particular region our industry, it will inevitably sell in our auction to someone in a different region or industry.

Today, crane prices are strong because demand continues to exceed supply in all parts of the world. But most other categories of used equipment seem to be in pretty good balance, even though you wouldn't know it by reading the newspapers.

To make sure we are well-positioned to take advantage of increasing sales volumes, we are continuing to invest in new and replacement auction facilities. We held two grand opening auctions recently, one in Columbus, Ohio, which is our first permanent auction site in Ohio, and another in Denver, Colorado, which is a replacement permanent auction site for an older facility in that market. We also celebrated completion of a new auction theatre in Saskatoon, Saskatchewan, which is a smaller facility that officially opened in 2006 and is focused mainly on agricultural equipment auctions.

We recently announced the acquisition of 140 acres of land in Kansas City, Missouri. This is expected to be the home of a new permanent auction site to replace our existing regional auction unit on leased premises in that market. We expect to start construction shortly with a view to having an auction on that property in the latter half of this year, though the buildings won't be complete until 2008.

We are still on track for 2008 grand opening of our new permanent auction site in Houston, Texas to replace our existing permanent auction site in that market. We are actively looking for land in other locations in the United States and Europe and are getting close on a number of sites in New England and France.

Our other priorities continue to be a number of replacement facilities in the U.S. and Canada, as well as new facilities in Italy, the UK and Spain. We are also considering new projects in Australia and Asia. These property-development initiatives are an important part of our focus right now. We believe strongly that our future growth depends in part of us having a well-developed network of auction sites. Our ability to [march] large amounts of equipment at central locations is one of our important competitive advantages.

It is true that we could continue to grow our sales force for the next few years without spending money on auction site development, but we believe that this would be a poor strategy. By continuing to develop auction sites, we reduce the risk of future capacity restraints that could interfere with our growth prospects. Developing a new auction site can be a long, complicated process, and we're going to continue to identify suitable properties to keep the pipeline of projects moving forward.

These new sites are an important part of our strategy, but without growth in our sales force, we are not to drive more volumes to the yards. As of March 31, our sales force stood at 255 people, up 10% -- or up 10 people or 4% since the end of 2006. That's up 40 people or 19% since March 31 of last year. These new sales reps are the ones who will be driving our sales growth in 2009 and 2010. As Peter said earlier, we believe we are well-positioned for continued future growth.

Now, over to Bob.

Thanks, Rob.

Hopefully, you've all seen our earnings release that we issued this morning. In addition, our quarterly MD&A and interim financial statements are being filed this morning as we speak and will be available on the SEC and SEDAR Web sites. The numbers that form the basis of this discussion -- excuse me, the discussion that follows are included in those documents. All dollar amounts referred to on this call and in our press release and Securities filings are stated in U.S. dollars.

As Peter mentioned, our gross auction sales for the first quarter of 2007 were over 700 million, which was an increase of 23% compared to our gross auction sales in the first quarter of 2006. We experienced strong sales growth in all of our geographic markets during the first quarter of '07, with particular strengths in the United States, Canada and Europe. Auction revenues were 69 million for the first quarter of 2007, an increase of 24% compared to Q1 of '06. Our auction revenue rate for the quarter was 9.90%, which is ahead of the 9.79% we experienced in the first quarter last year and within our expected sustainable long-term average range. Both our underwritten and straight-commission business performed well during the first quarter of 2007.

Direct expenses, being the costs that we incur specifically to hold an auction, were 1.01% of gross auction sales in the first quarter of '07, which compares to a direct expense rate of 1.12% for Q1 of '06. The main reason for the decrease in the direct expense rate is the larger average size of the auctions that we held in 2007. Generally speaking, as the average size of our auctions increases, the direct expense rate tends to go down because of economies of scale and other efficiencies inherit in our model. The average size of our industrial auctions in Q1 was nearly $21 million, well above the average of 14 million for all of 2006 and above the approximately 17 million experienced for the first quarter of 2006. The $172 million Orlando sale had a significant impact on the direct expense rate in Q1 this year.

We finished the first quarter of 2007 with general and administrative expenses of 30.7 million, which is an increase of 18% over the comparable amount in the first quarter of '06. The major contributor to increased G&A was the continued growth of our business. For example, our workforce increased 23% between March 31, '06 and March 31, '07, and we had 871 employees at March 31, '07. This led to higher wages and benefits, as well as other costs associated with bringing new employees on board. Our personnel costs, including salaries, benefits, stock composition expenses and employee performance bonuses, represent on average approximately 60% of our total G&A expenses. So increased headcount, which is necessary to support the growth in our business, had a significant effect on our G&A expenses. Net earnings for the quarter were 17.6 million, and diluted net earnings per share were $0.50, which was 33% ahead of last year's first-quarter net earnings of 13.2 million or $0.38 per share.

