RB Global Inc (RBA) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. 2009 quarter two earnings 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 Friday, August 7, 2009. I would now like to turn the conference over to Peter Blake. Please go ahead.

Thanks, Rhonda. Good morning, everyone. Thanks for joining us on the call today. I'm Peter Blake, CEO of Ritchie Bros. and with me on the call today are Bob Armstrong, our Chief Operating Officer, Rob Mackay our President, Rob McCloud, our CFO and Jeremy Black, our VP of Business Development. Today we'll be talking about our financial results for the three and six months period ending June 30, 2009. Following about 25 minutes worth of prepared comments, we'll open the call for questions.

Before we start, I'd like to make the 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 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 used equipment, seasonal and periodic variations and operating results, our ability to attract and retain employees 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 six months ended June 30, 2009 which will be available shortly 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 today's call we will 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.

Okay, now that we're done with that stuff, we've just passed the halfway point of 2009 with another billion dollar quarter of our belts, and I'm pleased to report that Ritchie Bros. is on track to achieve our targeted results for the year. In the first half of 2009 we sold $1.9 billion worth of equipment at 92 unreserved industrial auctions and 98 unreserved agricultural auctions around the world. Relative to the first half of '08, we achieved a 4% rise in our auction revenues to $204 million and a 10% increase in our adjusted net earnings to $0.55 Howlett per diluted share.

Here's some highlights of the second quarter. We attracted more than 103,000 registered bidders to our industrial auctions. The first time in our history that we have had more than 100,000 bidder registrations in one quarter. We conducted the largest Canadian auction in company history and our largest auction ever outside of Orlando selling $93 million of equipment at our auction site. We conducted the largest Middle East auction in the company history selling nearly $46 million worth of equipment at our Dubai auction site. We set a $35 million gross auction proceeds record at our our Denver, Colorado auction site. We sold $259 million of equipment and trucks to online bidders participating in real time at our auctions around the world, our largest ever quarterly online sales.

More importantly than setting records, we continued over the last six months to execute our strategy. We're growing our business at a sustainable pace with our sights set firmly on the future. The following additional highlights from our second quarter are perhaps not as headline grabbing as the record breaking auctions, but they do demonstrate our success in executing our strategy in the face of continuing global uncertainty. We increased our sales force by 10% year-to-date in 2009 and 12% compared to June 30, 2008. We purchased 62 acres of land in Corso in northern Italy near Milan, on which we are now building a permanent auction site to replace our regional auction unit in that area. We purchased 65 acres of land near St. Louis, Missouri on which we are now building a permanent auction site and we have been conducting regular outside auctions at that temporary location in St. Louis for many years. We held a grand opening auction at our new permanent agricultural auction site in London, Ontario. And just after quarter end, we conducted the first auction at our new regional unit in Ocana near Madrid, Spain which will compliment our existing regional auction unit in Spain near Valencia. We purchased 74 acres of land at that Madrid site in the second quarter and expect to open permanent facilities at this location in 2010. This brings the total number of Ritchie Bros. auction sites to 39 worldwide.

In short, we're growing, expanding our sales force, entering new markets. Of note, our upcoming sales in both Panama and India in September. We're expanding our presence in existing markets and welcoming more new Ritchie Bros. customers from around the world to our auctions. On top of that, we are doing this while still being mindful of our general and administrative expenses. As planned, we achieved improved operating leverage as our revenues in the first half of 2009 grew more quickly than our costs. We welcomed a record number of bidders to our auctions in the first six months of this year, a total of 177,000. Over one-third of those were first time bidders, which is more than double our normal rate of first time bidder attendance. In the past we witnessed new bidders become buyers and buyers becoming consignors, so these new customers are really important for our future growth.

People have choices when it comes to time to buy and sell equipment, and it is evident that in the current economy, they are increasingly bypassing other channels to come to Ritchie Bros. We believe we are continuing to gain market share at the expense of other methods of buying and selling equipment and the question you might ask of this is, why? For buyers, it's obvious. We sell more used trucks and equipment than any other company in the world, so we have unparalleled selection of equipment that buyers are looking for. We display all of our equipment in secure yards prior to the auction so people can efficiently expect, test and compare different items before they buy. Our auctions are open to the public, and all bidders participate on a level playing field . And we sell every item on auction day with no minimum bids or reserve prices resulting in a truly fair auction. In short, we make it easy.

