RB Global Inc (RBA) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. Auctioneers 2008 third-quarter 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 Thursday, October 30, 2008.

I would now like to turn the conference over to Peter Blake, Chief Executive Officer. Please go ahead, sir.

Thanks, Dan. Good morning, everyone. Thanks for joining us today. I'm Peter Blake, CEO of Ritchie Bros. With me on the call today are Rob Mackay, our President, who's calling in from our auction currently under way in Edmonton, Alberta; Bob Armstrong, our Chief Operating Officer; Rob McLeod, our CFO; and Jeremy Black, our Director of Business Development and Corporate Secretary.

Today we'll be talking about our financial results for the three and nine months ended September 30, 2008. Our presentation will take about 25 minutes and then we'll open the call to questions.

Before we start, I'd like to make a safe harbor statement. The following discussion will include forward-looking statements as defined by the SEC and Canadian rules and regulations. Comments that are not statements of fact are considered forward-looking and involve risks and uncertainties. These include statements about our projected future results of operations and financial performance, growth and other strategic initiatives, property development plans and other matters.

The risks and uncertainties include the numerous factors that influence the supply of and demand for used equipment, fluctuations in the market values of the used equipment, seasonal and periodic variations in operating results, actions of competitors, conditions in local and regional markets, recent world economic conditions, 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 three and nine-months ended September 30, 2008, which was filed this morning and is available on the SEC, SEDAR and Company websites.

Actual results may differ materially from those contemplated in the 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 note that during the call we'll talk about gross auction proceeds, which represent the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. Gross auction proceeds is an important measure we use in comparing and assessing our operating performance. It is not a measure of financial performance, liquidity or revenue, and is not presented in our statement of operations. The most directly comparable measure in our financial statements is auction revenues which represent the revenues we earn in the course of conducting our auctions.

With the first nine months of 2008 under our belts, we are pleased to report record adjusted net earnings of $67 million, or $0.63 per share, adjusted to exclude after-tax gain of $7.3 million recorded on the sale of excess property. We achieved gross auction proceeds growth of 17%, auction revenues growth of 19%, and adjusted earnings growth of 14%, compared to the first nine months of 2007. We conducted 134 unreserved industrial auctions and 125 unreserved agricultural auctions in 14 countries, and have sold $2.71 billion worth of equipment. This has been a great nine months and, given the current volatility in the global economy, we're excited about what the future holds.

We're going to talk to day about our financial results for 2008 to date, about how the current world economic turmoil is impacting Ritchie Bros. today and, perhaps most importantly, how we see it impacting us going forward. Before I get into this discussion, I will say that we believe our business model is very well suited to current economic conditions and that executing our proven strategy will continue to be a more significant determinant of our ability to grow our earnings per share than macroeconomic factors, just as it has been for the last 50 years.

In short, these are good times for Ritchie Bros. We've always said that we are able to do well at any point in the economic cycle, whether times are good or bad, and I think it's fair to say that we are in the midst of some of the most challenging economic times in memory. Fortunately, uncertainty and change motivate people to make adjustments. Just think of the record trading volumes on the stock exchanges in the past several weeks. It's not much different in our world, although in our case uncertainty gives equipment owners a reason to buy and sell equipment.

Let's be very clear. People have not stopped buying equipment, nor do we expect them to. When times are tough and cash flow or credit is tight, equipment buyers are more likely to look for good quality, late model used equipment and consider their purchases more carefully, seeking out reputable sellers and inspecting an item for themselves. They may also consider selling their surplus assets. All of these behaviors draw people to our auctions.

That said, our customers don't appear to be having any difficulty accessing credit to fund their auction purchases. Generally speaking, the majority of our customers are not financing individual pieces of equipment. Also, most of the main participants in the equipment finance world are still offering credit, albeit at higher interest rates. It's hard to say how the situation will evolve if credit markets don't improve, but to date our bidder registrations remain solid. In the first nine months of 2008 we had a record number of bidder registrations at our industrial sales -- 198,000, up from 183,000 during the same period in 2007. We've seen more bidders at our auctions in spite of the current economic slowdown, and greater than 80% of those bidders are still equipment end users, people with work to do and an immediate need for a particular type of equipment.

You need only look at annual construction spending in the US to see that people still need equipment. In spite of all the doom and gloom in the financial markets, according to the most recent US Consensus Bureau data, seasonally-adjusted annual construction spending in the US is still over $1 trillion. In total, it is down about 6% over last year, but some spending categories are actually increasing. The reality is that the market for used construction, industrial, transportation and agricultural equipment is so massive, and our share of that is so small, that as long as we remain focused on our strategy, we'll do fine.