Before I pass the call to Jeremy to discuss our expectations for Q2 and the remainder of 2007, I want to talk a bit about a recent capital expenditure projects and future plans.

Total CapEx for the first quarter of '07 was 13.6 million, including maintenance CapEx. The costs incurred in the first quarter of 2007 related primarily to the completion of work on our new permanent auction sites in Columbus, Ohio and Denver, Colorado, which both had their first auctions in April of this year. We also continue to incur costs in connection with system improvements as a result of our MO7 strategic initiative.

Going forward, we are still expecting CapEx, including maintenance CapEx, to be in the range of 50 to 100 million for 2007, although our actual expenditures will depend on the pace of our auction site expansion plans. Actual CapEx in 2007 and future years could be above this range, as we continue to invest in the expansion of our network of auction facilities and to fund our MO7 strategic initiatives. We expect that our actual expenditures will vary, depending on the availability and cost of suitable expansion opportunities and prevailing business and economic conditions. We expect to finance these projects with a combination of existing working capital, cash flow from operations, and draws on available credit facilities or new term debt.

Our Board of Directors declared a quarterly cash dividend of $0.21 per share payable on June 13 to shareholders of record on May 23. The total amount we expect to pay out for this dividend is approximately 7.3 million. This dividend will be considered an eligible dividend for purposes of the new Canadian income tax rules.

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 2007.

Our expectation at the start of this year was for gross auction sales of at least 700 million for Q1, which is what we actually achieved. We also previously indicated that we were expecting 2007 full-year gross auction sales to be in the range of 2.95 billion. Based on a review of our results for the first quarter and talking to each of our field managers to get their input, we now believe that 2007 full-year gross auction sales will be in the range of 3.0 billion.

Looking specifically at the second quarter, we estimate that Q2's gross auction sales will be in the range of 900 million, which will 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 once we have more visibility into the second half of the year.

In Q1, we achieved an auction revenue rate of 9.90%, which is within our expected long-term range. We continue to believe that our auction revenue rate will be in the range of 9.5 to 10% for the remainder of 2007. We are continuing to target long-term earnings per share growth of 15% per year, on average, which is the range we indicated for 2007 on our last earnings call. We are still confident that our earnings per share growth in 2007 will likely be in that range.

That's all for me, so I will pass the call back to Bob to wrap up.

Thanks, Jeremy. Before I open the call to questions, I would like to recap the main points we covered on this call.

Firstly, we ended the first quarter of 2007 with gross auction sales of over 700 million, which represents growth of 23% compared to the first quarter of 2006. We are now forecasting that gross auction sales will be in the range of 3 billion for the full year in 2007.

Secondly, net earnings for Q1 were 17.6 million or $0.50 per diluted, weighted average share. This represents an increase of 33% compared to net earnings in the first quarter of 2006. Our expectation is that EPS growth for the full year will be in the range of 15%.

Finally, our business model continues to enjoy significant momentum as more and more equipment owners are choosing to buy and sell at our auctions. Together with the continuing expansion of our infrastructure and the growth of our sales force, this momentum makes our future look very promising.

Now, we would be pleased to answer any questions that you have. Bridget, would you please begin the question period?

Thank you, sir. (OPERATOR INSTRUCTIONS). Bert Powell, BMO Capital Markets.

Thanks. Congratulations on your appointment, Bob. I wanted to look at G&A. If I look at that as a percentage of gross auction sales or auction revenue, you had a pretty low quarter. Then I look at Q4, we were pretty high. What's accounting for such a huge swing? Have we got the bonus accruals in there that's affecting the quarter-over-quarter deltas? Is there some expenses coming off for MO7? Can you just help me understand the G&A and how that's going to flow for this year?

Well, there were some unusual items or some one-timer type items in Q4, Bert. There were a couple of large legal-related claims that we talked about last time (multiple speakers) the CAT issue, so all of that was one-time and non-repeating.

If you recall, well, you mentioned the bonus accruals. The bonus accruals in Q4 were high because it was the large quarter, so it's more normalized and the accruals weren't anything like that in Q1. So I think you've got there the largest single item, and then like any other company, we just have so many other line items in our G&A, we had better performance on a lot of them than we had had at the end of last year. So there were a couple of big items and then there was a number of smaller, less significant items and it all added up. We were pleased with where it came in.