The whole value proposition for the buyer is even more compelling in the current economic climate. While demand for new equipment is down dramatically, we are seeing record attendance at our auctions as contractors who still need equipment to build houses, roads, hospitals and what have you, work that is still going on despite the economic slump are looking to buy that equipment at a place with the widest possible selection and at the best possible price. Although most people still prefer bidding in person at our auction sites, checking out the equipment, talking about business and market conditions with other people in the industry, soaking up the atmosphere of a live auction, we also give our customers the option of bidding online in real time if they can't make it out on auction date. More than 115,000 bidders from close to 190 countries have signed up to use our online bidding service. We sold a record of $425 million worth of equipment to online bidders in the first six months of 2009. When I watch one of our auctions on the web and see someone placing an bid for $100 or $200,000 at an auction site on the other side of the world, I am struck by two things. One, the increasingly global nature of our business and two, the confidence and trust that person has in Ritchie Bros.

Part of that confidence and trust comes from our reputation and our commitment to honest, transparent auctions. And the other comes from knowing that there are people sitting at the auction site seeing the equipment running over the ramp placing competitive bids. That's one of the reasons why we continue to invest in our global network of auction sites because most equipment owners still prefer the live auction experience as evidenced by the near $1.5 billion sold to on-site by bidders in the first half of 2009. Even online bidders value our permanent presence. They know that the equipment they are bidding on is all under our care, custody and control, and that comfort gives them the confidence to place their bids to the maximum affordable limits. Our value proposition is equally compelling to the equipment sellers, perhaps even more so now when the world is faced with such economic challenges. We help our customers turn their surplus assets into cash quickly, efficiently and for the best possible returns.

When someone sells a piece of equipment at a Ritchie Bros. auction, they know that our global marketing program will help them reach potential buyers from all over the world, that their equipment will be sold on auction day for its true global fair value and they will receive the proceeds of the sale within 21 days of the auction. We give the equipment sellers confidence and certainty, both rare commodities in these difficult times. As much as we like sharing facts and figures about the success of Ritchie Bros.,we haven't lost sight of the fact that these are tough times for many of our customers. We count a lot of those people as our friends, and it's hard to see them faced with difficult decisions and uncertainty. We can't do much to change the global economy, but we can give our customers and potential customers a fair, transparent means of buying and selling the equipment they need to run their businesses. And we feel pretty good knowing that we were able to provide our consignors access to a global bidding audience and generate true market value for those in need of our help. On that note, I'll pass you over to Rob Mackay for a brief market

Thanks Pete, and good morning, everyone. As you have just heard, the dramatic changes in the world economy over the past year created opportunities for Ritchie Bros. The supply used equipment is up and the demand remains firm in most of our markets. I'd like to say a few words about the impact that that's had on the used equipment pricing at our auctions. I'm sure many of you have done the math already, you've looked at our gross auction proceeds in the first six months of '09, divided by the number of lots sold and compared that number to '08 results. Yes, our reported gross auction proceeds were slightly lower in 2009 and, yes, we sold more lots, but we don't believe that this is meaningful comparison to make. Our business is not as simple as that.

For a start, when you look at the results in local currency, our gross auction proceeds actually grew by 6% year-over-year. Also, it's impossible to make a direct year-over-year comparison of average selling price per lot at our auctions because we don't see the same mix of items from one year to the next or even one auction to the next. In the same way you can't compare apples and oranges, you can't compare forklifts and cranes or even cranes and cranes. Year, make, model, usage, condition, maintenance history and reputation of the seller all influence the value of equipment much more than simple supply and demand. We do not control the type, number or value of items at our auction which may mean a lot of late model cranes one year and a lot of older scissor lifts at another. We are not like a manufacturing operation that can shift its mix by increasing production of high margin items while reducing production of low margin items. We are more like a stock exchange. We sell what's for sale.