Sellers also behave differently in tough economic times. Waiting indefinitely for idle machines to sell is not a luxury most can afford, especially now. They need to turn those surplus assets into cash quickly, efficiently, and for fair market value. Unreserved auctions are one of the best ways to create liquidity. We create liquidity every day. At our auctions every item sells on auction day and sellers have cash in hand within 21 days of the auction. That's tremendously valuable for a company or local government bodies facing liquidity challenges or for finance companies looking to sell repossessed assets.

In uncertain times when work is harder to come by, companies need to insure that they're extracting maximum value from the sale of their surplus assets. They can't rely just on the local market. They need to cast the net wide and reach the most potential buyers from as many regions and sectors as possible. Because we have over 450,000 customers in more than 200 countries we are able to market around the world and attract large and diverse mainly-end-user audiences of onsite and online bidders to each of our auctions. This is part of the reason why we sell more equipment for more people every year, and more used equipment than any other organization.

Many analysts automatically assume that in tough economic times equipment prices at our auctions fall dramatically. That has not been our experience. Equipment prices do not act like stock or commodity prices. While we've seen general softening of prices in many categories of equipment, with the exception of some of the more specialized equipment we sell, overall returns have remained stronger than most people had expected, thanks to the depth and diversity of our bidding audiences. While prices are lower than the historically high prices we were experiencing 12 to 18 months ago, the decreases are nowhere near as dramatic as declines or volatility we have witnessed in the financial markets.

Additionally, the mix of equipment at our auctions changes so constantly so we are not reliant on the price of any one category of equipment remaining high, or on the performance of any one industry. Our mix and our volume of business changes from period to period, and that serves to compensate for the impact of price changes in certain asset categories.

Many factors influence who is buying equipment and where it goes, including currency fluctuations and supply and demand. Six months ago we had Australians spending heavily on equipment at our auctions in the US. Today that equipment is more likely to go to the Middle East and our Australian customers are looking for equipment at our auctions in other parts of the world where their buying power has not been as badly eroded by the currency drop.

In the same way that water always finds its level, an excavator will always find its home. Our expertise is creating liquidity by connecting buyers and sellers in an open and fair market. And that's important to realize, that times are tough for our customers, but as Rob will detail in a sec, there is still a lot of work going on and billions of dollars of used equipment is still trading hands every year. We are the world's largest auctioneer of industrial equipment, but we handle only a small fraction of that used equipment that's bought and sold around the world. That means that we enjoy both the benefit of market leadership and the potential for tremendous growth.

Before I pass the call over to Rob, there's one final note I'd like to make. We've been asked a few times recently about our guarantee exposure in light of recent news of losses experienced by art auctioneers as a result of providing guarantees. With many companies worrying about credit challenges and customers being concerned about the value of their equipment being less than what they owe, we are getting more requests for guarantee or purchase contracts. At the same time, we are more cautious because of uncertainty in the market. So the amount that we're willing to guarantee is generally lower as well.

As a result, we expect the relative proportion of our at-risk business to remain stable in Q4 and into 2009. In fact, in Q3 this year, we underwrote only 18% of our GAP. Although we do not manage the relative proportion of our guarantee business, we do invest considerable effort in ensuring our guarantees are sound. Our business involves risk, but we try to be very prudent in when and how we accept that risk.

I'll pass the call over to Rob Mackay for a brief market update.

Thanks, Pete, and good morning, everyone, from the Canadian North. In our last quarterly earnings call I talked about the impact of high fuel prices and the economic uncertainty on industries that we serve. Since then we've seen a global economic crisis emerge and many observers believe that we are heading into a worldwide recession.

It's interesting to see how these changing market conditions are playing out at our auctions around the world. In recent months we've seen a softening of prices across many equipment categories at our auctions. But as Pete mentioned, we have not experienced a dramatic drop in prices, except for some of the more specialized items that we sell and equipment that is spec'd for more limited application. This may be hard for some of you to believe, especially when you consider what is going on in the financial and commodity markets in recent months. In the past several months oil prices have fallen 60%, the S&P 500 is down 40%, the Dow has fallen almost 40%, and the TSX index has fallen more than 40%.

Sure, equipment prices have come off from the highs of the past few years, but it's nothing compared to the impact of this crisis on stocks and commodities. The reality is that we do not see the same volatility in equipment prices as you see in financial and commodity markets, and this is important to understand about our business. In general, an average 10% per year over year change in prices across categories in periods of changing prices occur. However, the current situation is not that typical and we are seeing some larger swings in some of the equipment categories that we sell.

Reading the headlines these days it's hard to find any good news, but it is out there. For example, as Pete mentioned, there's still over $1 trillion being spent annually on construction in the US alone. Hundreds of thousands of new houses were built in the US in the last 12 months, and recent data show increases in number of houses being sold. There may be a decline in available work compared to a year ago, but our customers are still busy building roads, hospitals, houses and other sorts of things. On top of that, history has shown that in challenging economic times governments tend to pour more money into infrastructure development and other public works projects, which results in even more construction activity.