Okay, so if you look at the G&A expenses for the year, relative to -- I guess you use that as a percentage of gross auction sales is the metric you guys are most comfortable with, or auction revenues. If I look at the percentage that you did last year and what you see on the drawing board for this year, would you expect an improvement over last year or to be in a similar kind of range?

We are hoping that it's either similar or better.

Okay. On the direct expense side of things, I understand clearly, when you have large auctions at Orlando, that makes a big difference in terms of getting the percentage down. With the number of ag auctions, I think there something like 130 ag auctions this quarter versus 90 last year. Would you expect the trend, in terms of looking at Q2 '07 versus Q2 '06 -- should that continue to come down, or given the frequency and the increase in ag, that would be higher in Q2 this year?

You are asking about our expectation for the direct expense rate in Q2?

Yes.

Yes, ag is certainly one of those factors but it's not -- it moves the needle but it can't move it that much. It's not anywhere near the majority of the sales in the quarter, but it's definitely a factor, and so you definitely expect a higher direct expense rate in Q2 than you do in Q1. But it's too soon to make the call as to where it will end up because the bigger driver would be the industrial side. We are so far from the end of the quarter, we just don't know how big those sales are going to end up being and how efficient they will end up being.

Okay, perfect. Thanks.

James Gentile, BB&T Capital Markets.

I noticed that the number of regional auction sites is up by 1 in the Q1 period. What area was that?

Regina, Saskatchewan. We had a small acquisition in the beginning of the year, James, and the auction site that we inherited with that is currently on a lease basis. I hope is to be able to convert it to an owned one but because it's a lease right now, we call it a regional auction unit. That is primarily an ag site.

Then you opened Columbus in the quarter to bring the permanent auction sites up to number 27, right?

That's right. Jeremy and I are making eye contact right now. Jeremy, that was without the numbers? If I want to try and do reconciliation for December until now, which auction sites are in the program?

Columbus (inaudible) replacement, so there is no net change. (multiple speakers)

Okay, great.

(inaudible)

Excellent. Bob, congratulations on your promotion.

Thanks, James.

Ben Cherniavsky, Raymond James.

Good morning. So, congratulations, Bob. My question was just around the $3 billion that you guys are targeting for this year of gross auction sales. Does that represent significant deceleration in the back half of the year? Clearly, it's not what we've seen in the first quarter; it's not really -- well, there's some deceleration I guess implied in your second quarter. But what speaks to a number that would have a growth rate significantly, so significantly below what you're tracking so far this year?

Well, I will start on that one, Ben, but I wouldn't be surprised if Pete wants to throw in some color commentary on it. The way we come up with our projections is really no different than we've done in prior years. You know as well as I unfortunately that, last year, we ended up being on the conservative side. In prior years, it hasn't always worked out that way, so we're not willing to second-guess the field.

For those that aren't familiar with it, we poll our field managers on a quarterly basis to get their particular expectations for sales volumes in their regions for the remainder of the year. We've just completed that exercise a few weeks ago for the Q2, 3 and 4 period. That's how we got the 900 million number, as we add up what they tell us, they think they will do. We will see what it says, and right now, it says about $900 million, so we communicate that to you. For the full year, the totals from the field are adding up to approximately 3 billion. That's where that number comes from.

It's not a perfect science. It's the best we've got, and so that's what we go with. In prior years, excluding last year, it has been a fairly reliable measure; it has worked out pretty well. I would say then, on average, sort of over longer-term, it works fairly well. Unfortunately, we've got, in all of our memories, that last year we outperformed on a consistent basis. We haven't seen that kind of growth rate in this company in the years that I've been here, and we just don't see it happening again. So we believe that the field numbers are as reasonable a number as we've got.

I'm not trying to second-guess so much what the field numbers are telling you, but what is the -- what would their explanation be? Is it just the lumpiness in the business or what would account for a number that would turn out that way when you've brought so much momentum?

Rob has a thought.

Ben, Rob here. Well, after Q1 was over and we went and polled our managers, some of them are less optimistic on their balance-of-the-year numbers based upon restrictions in supply and around different markets of the world. Today, right now in Europe, our guys are soon to be challenged on the supply side of filling our yard over there. The economy over there is very strong; everybody is working. There's a lot of competition for the used equipment that's out there. The expectations of our guys out of the starting gate, vis-a-vis today, is somewhat softened or less aggressive than they had in the other part earlier in the year. So it's different managers change their views as the years go on -- or as the year goes on.