Finally, because of the size and diversity of our customer base, equipment prices at our auctions don't fluctuate as dramatically as one might expect. That's one of the main reasons people sell their equipment at our auctions. They know they will reach beyond their own industry and local market to a global audience of potential buyers from a diverse range of industry and geographies. It's rare that demand dries up on a global scale. There is typically someone somewhere with a need for a certain type of equipment and chances are they can find it at a Ritchie Bros. auction.

Overall in 2009, we've generally seen prices stabilize at our auctions around the world. It's tough to predict what will happen in the next six months as there is still a large overhang of used equipment that may or may not come to market and the full impact of the government stimulus spending is yet to be felt. So at this point in time, we remain cautious about pricing. But whatever happens, people will still continue to buy and sell used equipment.

A factor that has been an important influence in 2009 has been uncertainty. There is still a lot of equipment owners out there sitting on the fence, waiting for things to turn around. Many people have been hoping for a quick rebound in the market and figure that they could hold on to their equipment and ride out the storm. Lenders with end of lease and repossessed equipment are particularly inclined to sit it out during the past 12 months. We're now starting to see that change. Equipment owners are realizing that equipment prices are not going to quickly bounce back to where they were a few years ago, and their lenders are getting impatient. Sitting on idle equipment is an expensive proposition.

Not only do they have the ongoing costs of ownership such as insurance, storage, upkeep and the opportunity of cost of capital, but also idle equipment continues to depreciate and with every birthday results in a further decline in value. Waiting is becoming much less a viable option, and it is not a realistic plan. This factor is part of why we see our growth accelerating the second half of the year. Equipment owners from all over the world are recognizing that this is the new norm, and there is no better time than the present to convert idle equipment into cash and start making plans to capitalize an impending recovery. As we've discussed, we are very well positioned to seize this opportunity and we expect to see the results in the latter half of this year. Bob Armstrong will now give you an update on our growth initiatives.

Thanks, Rob, and good morning, everyone. Our goals have remained unchanged for years, to grow our earnings per share at a sustainable pace of 15% per year on average while maintaining and enhancing our corporate culture. Our strategy is to invest simultaneously in our people, places and processes. It's a simple strategy, and we're executing it well. Like most bean counters, I like high margins and saving money, so I'm pleased to see our efforts to increase efficiency and manage expenses reflected in improved operating leverage for the first half of the year. But if you gave me $10 million today to invest in initiatives designed to drive EPS growth, I would put it all towards growing our gross auction proceeds. Why? Because ours is a high margin business and the biggest bang for our buck in terms of driving EPS growth comes from focusing on the top line. There's a limit to how much money we can save, but there's virtually no limit to how much gross auction proceeds we can achieve, especially given that we currently hold only a very small share of a very large and fragmented market. Our growth is not dependent on the growth or contraction of that market,. It's all about execution, which is what I want to elaborate on today.

We now have more than 1,100 full-time employees around the world, including 293 sales representatives. Our sales force has grown by 12% since June 30, 2008 and by 10% year-to-date in 2009. Our business is driven by sales and our sales growth is dependent on relationships, so it is extremely important that we continue to grow our sales force and that we have the right people on our sales force. The investments we have made developing our sales team and providing them with the tools they need to be productive are paying off. The same can be said of the places component of our strategy. As Pete explained earlier, permanent auction sites instill confidence in buyers and sellers and they help us to attract employees. In addition, we can display and sell more equipment at these large sites which increases the efficiency of our operations and in turn, attracts more bidders which drives higher prices and attracts further consignments.

Our capital expenditures in the first six months of 2009 were $79.2 million compared to $52.7 million in the first six months of 2008. The majority of those costs related to the purchase of land and the construction of permanent auction sites. We are currently under construction at seven permanent auction sites around the world, three new sites and four replacement sites. It looks like we will be opening as many as ten new auction sites during 2009 and 2010, which is far beyond our normal run rate. Many of the projects we've been working on in recent years ended up coming together at roughly the same time, with the result that our CapEx in recent years has been higher than usual. We're investing funds now that we would have liked to have invest in prior years. A more normal run run rate for us should be to open two or three facilities each year and an annual CapEx investment in the range of $100 million. Our network of auction sites, including our primitive auction sites, which we own and our regional auction units, which we typically lease is now comprised of 39 sites. Our target is to expand this network by at least two sites each year. In addition to expanding the number of sites in our network, we will be replacing facilities that have capacity constraints. This is why we talk about opening two or three facilities per year, but only increasing the network by two sites.