Around the world it's the same story. People have work to do and they're still buying and selling equipment at our auctions. The amount of used equipment being bought and sold around the world is huge, over $1 billion worth each year, and we hold less than 4% of that market.

We haven't seen a massive increase in consignments to our auctions, but there has been a steady rise in the amount of equipment being consigned in recent months and we do expect that to continue through the remainder of 2008 and into 2009. Europe in particular is seeing more record-breaking auctions as the financial contagion has spread and the supply of equipment in that market loosens after years of being very tight.

Part of the reason that we have not seen a flood of equipment coming to market is that many of our customers, especially the more financially stable and established ones, are adopting a wait-and-see attitude before selling their surplus or idle equipment, just as we have seen in prior periods of market uncertainty. In addition, as Pete mentioned, some of our customers are concerned about their debt being higher than the value of their underlying equipment, and they and their creditors are not quite ready to make the difficult decision to sell and potentially realize a loss. A lot of people are not sure what to do given recent turmoil, but our sales people are out there talking to our customers every day, advising them on the equipment market and ready to help them when the time comes to sell.

Other companies have already been pushed to the brink by the financial turmoil. They have urgent payments to make and they need to convert their assets into cash as quickly and profitably as possible. Our ability to create a global marketplace and rapid liquidity helps to keep companies out of bankruptcy proceedings.

A third group that we're talking to a lot these days is the finance companies and banks with repossessed or abandoned assets to sell. This sector represents potentially lucrative opportunity for us, given the current financial market conditions.

As Pete said, there's a lot of change and uncertainty out there right now, and that creates opportunity for us. We've been through tough times like this before and we've not only weathered them, we've prospered. At this time we have our Internet bidding service on [site] and we have a more global presence than ever, all of which enables us to deliver a global marketplace and help our customers overcome challenging local market conditions. To grow our business through these difficult times, we just have to keep doing what we've been doing for decades -- stay true of our founding principles; give our customers good value for the money; and make sure that we have people and infrastructure in place to support our growth.

I'll now pass the call over to Bob Armstrong for an update on our growth strategy.

Thanks, Rob, and good morning, everyone. At Ritchie Bros. we enjoy a small but growing share of a huge global market. It's not secret that we're actively pursuing markets and opportunities that will take us to annual gross auction proceeds of $10 billion and beyond. Reaching that goal requires ongoing investment in people, places, and processes that will provide a solid platform for sustainable future growth and enable us to create true value for our customers.

We see the results of this long-term growth strategy every time we issue our quarterly earnings. But we also see them on a more tangible level. We recently announced the date of our first auction in Poland, which will take place in November of this year. The main consigner for that sale is the largest specialist excavator rental company in the UK. He came to know us as a result of our presence in the UK market, and was drawn to the idea of an auction in Poland because of our presence in that market too, and our ability to create a global marketplace regardless of the location of the auction. This is a very good example of how our investments in frontier markets pay off. We've been in Poland for a few years now, introducing new customers to our unreserved model and getting them comfortable with the unique Ritchie Bros. way of doing things. As we have seen time and again over the last 50 years, early investments in opening offices in new markets, hiring and training new sales staff to work there and giving them the tools to be successful, will pay off in the long term. This is a good example of our people, places, and processes strategy in action.

In June we moved into a larger regional auction unit in Spain, giving us the ability to consign more equipment to each auction and generate higher gross auction proceeds without significantly increasing our direct expenses. Since then we've conducted two auctions in Spain, both of which have set new regional gross auction proceeds records even though, or perhaps because, the country is facing very difficult economic conditions.

In the first nine months of 2008, we sold almost $523 million worth of equipment to on-line bidders, 23% more than we did in the first nine months of 2007. Since introducing our real-time Internet bidding service in 2002, we have now sold more than $2.3 billion worth of equipment over the Internet. Although the majority of our customers still prefer to bid in person at our auction sites, the option of bidding on line gives them greater access to the global marketplace. They can find the equipment they need whether it's located in the next town or on the other side of the world.

On the flip side, the participation of onsite and online bidders from around the world enables sellers to reach the greatest and most diverse audience of potential buyers for their surplus assets. In essence, we are offering the best of both worlds, giving our buyers the choice to participate onsite or online. And our sellers get access to both segments of the market. And no other company is able to offer this level of service. Our ability to create this international marketplace and help our customers sell their equipment for global fair market value is even more compelling now, with so many regions and markets facing challenging economic times. The investment we made in our Internet bidding service in 2002 is paying off in a big way today.