Then, Peter, the one comment I'll add is that you mentioned lumpiness and you're bang-on. It is a lumpy business and our guys have -- they try to get as comfortable as they can with their visibility. The numbers that they send in, you know, we try to (inaudible) as best we as well to apply our own metric looking from sort of the top-down. We are trying to be as realistic and as reasonable as we can to give you, in the Street, some guidance as to where we are headed. I think we increased for the year and we're pretty comfortable that these numbers are the ones that we're going to achieve. If there's upside, we're absolutely going to get it, like what happened in Q4 of last year and the momentum carried on. So that's always good.

It's also hard for the managers who experienced such as glowing latter half of last year to write bigger numbers down sometimes. Sometimes they don't believe that they're going to get to get there, but we do. So it's a combination of discussion, guidance, setting, looking at the market, trying to get as decent assessment as you can. But the further out you go, of course, in any business, the tougher it is to predict where you're going to end up. So, we do the best that we can to give you guys the guidance we believe is accurate as it can be.

Fair enough. Thank you.

Jacob Bout, CIBC World Markets.

Good morning. I had more of a macro question on market share. If you take a look at what your market share is in the total used industrial equipment, you know, where do you think you are at right now? Do you see an uptick in the auction portion of that, and what you think your percentage of market share would be going forward?

I will start with -- Jacob, it's Bob -- and (inaudible) want to chime in. It's an excellent question. We look at it internally; we look at it on a company-wide basis and then we also look at it on a region-by-region basis to see how different regions are doing. Are they getting as much share as the next region for example? But worldwide, the numbers that I read about in the reports from the various analysts who cover us, the equipment, the total market size is at 100 billion or higher in transactions, and we are targeting 3 billion for the year. So I guess that would say that our market share is about 3%. Even if those numbers are off by a bit, whatever it is, it's a very, very small number.

Your second question, though, is the auction component increasing? I guess I'd have two comments on that. For sure, it's increasing only because Ritchie Bros. is increasing. As we grow, by definition, the auction portion of the market is growing. But we really don't look at the auction component of the used equipment market as being our sandbox. We are really targeting the whole thing. Our main competitors are not the other auctioneers, but in fact all the people that sell through the incredibly inefficient channels that are selling it themselves.

So when we look at the market opportunity, we really don't look at the auction share. We look at the whole thing. There are many, many other auctioneers out there, none the size of us, and there's lots of room in the sandbox for all of us. We really don't see ourselves as competing so much with the other auctioneers as being a new option for the very inefficient channel that's out there.

So, how big can it grow? Well, we're so small, we've got lots of room. I don't know Rob, Peter, or Jeremy, if you want to go in on that?

No, I think it's a good summary, Bob.

Okay, great. Then maybe you can talk about your expansion initiatives into India and China.

It's a good thing (inaudible).

Today, we have offices in both locations. We have a couple of sales guys on the ground in India, and they are starting to develop a support staff there. In China, we have a country manager and two salespeople on the ground. In each country, we are proceeding a little different than the other. India, probably because of the legal system and infrastructure that exists, may afford us the opportunity to have an auction sale before we would in China. China, we're still faced with lots of complications over there, including licensing of auctioneers, a law, if you will, that allows us to have auction contracts and have people fulfill their obligations under them. (inaudible) the pursuit of our business in China today is to develop relationships with big Chinese contractors that work in China and also work abroad. As they are done with their equipment on projects in Africa or the Middle East, we are pursuing that surplus equipment to sell in our auction sales in the Middle East. At the same time, some of these contractors have used equipment in China that they're desirous of sending back to the European economy or the Middle East economy to sell there as opposed to selling it in China. So we are slowly developing that marketplace and introducing ourselves to the market players and doing a similar activity in India. So each one of those is a greenfield that's a little harder to chase than the other overseas areas that we've pursued in the past.

Is the auction an accepted way to sell industrial equipment, both in India and China?

Not today. Auctions go on in each of those countries, some in the automobile industry. Of course, they do it with the fish business, they do it with flowers, but it is not well-known at all, particularly in China, in construction equipment.

Then the last question, just on the Internet sales, evidence here that basically you are plateau-ing and what your thoughts are on Internet sales as a percentage of total sales going forward.

Yes, the Internet currently is the higher or runner-up on about 25% of everything we are offering (inaudible). Your right in that it's been fairly steady at that number for about two or three quarters now.

I will be honest with you. This plateau is there. It's growing at about five times higher than we thought it would plateau, so that will be an excellent plateau. We are still seeing hints that it might be growing but growing slowly. I will be honest with you, Jacob, I think that's a pretty healthy level to be at. It's no surprise to us that the Internet is not the panacea for our marketplace selling used, income-producing assets that people need to inspect, test and compare. So the ability to bid online is really just a customer service tool for those people who can't (inaudible) that it got as high as it did, a surprise to a few of us, and then it's leveling off at a number like this, or if it's leveling off at a number like this, would be very healthy.