Based on our most recent review of our auction site project pipeline and our expected future projects, we believe 2009 will be a peak year for our CapEx and capital spending will be in the range probably of $100 million in 2010 and future years. That being said, we're open to spending more if we come across attractive opportunities. As always, our goal is to spend wisely to sustain our long-term growth while achieving reasonable returns on invested capital. We're also continuing to push into new markets which is why you are seeing upcoming auctions on our calendar for Panama and India in September. These off site sales are just as important to us as the opening of shiny new auction facilities in terms of expanding our reach and attracting new customers.

The third component of our strategy, our processes is designed to make us look more efficient, consistent and scalable. We're consistently looking at ways to do more with less, conduct more auctions and sell more equipment with greater efficiency. Recent initiatives in this area include the deployment of a new asset inspection system and the development of a brand new website which we will be launching later this year. Less visible initiatives include the deployment of new Oracle based tools to help us better manage our human resources requirements. revisions to the tools we use to support our planning and budget process and new training programs to help us better develop our new staff and our future leaders. We've been making excellent progress on all three strategy areas, our people, our places and our processes. Rob McLeod will now give you the highlights on our financial results.

Thanks, Bob, and good morning, everyone. My comments today are based on our earnings release and MBNA for the three and six months ended June 30, 2009. These documents were filed this morning along with our first half financial statement and all three will be available shortly on the SEC, SEDAR and Ritchie Bros. websites. All dollar amounts in our filings and on this call are stated in US dollars. In the first six months of 2009, we conducted 92 industrial auctions and 98 industrial -- agricultural auctions in ten countries and generated total gross auction proceeds of $1.9 billion, 2% less than the first half of 2008, although in local currency terms, our gross auction proceeds grew by 6% in the first half of 2009 compared to the first half of 2008. Our auction revenues were $204 million, 4% higher than the first half of 2008. Thanks to an auction revenue rate of 10.7% in the first half of 2009 compared to 10.14% in the first half of 2008. We continue to expect our auction revenue rate, which is the auction revenues as a percentage of gross auction proceeds, to be within the range of 9.75% to 10.25% on an annual basis. Our above average auction revenue rate performance to date in 2009 can be attributed to the strong performance of our underwritten business which represented 19% of our gross auction proceeds in the first six months of 2009. On an annual basis, we still believe our underwritten business will be in the range of 25%. We are still offering guarantee and purchase contracts and the choice between these contracts and the straight commission contract is, as always, up to the customer.

Looking at quarter two in isolation, 22% of our business was underwritten. Our direct expenses, the costs we incur specifically to conduct an auction, were $25 million in the first six months of 2009 or 1.31% of gross auction proceeds compared to 1.36% in the first half of 2008. Our direct expense rate changes in part due to the size and location of our auctions. In the first six months of 2009, 90% of our gross auction proceeds came from auctions at our permanent auction sites which offer greater efficiencies and accountings of scale than our smaller off site auctions. However, we will continue to conduct off site auctions in markets in frontier markets as Bob mentioned such as India and Panama and in other locations when it meets the general needs of our customers. Our general and administrative expenses decreased 4% year-over-year from $84.9 million in the first six months of 2008 to $81.2 million in the first six months of 2009. Personnel costs formed the largest component of our G&A and our full-time work force increased by 7% between June 30, 2008 and June 30, 2009. We operate in different currencies around the world, notably the euro and the Canadian and US dollars, but we report our financial results in US dollars. The translation of local currency expenses into US dollars resulted in a $3.6 million decrease in our G&A in the first six months of 2009 compared to the first six months of 2008. Excluding this currency impact, our G&A was essentially flat year-over-year, which is evident of our ongoing efforts to grow our auction proceeds without an equivalent increase in our G&A.