We're continuing to lay the groundwork for our future growth by investing simultaneously in our people, places, and processes. With all of the recent focus on external factors, people sometimes lose sight of what is really critical to the growth of our business -- attracting, developing, and retaining good people. At its core, our business is about relationships. We don't sell a product; we sell a service. And we need the right people interacting with our customers, explaining the value that we provide and reflecting the integrity of our company and our auction processes.

We have almost 1,100 full-time employees on September 30, 2008, including 267 sales representatives and 26 trainee territory managers, compared to just over 900, 258, and 9 one year earlier. And while other companies are laying off employees, we are in hiring mode right now. And there's never been a better time to be looking for highly qualified and motivated employees. Recruiting, training, and retaining the right people, especially our sales staff, remains one of our key priorities and has a significant influence on our ability to grow our business.

On the places side, we recently announced the acquisition of a 25-acre property in Greater Vancouver, more than double the size of our existing permanent auction site in that region. We intend to commence construction of a replacement permanent auction site in the next few months, with an anticipated grand opening in late 2009. We've also announced the acquisition of approximately 74 acres of land adjoining our permanent auction site in Orlando, Florida, home of the largest auction in our history. When we finish our improvements to the new property in early '09, our Orlando permanent auction site will be over 200 acres in size, giving us enormous potential for future growth.

Our capital expenditures in the first nine months of '08 were $97.9 million, which is line with our annual CapEx target. The majority of these expenditures related to the acquisition of property and the construction of new permanent auction sites, which remain one of our most significant competitive advantages.

Rob McLeod will now go over the highlights of our financial results for the first nine months of 2008.

Thanks, Bob. I hope you've had a chance to read our earnings release and MD&A for the three- and nine-month periods ended September 30, 2008, which will form the basis of our comments today. The release and MD&A were filed this morning, along with our financial statement. All three documents will be available shortly on the SEC, SEDAR and Ritchie Bros. website. All dollar amounts in our filings and on the call are stated in US dollars.

Pete mentioned earlier that we achieved gross auction proceeds growth of 17% for the first nine months of 2008. I would just like to add that we have experienced strong growth in all of our major markets during 2008, and cannot attribute our year-over-year growth to the success of any one auction or geographic region. Our auction revenue rate, which we define as auction revenues as a percentage of gross auction proceeds, for the first nine months of 2008 was 10.07%, which was within our expected range of 9.75% to 10.25%. And it compares to our auction revenue rate of 9.93% in the first nine months of 2007. This increase can be attributed primarily to the above average performance of our underwritten business. The volume of our underwritten business, being our guaranteed inventory contracts, remained unchanged at 24% of our total gross auction proceeds in the first nine months of 2008.

Our direct expense rate, which is the cost we incur specifically to conduct an auction, as a percentage of gross auction proceeds decreased to 1.35% from 1.38% in 2007, primarily as a result of the larger average size of our auctions in 2008.

Our general and admin expenses were $126 million for the first nine months of 2008, representing a 26% increase over the comparable period in 2007. This increase is primarily due to the ongoing investment in people, places, and processes which Bob spoke about. In particular, personnel costs, including wages, salaries, and benefits formed the largest component of our G&A and our full-time work force increased by 18% between September 30, 2007 and September 30, 2008.

Currency fluctuations resulted in a net increase of $8.8 million in our G&A for the first nine months of 2008 compared to the first nine months of 2007. This was largely a result of the weakening US dollar relative to the euro and Canadian dollar on an average basis during the first nine months of 2008. We translate our non-US G&A using the average exchange rates for the period. This resulted in a $6.2 million increase in our G&A for the nine months ended September 30, compared to the same period in 2007. In addition, each period end we also translate any foreign currency monetary items using the quarter-end exchange rate. This resulted in a $2.6 million increase in our G&A for the nine months ended September 30, 2008 compared to the same period in 2007. Overall, however, currency fluctuations had little impact on our year-to-date net earnings.

Our effective income tax rate dropped to 28% in the first nine months of 2008 from 34% in 2007, partly due to adjustments made in 2008 to reflect our actual cash tax expenses resulting from our 2007 income tax filing. Our tax rate also fluctuates from quarter to quarter, depending on where we conduct our auctions and generate our earnings.

Excluding that tax gain of $7.3 million from the sale of property in quarter two, which we do not consider part of our normal operations, adjusted net earnings for the nine months of 2008 were a record $67 million, or $0.63 per diluted share. This represents adjusted net earnings growth of 14% year over year, which was primarily due to higher gross auction proceeds and a higher auction revenue rate, partially offset by higher operating costs.

GAAP net earnings were a record $74.3 million in the first nine months of 2008, or $0.70 per diluted share.