We still have 1000-plus people on average at our sales sites. That's where the majority of people want to go. The Internet has just been a really, really successful customer-service initiative. It's enhanced the live auction experience.

Okay, great. Thanks, guys.

Bruce Simpson, William Blair.

I would like to offer my congratulations as well to Bob Armstrong.

From now on, Bruce, I will be routing your calls through my secretary! (LAUGHTER)

Please do! Okay, a couple of things. Number one, I was a bit surprised with the blockbuster results you had in Orlando, that the ultimate gross auction sale number of 700 was right at your target of I believe you had said at least 700. Did you see a little disappointment or perhaps even a little bit of slowing after Orlando in the auctions that you held in March?

Bruce, this is Bob. When I took a look at the sales results for the quarter so we could do -- you know, you could put them on one page, so I run down the list and I compare it to what the numbers are that the guys in the field had thought they might get for that particular sale. None of them were on the numbers. Half of them were high and half of them were low. There were a couple that we originally thought would be in the first quarter that ended up being in the second quarter. There were a couple that were double the size that we thought they would be and there were some that were half the size that we thought they would be. So if I -- no trends, some upset, some excitement. It is exactly like it is every quarter. There was no particular surprise.

Okay, so the visibility over gross auction sales is really just as difficult as it has ever been?

I'm afraid so. If we get the -- the law of averages helps us out, because we are wrong half the time up and wrong half the time down, and historically and again in the first quarter, it tends to average out.

Okay. Then, I noticed that the agricultural business, in the language in your press release was referred to as having fewer auctions and a lesser contribution of gross auction sales in the quarter. What's that all about?

That's all about timing of auctions. Overall for the year, we are still expecting our ag business to be a very solid performer. It happens that, in the first quarter, which is a very, very small volume quarter for agricultural sales, that it was down. In terms of the totals for the year, that's a very, very small portion of the total ag volumes that we did last year or would expect to do this year. It just happens that we did fewer in March. April was a -- man, I did not want to be on the ag team in April. I think they are still -- they're waiting to get a chance to go to sleep for the first time in 30 days. It's been a huge (multiple speakers) (technical difficulty).

Randy and I were both out running with those guys, and it's an incredible effort that they (inaudible) so I spent a week with the team and Randy spent a week with the team. I was in Alberta and Randy in Saskatchewan, and we both came back with our heads spinning. It's incredible what they are doing there. We are having four and five auctions a day, so the penetration of the business has been great. I think Bob is right; it's just a question of timing at the quarter end there, Bruce.

Okay, but is that -- I believe Saskatoon site, is that a little bit of a change in the business model in order to try to centralize ag auctions rather than having them on farm?

Yes, it's a complement so that we're doing. We certainly will continue on-farm but we are convincing more and more people that is very efficient to bring and the success of the Saskatoon sale in terms of number of attendees. There were over 5000 people at that auction, and that's almost the population of Saskatchewan. No, I'm just kidding. But there was a ton of people, much more than most expected. It even surprised us to see the volume, but that is part and parcel of the reputation that we've gained in the ag industry is exactly the same as the one we have on the industrial side. It's just been fair, straight, open, honest, transparent business. The people appreciate that level of business acumen and the reputation that we carry. So, they are comfortable coming to the auction and bidding because it's a real program. So the more that we convince, the more that we can centralize. We will continue to do both, but it allows us to service both kinds of markets.

Okay, then shifting gears, I wanted to ask about G&A spending for the year. Have you or will you give us a targeted dollar amount or percentage of gross auction sales, so your G&A spending in '07?

Bruce, we have not, and the plan is to not do so. We tried to back off or we successfully did back off that level of detailed guidance about a year ago and have not given detailed line-by-line expense guidance since that time. So, I apologize but our plan is to not do that.

Is it okay to discuss it like whether you expect that to grow faster or slower than the overall growth in revenue, or gross auction sales?

Long-term, for sure, we expect our revenue growth to exceed our expense growth. We've learned, as you've seen, it's lumpy. Sometimes it grows much faster; sometimes it doesn't grow faster at all. We're definitely looking at the long-term and we definitely see long-term -- well, shoot, we have to for long-term; that's the whole strategy in the business model. Sales and revenue growth exceeding expense growth.

In answer to a question earlier on this call, I did say the closest that I'm willing to get, which is that, in terms of a percentage of gross auction sales, we're certainly hopeful that, this year, G&A is either at or better than the rate from last year, but it may not be that way.