Our effective income tax rate was 31.3% in the first six months of 2009 compared to 27.9% in the first six months of 2008. Our tax rate fluctuates from period to period depending on the level of our earnings in the various tax jurisdictions in which we operate. Our adjusted net earnings were $58.1 million in the first half of 2009 or $0.55 per diluted share, a 10% increase over the adjusted net earnings per diluted share in the first half of 2008, primarily due to strong auction revenue rates and a good discipline on G&A. We paid total cash dividends of $18.9 million in the first half of 2009, a 13% increase over the same period in 2008. Our board of directors recently declared another quarterly cash dividend of $0.10 per common share, payable on September the 11, 2009 to shareholders of record on August 21, 2009, which represents an increase in our quarterly dividend of 11%. We expect to pay out approximately $10.5 million for this dividend and before I pass the call to Jeremy, I just wanted to update our CapEx guidance for 2009.

As Bob mentioned, based on the most recent review of our pipeline of potential projects over the next few years, we have reduced our annual CapEx expenditures to be in the range of $100 million per year for the next several years. However, for 2009, it looks like our spend will come in around $160 million for the year, depending on the timing of several projects towards the end of this year. Jeremy Black will now offer our guidance for the remainder of 2009.

Thanks, Rob. Our second quarter gross auction proceeds were in line with our guidance at the beginning of the year. For the remainder of 2009, we are reaffirming our guidance of $3.8 billion in gross auction proceeds for the full year. This would represent an increase of 6% over 2008 results in US dollar terms and approximately 11% growth in local currency. Our second quarter gross auction proceeds were marginally lower than our performance in the second quarter of 2008. As Rob mentioned, the main driver of this decrease was currency. As we look forward to the third quarter and the remainder of the year, we see accelerating growth in the latter part of the year. The main reasons for this are relatively easy comparative results in 2008 and the anticipated change in equipment sellers' attitudes that Rob Mackay referred to. We have surveyed our field people and they are confident of our ability to achieve gross auction proceeds in the range of $800 million for the third quarter of this year and gross auction proceeds in the range of $1 billion for Q4, which would represent growth of 20% compared to the fourth quarter of 2008.

Before you beat me up for being overly aggressive, we would like to point out a number of significant factors working in our favor. The first is that we are starting to enjoy the benefits of a significant currency tailwind. If you look back to the fourth quarter of 2008, you will see that the Canadian and Australian dollars and the euro were significantly weaker compared to the US dollar than they are now and they are expected to be for the remainder of this year. The second factor helping us in the latter half of 2009 is that our gross auction proceeds in the fourth quarter of 2008 actually contracted, in part because of the currency impact, but more importantly because of the extreme uncertainty in the market during that time. Looking back now, a significant number of customers were paralyzed by the sudden and dramatic turn of world events and this had a meaningful impact on our ability to generate consignments. We do not see this being a material factor for the remainder of 2009.

Q4 of 2008 was an uncharacteristically small quarter. It represented the smallest fourth quarter on a relative basis over the last five years, which means an abnormally weak comp. In Q4 of this year -- if Q4 of this year comes in at $1 billion, it will be approximately 27% of our total GAAP for the year, which is consistent with the relative size of Q4 in recent years with the notable exception of last year when it dipped to 23%. And finally, we have grown our sales force by 12% compared to June 30, '08. Although we maintain our view that our sales people take two to three years to reach the level of productivity we expect from them, they do start producing soon after joining the company and the benefits of our sales force growth will accelerate as they mature with RBA. We are also maintaining our auction revenue rate guidance in the range of 9.75% to 10.25% for the remainder of 2009.

In the first six months of 2009, we achieved an auction revenue rate of 10.70%. Although this rate is well above our expected range and we are pleased with this result, we do not believe that this rate is sustainable in the long term and we do not believe it is indicative of a trend. You don't have to look too far back in our history to see periods when our auction revenue rate exceeded or fell short of our expected range and it always comes back in line. We remain focused on achieving average annual earnings per share growth of 15% over the long term. Some years we will exceed this target, other years we won't. Based on recent performance and current projections, we will -- we believe we will achieve adjusted EPS growth in the mid to high single digit range for the full year of 2009, which is a slight upwards refinement of our previous earnings guidance. There is some potential for upside in that estimate depending on a number of variables, including our auction revenue rate performance in the second half of the year. Pete will now recap the highlights of today's presentation before opening up for questions.