Looking at the third quarter only, we achieved gross auction proceeds of $768 million, which is growth at 15% compared to the third quarter of 2007. And we had an auction revenue rate of 9.89% compared to 10.06% last year. Our net earnings for the quarter were $11.9 million, or $0.11 per diluted share, compared to $14.9 million, or $0.14 per diluted share in the third quarter of 2007. Gross auction proceeds growth in quarter three was offset by a lower auction revenue rate and a higher operating cost, including our tax rate, and this contributed to the decrease in earnings for the quarter.

As you probably know, our business is lumpy and the variability in our quarterly earnings is more pronounced in our less active first and third quarters. As a result, we do not believe the decrease in our net earnings for the quarter is indicative of a trend, nor should it be cause for concern. You may recall that our first-quarter earnings in 2008 were also down compared to the same period in 2007. As always, we encourage you to focus on a full year's results.

We paid total cash dividends of $26.2 million [at] first nine months of 2008. Our board of directors recently declared another quarterly cash dividend of $0.09 per common share, payable on December 12, 2008 to shareholders of record on November 21, 2008. We expect to pay out approximately $9.4 million for this dividend.

One of our future goals to help us grow our earnings per share is to increase our operating leverage, which we define as G&A as a percentage of gross auction proceeds. Looking out to Q4 and into 2009, it is looking like our operating leverage will start improving in 2009, as the recent investments we've made in our people, places, and processes start producing results.

And one final comment before Jeremy updates our guidance. Subsequent to September 30, we signed a $225 million credit agreement with the Bank of America to increase our available credit facilities on very favorable terms. We have entered into a five-year committed credit facility that has increased our total available revolving credit to $293 million from $158 million, which will give us long-term flexibility and capital stability, as well as access to capital to fund our growth initiatives as necessary.

Jeremy will now update you on our guidance.

Thanks, Rob. We are reaffirming our Q2 guidance and are still expecting to achieve gross auction proceeds of approximately $3.65 billion for 2008, which is an increase to 14% over 2007 results. We are maintaining our guidance even though foreign exchange may create a bit of a headwind for us in Q4, because roughly 40% of our GAP is earned in non-US dollars. And as you know, the US dollar has strengthened lately.

We are also maintaining our auction revenue rate guidance to be in the range of 9.75% to 10.25%. Our auction revenue rate was 9.89% for Q3 and 10.07% for the first nine months of 2008, which is within this range. We remain committed to achieving average annual earnings per share growth of 15% over the long term. As we've said before, some years will be -- some years we'll exceed this target, while other years we won't. In past calls we stated an expectation of EPS growth between 10% and 15% for 2008 and can now update that to suggest EPS growth in the range of 15%, with some potential for upside. You may want to call that raising guidance, but we like to think of it as simply refining guidance.

Pete will now wrap up the call.

Thanks, Jeremy. We're extremely pleased with our performance to date in 2008 and are full of optimism as we head into the home stretch here. Our auction calendar is extremely full for the remainder of this year, and we are anticipating some very solid results. Market and economic turmoil not withstanding, it's business as usual at Ritchie Bros. We'll continue to execute our long-term growth strategy by investing in the people, places, and processes to support the growth of our business and stand ready to take advantage of the opportunities that present themselves in good times and in bad.

Now, before we open the call to questions, I'll quickly recap some of the highlights. We just completed the largest nine-month period in our 50-year history, selling $2.71 billion worth of equipment at almost 260 unreserved public, industrial, and agricultural auctions. We delivered record adjusted net earnings of $67 million in the first nine months of 2008, or $0.63 per diluted weighted average share, a year-over-year increase of 14%. We are maintaining our gross auctions proceeds guidance at $3.65 billion for the year, and adjusting our annual EPS growth guidance for 2008 to be in the range of 15%.

We're living in turbulent times. Our unmatched ability to create a global marketplace and virtually instant liquidity for equipment owners will help our customers weather this current storm, while at the same time propelling us forward towards of our goal of annual gross auction proceeds of $10 billion and beyond. We've had an exceptional first nine months of the year and we look forward to continuing to deliver long-term value to our customers, to our employees, and to our shareholders.

Thanks for joining us today. Dan, would you please open the call to questions?

Certainly, sir. (OPERATOR INSTRUCTIONS.) Sarah Hughes; Cormark Securities.

Just on the broader picture basis, I was wondering if there was anything in this downturn that you think will help or hurt your business when you compare it to previous recessions or previous downturns?

Hi, Sarah. It's Pete. Yes, I'd say for sure there's one hugely significant thing that will help us and that's the ability for us to deliver over the Internet. We rolled this service out in 2002. Bob mentioned that we've sold well north of $2 billion on it so far. And this is the first downturn, significant downturn, that we've seen where we're able to provide even a broader global bidding audience than we have in the past. So we're very optimistic that the ability for us to create that global market is even more effective than it has been in the past. So we're pretty optimistic about that. Bob might want to add some comment.