You've really got your Teflon suit on today, Bob! (LAUGHTER)

It's his new role.

Okay, one more question -- and speaking of his new role, I'm curious about particularly the roles of Randy and Rob. It sounds like his if they will have a greater focus on sales. Does that mean that they are no longer kind of actively involved in management of independent sites and so forth? How do you foresee that impacting either the growth rate or the training and so forth of the salespeople?

It's Pete here, Bruce; I will speak to a bit of that. The role that Randy and Rob will dial into is really more on the sales (inaudible) they will be able to focus more on their direct relationships with the guys that report to them on the sales end. Each of those guys also carried with them some operational responsibilities, so they were sort of double-dutying in each of the jurisdictions that they are responsible for.

Randy is still going to be heavily involved in the property development side. It seems to be a love of his and his is very good at it, and the guys gravitate towards him in that area. So that allow him to spend more time with that as well (inaudible) increased attempt at getting these sites online, which is always a challenge. That allows him to devote more time and energy to that, which is a good thing.

You know, they will be able to participate a bit in the training side as well and give it some more hires that are coming through. It's always good to see the senior guys and when they can poke their head in the door and offer the sage advice to the young crew of people that are coming through, it's a very positive impact. So, we're trying to isolate and concentrate on allowing guys to do what they are best at. I think we're going to do that with Bob moving into the operational side and Randy and Rob really taking an increased sales focus.

With 255 TMs now, how are you thinking about growing that for the rest of this year?

Is that for me, Bob, or --?

Well, I will give the standard statistical answer, and then you can provide the color. We are (multiple speakers) -- the growth in our sales, Bruce, will come -- well, I guess it's a multi-tiered strategy. But on the personnel side, there will be a growth in our sales force, and hopefully also growth in what we call the sales force productivity, and some combination of that will hopefully drive or will drive your total sales growth. So I would say we are still looking for sales force growth somewhere around 10%. If we can grow it faster, we will, because we know full well that's one of the biggest constraints to our growth. If we can bring more people online this year, those are the people that will be fueling our growth two and three years out. When we are enjoying good growth over these last couple of years, we can look back to the sales force additions of a couple of years ago and thank those guys for a lot of the contribution. So we need to keep filling the pipeline with new guys, but it's hard for us to hire 100 guys in one year; 100 people in one year. It's just not possible because we do a lot of one-on-one training. So I don't know, around 10% per year.

Okay, thanks.

In fact, I think, Rob, as soon as the call is done, you and Bob are popping down there. There's a sales training program on even today and I can't remember the number of countries the guys are from, but it's a pretty broad spectrum. So you guys will be participating (inaudible).

Yes.

Sarah Hughes, (inaudible) securities.

Bob, in terms of I guess a follow-up from Ben's question on the 3 billion in guidance, would the number of auctions that you're holding this year have any impact on kind of slowing down growth? Because I know, last year, you had a pretty big increase. I think it was like 15% in the number of auctions held and I think, in the first quarter, they were kind of flat versus last year.

I don't think so, and I'll be honest. It's not even a metric that I look at. I mean, I can look it up; it's an easy one to count but it's not one that, in my view, drives our business. Gross auction sales is what we are after, and I don't mind whether it comes in smaller number of sales or more sales or big sales or medium-sized sales. There's so many different ways to get that volume, so it's an interesting question and if there was some correlation there, it would be fun to look at. But I don't think the number of sales has much impact.

Then, Rob, you had mentioned, in your talking about your new -- going after new markets and the growth plans, you mentioned Asia. I was just wondering. What countries are you targeting, obviously outside of China, in the Asian market?

Japan. We've been playing in the Japanese market since '85, '86, somewhere back in that range. We've been securing equipment out of that market that has been taken to our auction sites around the world. Some of it is sent to the U.S., Canada, Australia, Dubai. We're recently hiring on some more people into that market and our desire is to get ourselves well entrenched in that market domestically.

You mean by opening, say, a regional site first or something like that?

Yes.

Could you see that happening in the next couple of years, or is it a longer time frame than that?

Well, I would hope well within a couple of years, perhaps shorter.

Okay, great. Thanks, guys.

Gary Prestopino, Barrington Research.

Good morning, everyone. Bob, as you're adding sites here this year, could you give us a range of where you think your D&A is going to come in this year?