I'm going to add to almost exactly the same point. The Internet is a tool for helping those guys bid, but the reason they know about us is because we've managed to expand our network to 38 sites in 26, 27 countries around the world. The last time we had a downturn we were global, but we weren't quite this global. So now we have a team of people and strong relationships in all kinds of different industries and markets, far more than before. And as Pete mentioned, they have multiple ways, including one incredibly efficient tool for participating. It just helps us deliver global marketplaces when you need them most of all.

Okay. And then just on pricing, you spent a fair amount of time talking about pricing, can you talk about how much used equipment prices declined in previous recessions at all? Do you have any ballpark -- ?

Mackay, do you want to take that?

Sure. It's interesting. We were talking about this yesterday and particularly price changes in the last three, four, five, six, seven years. And we have gone through a growth curve here in the economy in the last three to five years that in many instances we've seen used equipment prices year on year remain unchanged, remain flat. Some models may have gone up because of supply and demand. But when we've gone through past economic cycles in downturns, 10% to 15% is a pretty reasonable area of change, depending on the type of equipment. Today we're seeing sort of the same averages, but in different equipment categories it can be skewed a little bit more, or a little bit larger, which I think is affecting the overall average.

But it's interesting to see here today -- we're up in Edmonton and we've got 4,500 bidders registered at this auction sale and we're still seeing strength coming out of some interesting places -- Mexico, some of the oil producing countries in the northern part of South America bidding on line, buying up here. Still some activity coming out of the Middle East on certain products, so while the decline in the local market is here for certain categories we're seeing it being picked up by other parts of the world.

So on average it would be more than historically in the past, with different equipment categories fluctuating.

Okay, great. And then just lastly on your employee base increasing, are you at levels now that you're more comfortable kind of maintaining going into 2009, or do you expect a similar increase going into '09?

I would think that for the sales force we should see continued growth. If I had to guess there I would say 5% to 10% growth in our sales force would be our target. And on the non-sales side, we definitely expect to see the growth rate quite a bit lower next year than this year. That's part of our commentary. As Rob mentioned, in terms of improving operating leverage in 2009, the number one component of our G&A is our personnel, and the reason that we're fairly confident in saying that we think operating leverage will improve next year is our hiring plans for next year are solid on the sales side but are far more conservative on the non-sales side.

Okay, great. Thanks.

Theoni Pilarinos; Raymond James.

I've got two questions for you. The first one comes down basically the pricing versus volume question. Are you seeing enough volume to offset the 15%-plus decrease in prices that you're witnessing?

I guess our numbers prove out that yes, we are. You know, we've had 14% GAP growth and that's what we're guiding to for the balance of the year. So I think we're -- we recognize that's exactly the relationship that we bring to the table and that even in a down market, we're still able to grow our sales because the volume that we see coming at us is increasing. It loosens the market up when you've got volatility like this. It creates the need buying and selling both. So we're seeing increasing volumes. The price decreases that we've seen at the auctions have been sort of eking in since the housing tipped in the US and in the last little while in varying categories, Theoni. So I think we're really comfortable we're able to get our numbers, and we see this is as a pretty great environment for us to be providing services to our customers.

And Pete if I could --

(Inaudible) talking, I guess in the last quarter. Really nothing's changed. It's been going on for a while.

Well, we think -- I guess it's fair to say the last several weeks with the credit crisis and the people -- there's a level of confidence that people have and they create some freeze sometimes on decision making. But we're still seeing good solid volumes. I know Rob's sitting up in Edmonton today and they've got -- we'll end up providing some guidance to the market through a press release after the auction about what's been happening there. So you'll see some numbers. We're very confident, sort of business as usual for us carrying forward. It's a big world out there, and guys in South America buying and the Middle East buying. There's an awful lot of stuff going on out in the marketplace and I think we tend to get a little bit jaded by the noise that you hear from the financial markets, because everything is swirling down in the wrong direction. And we're not necessarily seeing that, albeit we have seen some pricing corrections or softening in some of the categories. Bob, do you want to comment?

He said no, so we can take the next question.

Do you have a second question or --?

Craig Kennison; Robert W. Baird.

Hi, thanks. This is actually Mark for Craig. Couple questions -- first, your gross auction proceeds have been up 17% year to date and, given the annual guidance for 14% growth, I guess that would imply Q4 at best up 7%. I mean, is that how we should think about it, number one? And if so, what would be driving that deceleration relative to the first nine months?

Mark, it's Bob. It's quite funny. You'd love to be in the room watching (inaudible) answer that. We're all pointing at each other to see who gets it. We all know what the answer is and it's just not a fun one to say. It's just what the numbers are. We do a survey of our guys in the field at the beginning of every quarter and they have a pretty good idea now of what their quarter looks like as you'd expect, because they've signed a lot of the business. We've kind of figured out where most of the auctions are. And this is what the number is. Their estimate for this quarter is this amount. It's a good -- a great full-year number and as Rob McLeod mentioned in his comments, it's a very lumpy business. Sometimes the quarter-on-quarter numbers are high; sometimes they're low. We just don't focus on those quarter-on-quarter numbers. We're just totally focused on the full year and we don't really care when it comes.

So if you look at the relative proportion of sales quarter to quarter, I think it's probably coming in pretty similar to where it was last year. But your growth rate for little 90-day periods versus each other, it's quite different. And it's just not something we even look at until we sit here the day before the conference call and anticipate this question. So I don't have a very satisfying answer for you, except to say it is what it is. That's what we expect.

The other thing we've looked at too, Mark, is the conversion rate because 40% of our business is non-US and the US dollar has changed somewhat. So relative to '07, when you look at quarter on quarter change, there's a little bit of headwind on the FX side and we're still looking at increases. I think we're pretty comfortable with those numbers.

Okay, thanks. And then could you provide maybe your typical -- a profile of your typical buyer at an industrial auction? Just trying to understand who is out in the market today?

Hey, Rob, why don't you stare out the window and try to describe a guy sitting in the auction.

I'll tell you, I'm sitting here looking out the window at our parking lot, which is overflowing. And the typical guy walking in Northern Alberta here is dressed in blue jeans and some sort of a warm jacket; 99% of them have a ball cap on. And they've got their bidding book in one hand and they are either coming out of the oil industry, the logging industry, the transport industry. There are dealers here. Farmers are here. There's every array of person that you can think of. We sold some interesting little, oh I don't know, van trucks this morning, modified -- I don't even know where they came from, but they had special rims on them and tires. And there was a whole collection of young guys sitting at the back of the auction theater this morning with their books in their hand, as excited as could be to buy this stuff. So we have just about every array of person or buyer that you can describe, each having a different need that they're here to fill. It's quite a collection of people.

All right. Thanks. And one more -- if I'm looking at the numbers correctly, it seems that the number of lots sold in the quarter was down significantly. And I know there's a strategy to week out some of the lower value lots, but the magnitude was a bit surprising. Could you comment on that?

I wasn't going to comment until you said there was a strategy to weed out lower value lots. And that's not actually true. We definitely changed our pricing on the lower value lots. But we're quite happy to take them. It's part of our strategy as a full-service auctioneer, is to help our customers everything they need to sell. We just want to make sure we get paid for it. What's been happening, Mark, in the last little while is some of the lower value lots have been getting combined together into higher value combined lots, so rather than selling one pallet of chains and then another pallet of chains, we combine the two of them and sell, as one lot, two pallets of chains.

So we're consciously trying to be more efficient with our operations, both for ourselves and for our customers. So if you see a declining number of lots, but you notice that it's most of the smaller lots that are on the decline, it's really a consolidation more than anything else. Our total value of lots, total volumes, all the metrics that are relevant are heading in the right direction. And we're actually quite happy if we can get that number of lots down 'cause that just speaks to our handling costs. Rob, would you add anything to that?

Yes. From the information we look at it really is the lowest of the low value lots that are either not coming to the auction or as Bob said, more likely being combined together to create a little bit higher lot.

Great. Thanks for taking the questions.

Jamie Sullivan; RBC Capital Markets.

Just curious, real quickly, why in the third quarter did you not back out the loss on the asset disposal, where in the second quarter you did back out the gain?

The loss on the asset disposal? I'm not sure what you're talking about.

Yes, there's like a $500,000 loss --

Sorry, Jamie. Because it's a -- one, the magnitude of the number, $500,000 versus --

(Inaudible) million.

Yes, $7 million gain. And also that it was a -- that loss is more in the normal course of our operations versus selling a significant property.

Okay. But that was -- that was about a penny of impact in the quarter to earnings?

In quarter three?

Right.

Yes, $500,000 before tax, it would be a quarter of a penny, third of a penny.

Sure. Thanks. All right. And then, I guess on direct expenses, looking at the -- on a trailing 12-month basis, it looks like, by my calculations, direct expenses grew about 24% and gross auction proceeds were up about 18%. Just wondering what was driving that line?

The direct expenses -- it's a bit of the timing and the mix of the auctions. Your -- depending on when we're having and where we're having off-site auctions will drive your -- have an impact on your direct expense line, because they're -- those auctions are a little bit more expensive to operate.

And then just looking back to the statistics here, for the first nine months of this year, our direct expenses were 1.35%, so they're actually down from the 1.38% the prior year. So if you're doing a 12-month number, it must be something to do with that extra quarter.

Right.

Because the nine months it's an improving trend, year to year.