That's a tricky way to try to get us to answer what I wouldn't give the last guy! (LAUGHTER) How can I answer this one? It's easy to answer. We expect it to be increasing every year as we go forward, as we add more sites. The truth is, Gary, a lot of the money we spend on these sites is nondepreciable, the land portion for example. Then all the building expenditures have depreciated over a long period of time, 30, 25 or 30 years on some of the assets. So the G&A -- or excuse me, D&A, depreciation and amortization, related to new sites is meaningful but it's not a material thing. Probably more meaningful is any software spending we do, and that has been pretty heavy over the last couple of years with a new Oracle implementation, for example. That stuff gets written off much faster, sort of three to five years. We are still spending on that type of activity. So I think your depreciation expense continues to climb reasonably steeply the next couple of years, and then it's more like a slow growth from there.

Then, it looks like your auction revenue rate was up about 11 basis points year-over-year. Is that indicative of that versus last year, it was down every quarter? Is that indicative of where you're starting to see better stabilization in the pricing for used equipment, and that gives you a lot more confidence to maybe step up to the plate and use the underwritten sales method versus just straight commissions?

An interesting way to word the question. The answer is buried in there somewhere.

The percentage of business that we are underwriting is really virtually unchanged, quarter by quarter, over the last couple of years. It's sitting right around 25%, so the thought that a stabilizing equipment market encourages us to do more underwritten business, I would say that's not accurate. However, it would be true to say that stabilizing equipment market helps us make more money on the underwritten business. We've often talked about there being many factors that influence the profitability of underwritten business. One of those is changing equipment prices. In a quarter where our underwritten business has performed poorly, one of the factors in the past has often been that equipment prices were sliding during that period, such that we would make a commitment on 1 day and 30 or 40 days later, have an auction sale and maybe have a poor experience because prices have moved more than we had expected during that period of time.

Conversely, in a strong and strengthening market, that could work in our favor. In a stable market, we are better able to predict the future, I guess. We think we do a pretty good job in all markets, but more stability is better for us in that sense. I don't know, Rob, do you want to --?

(inaudible) I think, going into Q1, we anticipated, from the market results in '06, that going into Q1 in '07, we anticipated somewhat of a softening of the market. When we approached the underwritten business going into Q1, we probably pulled back a little bit in our aggressiveness. The results in Q1 were overall probably stronger than we anticipated in market pricing, so we fared quite well.

Yvonne Varano, Jefferies.

Bob, can we just go back to D&A for a minute, because it seemed to be down in 1Q versus 4Q and with the sites coming on, I would have thought it would have been a little higher. Was there something that came off on the software spending side?

You are right; it was down a bit but not very much. It was apparently flat through Q3 and Q4 last year and then down just a little into this quarter. I can't point to anything in particular. There weren't a lot of new buildings that can onstream except right at the very end of the quarter, I think we put Denver and Columbus on. So there wasn't a lot of additions during the period, and you've got a continual falling-off of software projects that were started, say, three and four years ago. So it doesn't surprise me too much that it would be flat or down a little bit. There wasn't anything in particular I can point to, though.

Okay. Then we talked about the sales force and the new training program, which continues to move forward, but has that shortened the time in which you can get salespeople up to the average rate or something that you would look at as more of a full production level?

Let me make sure I understand the question, Yvonne. You are wondering whether our new training programs are working? (LAUGHTER)

I'm not even sure I'd answer. We hope so; we think so. We are doing everything we can to help our new salespeople become bigger, better, faster, more productive right away. We are definitely seeing some really encouraging results. Some of our superstars have not been with us that long. It's great to see that happening. I think our increased profile of the Company is helping us to attract even better people. We are just doing a better job generally on the whole personnel side. But (multiple speakers). Go ahead, Pete.

I was going to say it's not just the training side, Yvonne. That is a good question, because it does zero-in on productivity, which we are focused on, but it is (inaudible) recruiting and the hiring process. We've instituted and brought on some great people to help us in that program and we've been very successful at vetting candidates, probably better and more so than we have in any time in our past. So we are looking forward to increased resource allocation to that function so that we can carry on. It's such an important piece on the way through, the retention strategy as well that we bought in last year to create a little bit more clarity and competition. We've had some very, very positive feedback from our people that have been affected by that. That (inaudible) into better behavior and targeted behavior. So those are all positive things.

The training for sure has had a terrific impact and I think it has been very positive. We've received lots of comments from people that go through the program, just very impressed with the quality and the comprehensive training program that we have versus anything that they've seen in their careers in the past. It all adds up to really just being better at what we do, not only from better salespeople that come out the back-end but a better HR department.

How long, on average, is it taking for the new hires to reach something of a full production level?

Yes, that's a good question. I don't think you can have a general answer. We shoot for -- we say it takes about two years or two to three years, because it is a relationship-based business, so much so that even if the guy is a great sales guy, you don't just (technical difficulty) and start selling your business to them. It takes some time to build a relationship. Particularly if people are new to the unreserved auction concept, which many are, it takes some time for them to get comfortable with it. So it's just a question of exposing the channel and exposing the positive value-added proposition of equipment from these people, and then just being persistent, pleasant but persistent in making sure that they are aware that we're there to help them. So the training just gets them more tools in their belt. The process of selecting the right people just means that we're going to have a higher retention rate and hopefully happier staff and good clarity and compensation. That just bodes well for the future.

Okay, terrific. Bob, congratulations.

Ben Cherniavsky, Raymond James.

Thank you. Bob, I just wanted to -- you triggered a thought when you mentioned the $100 million market. I wanted to just speak about that a little bit, because it's a number that has been around an awful long time. It's a number that I don't quite know why but you guys don't want to take ownership of that. You sort of referred to it being analysts forecast, but quite frankly, my recollection is I've used that number for years and it came from you guys. In fact, it came from the estimate of the market that you had put forth in the IPO, if I remember correctly, back in 1988.

I suppose just my question -- one, would be would that number not be a little stale? Like don't you think the market over the last ten years, especially when you consider price but also volume, has got a lot bigger? I mean, CAT alone does $25 million of new machine sales and it's probably got a global market share of about 30%. Then you've got all these other products that you deal in that they don't manufacture. So my question is don't you think that number is a bit bigger? Second, why are you reluctant to have your own estimate out there of what you think your total market size is worth?

While you are talking, I am making notes of why I'm looking forward to my new job! (LAUGHTER)

You know what, Ben? It's an excellent question and I apologize if it seems like we are hiding some stuff. The 100 billion number, when we talk about it -- I hope I always say I don't really know how big it is. That's a number that floating around out there. The point is whatever the number is, whether it's twice that, it's colossally bigger than we are today. So it just serves as an example of how much bigger the market is than we are. So whether we have 3% market share or 1% market share or 5% market share, the total size of the market is not a limitation on us. That was the purpose at the beginning of trying to put out some number -- was to let people know that the thing is just huge.

Why would you have a better grasp for what you think the market (inaudible)?

Let me jump in. To be fair, we did do some work and I participated in that work last year, just to get a more firm -- a lot of it has to do with estimating the timing of turn. Does somebody hold onto something for an average of ten years or three years or five years or what not? But even estimating a ten-year turn, our updated estimates of that 100 billion were well north of that. They were closer to 150. We didn't see how it was rally relevant to start saying, well, now the market is that much bigger; it's 150 billion. Bob's point is exactly on point in that, hey, the market is huge and we are quite tiny and we are focused on creating value for customers that today might use a different distribution model for value for (inaudible) equipment. They might not know who we are.

So I think that's a great question, Ben. I don't really want to hide behind anything either. I think that 100 billion did come from us originally, and it was a number that was accumulated from the U.S. Department of Commerce stats through the IPO. We did do updates last year. My recollection was they were about 150 billion, but we thought what is the point of saying, hey, guess what, everyone? It's now 150 billion in the marketplace. The reality is (multiple speakers).

I guess the only thing, Peter -- sorry to interject, but I think the only maybe relevant point is that, at $100 billion ten years ago, you were 1% of the market. Your growth has not -- now, you've done a tremendous job of increasing your footprint and such, but looking strictly at the fact that your gross auction sales have pretty much tripled since then, it's not entirely market share because the market itself has grown 50%. (multiple speakers)

I don't think you can say it's entirely market share because there's inflation and all the other things that go along with it. But for sure, the primary reason for our growth is market share, the primary reason, that's for sure.

Yes, but you still get affected, even albeit at the margin, by what happens in the overall market.

So does Caterpillar and so does (multiple speakers), everyone does, because there is inflation built into the economy in everything. So, it's a good point but at the same time, you can apply an argument to every company reporting earnings in every quarter. That's just (multiple speakers).

Right, but I mean yours is primarily a market share story, so what happens to the market (multiple speakers).

Oh, by far.

(multiple speakers). Anyway, I've had the view that (inaudible) number is stale on the total market side (inaudible) quite a bit bigger. But to your point (multiple speakers).

You know what? Why don't you do yours and we will show ours and we will compare and see where you guys are?

Okay, thanks a lot.

We have time for one more question.

(OPERATOR INSTRUCTIONS). There are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Thanks, Bridget. Thanks, everybody for joining us today. We are pleased to be able to announce good results for the quarter and definitely appreciated all your questions. Thank you for listening in, and go Canucks!

Thank you. (LAUGHTER)

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.