Okay. So -- but your sense is that what's happening is you're having more offsite auctions which could impact the direct expense line?

No. Year on year we're not necessarily having more offsite auctions. It's just when they occur during the year. And so in the fourth quarter, for instance, we'll probably have a few more offsite auctions than we had in the third quarter.

Okay. All right. And then just wondering how much hiring do you have left to do? Are you pretty much done hiring or how much is remaining in the plan?

Are you applying? We look for good people.

Our plans call for continued hiring, albeit at a trajectory for the non-sales personnel that is drastically different than we've experienced the last couple of years. Bob mentioned earlier on the sales side, we're still looking at 5% to 10%. You've always got a turnover on the way, too, so you have to be mindful of that. But our comment in Q2 we reiterate again now, in that operating leverage we expect to see rolling out in '09. Bob mentioned that I think in Q2. And that will play out with the more muted level of hiring that we've had in past relative on the non-sales or the support side.

Sure. I guess I'm just talking about, just for '08. How much more non-sales expansion on an absolute basis do you need to get to?

Well, I think we're in that mode right now, Jamie. We're in the mode of making sure that when we hire in -- you know, we've had a big ramp up in our foundational costs and that includes IT, marketing, accounting. If you bring a new ERM system and Oracle stuff you've got to beef up the team so we were elevating that on the way through. And we're pretty happy with where we sit today. I mean, it's not -- you never stop hiring people, but its trajectory is changing. It doesn't turn off on January 1. We're starting to eke into that right now.

Jake Crandlemire; Ramsey Asset Management.

I have two questions here. One, on the clarification on the pricing question from earlier, in previous cycles you guys said pricing has come down 10% to 15% and at this point in time you commented you've only seen some softening of prices on the whole. So does that mean that you guys are sitting there thinking that we could continue to see some more price compression on your equipment as we move through this? Or have we seen most of it at this point?

It's Rob here. I don't know that we can accurately answer that right now. We're moving from a decline in the markets in North America to the current economic situation spreading into Europe and Asia and other parts of the world and from a global perspective where we have overseas buyers contributing to purchasing in the US and supporting pricing in the US, if we see continuing declines in their markets we may see a further erosion of some of the pricing categories. But there's a bit of uncertainty over there right now. We saw an enormous flurry of activity in the European market couple of months ago and everybody was anxious and talking about selling more equipment, moving more equipment and they kind of moved into this pause mode to a wait-and-see attitude to see what the market's going do. Is it going to stabilize itself? Is it going to go down some more? So that's a big of a gray area right now that I don't think we can answer one way or the other.

Got it. And then kind of sticking on the pricing for a minute, your rough price per lot for Q3 was down about $2,000 sequentially, but still up year over year about 25%. But on a sequential basis, what drives that big move? Was that a foreign exchange thing or was that something that was related to mix or why was it down so much from Q2 when last year there was really wasn't a sequential move from Q2 to Q3?

Jake, it's Bob. And I'm taking a risk by answering this because I don't really have the answer in terms of statistics, but I just know the way the business works. It's completely different month to month, day to day, auction to auction, quarter to quarter -- totally depending on the mix of what we're selling. If we had all of our sales in Edmonton you'd have a totally different mix of business and therefore average price than if you had all of your sales in Orlando, because they attract different gear and we sell different items at different times in different places. So to see a change quarter over quarter or year over year is not something that we would consider relevant. It's a fair question, and there's only so many metrics to do with Ritchie Bros. that people can measure and follow. But we would suggest that the single most important one, it's your gross auction proceeds on the top. And whether you get there through a slightly different average lot size or more lots, those really aren't things that we're too stressed by.

So it's interesting. In other industries the management team would probably have an intimate knowledge to the answer of that question. I think it's fairly telling, we don't.

You're right. Part of it's mix and it's not something that we concern ourselves with and if there's a movement there, Jake, it's -- I don't see it's troubling or it's not even a trend.

Got it. And then just one final one. Thinking about tax rates, they're pretty volatile. It looks like this year you guys are going to be maybe around 30% or so. I mean, how are you thinking about the tax rat for next year? Should we anticipate a 30% tax rate there as well, or did you have any thoughts on '09 taxes?

On '09 taxes I think it's going -- you're probably going to be similar to the last few years, where it's going to be in the range of 32%, 34%, something like that. And it's solely dependent on where we're holding our auctions and where we're earning our income, just because obviously significantly different corporate tax rates around the world.

(OPERATOR INSTRUCTIONS.)

We all cleared down or -- ?

We have no more, no further questions at this time, sir.

Okay, great. Well, we'll get back to work here. I know Mackay's anxious to get out on the ramp and start collecting money, so get out there Rob, earn your keep, and we'll go back to work here. So thank you for dialing in and we'll look forward to talking to you at the end of Q4. Thanks.

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