Okay. Thanks, Jeremy and to briefly recap the main points we covered today, we conducted 190 unreserved auctions in ten countries in the first six months of 2009, selling about $1.9 billion worth of equipment and attracting a record 177,000 bidder registrations, over one-third being first-time registrants. We delivered record adjusted net earnings of $58.1 million in the first six months of '09 or $0.55 per diluted weighted average share. We sold a record $425 million of equipment to online bidders in the first six months of 2009, clearly confirming our position as the world's largest auctioneer of industrial equipment, both online and on site. And we strongly demonstrated our ability to execute our strategy regardless of the broader macro economic environment. We've had a really strong first half of 2009 and we believe we're right on track to achieve our targets for the remainder of the year with EPS growth now estimated to be in the mid to high single digit range. We made good progress on all fronts over the first six months, a pattern that we intend to continue. Thanks for joining us today. Rhonda, would you please open the call to questions?

Thank you, ladies and gentlemen. (Operator Instructions) Our first question comes from the line of Bert Powell with BMO Capital Markets. Please proceed with your question.

Thanks. Pete, obviously, two quarters in a row very good ARR performance. I'm just wondering how much of that is a continuation of the benefit from more -- a more conservative posture on the underwritten business on your part and, if you look -- with Rob's comments for the second half in terms of, I think of what I would term capitulation driving revenue growth, are we likely to see that be maintained here or are customers starting to get a little bit more price savvy?

Bert, yes, thanks for the question. I'm not sure that customers are getting more or less price savvy. I think we're just being particularly cautious with the pricing environment and we're balancing that against, of course, the competitive aspects of trying to get deals in. So in the long-term, we're not giving you particular guidance for a quarter on revenue rate. Over the long-term we think the right range for revenue rates are 9.75% and 10.25%. We were happily over performing that, largely as a result of the higher than anticipated performance of the at risk or the underwritten part of our business. We're going to continue to be smart, continue to be as prudent as we can be and cautious as we can be about pricing going forward. We're trying to balance that off against being aggressive and getting the deals into the hopper.

So I think as Jeremy mentioned, there's probably some upside to our estimates because of that factor and if we can overperform on at risk for the balance of '09, then, sure, there's lots of upside there. But on the long term, and we were continue to focus on don't get too excited about one quarter or even a half of a year. On the long term, we think that we're just about executing and we're not anticipating drawing our bottom line by trying to get a margin improvement on that type of business. We're focused on growing that gross auction proceeds and penetrating more of the market. To me, particularly encouraging was the massive number of bidder registrations and double the rate of new first-time bidder registrations in the first half of the year. Those are great numbers for us, because those are first-time exposure to the auction channel. We can convert those people to the process because they're exposed to it, they see it, they see how efficient it is and we get them in our system and now we have an opportunity to really wow them with letting them buy and sell through the channel. A lot of these people would show up at the auctions and maybe buy, maybe not, but at least they see it now. So that's part of the strategy and we just continue to execute it. Rob, you want to weigh in?

I wouldn't mind adding a few comments there. We see it typically in most down cycles that we go into. As soon as the market changes and it goes down, there's a lot of people out there that used to play in the market and buy and sell and trade equipment for others that go into a bit of a cocoon attitude and they're not out there underwriting the business, and we still remain there in the market with the market going up, market going down to provide to our customers the basis of getting out of the market and affording the guarantee when they need it. And once we see the market stabilize here again and everybody out there that plays in the market feels there's a stabilization, you will start to see a more competitive group of people coming back to the market that want to play again and you'll see aggressiveness from others and we still have to be aggressive and nimble and get the deals and that may be coming in Q3, Q4, it may not be until 2010. But as the market stabilizes and everybody thinks they've got their finger on the pulse again, a more highly competitive nature tends to come back to the marketplace.

Okay. Price savvy may be a bad choice of words. I guess just in terms of with the credit markets starting to ease up a little bit, choices open up and I'm just wondering if you're starting to see that sooner rather than later in terms of how that's impacting the competitive situation, obviously, and how that flows through to the ARR.

Yes. I mean the credit market impact on our world really has not been as dramatic as many others have experienced, real estate and whatnot. So it's never really been much of a challenge for bidders to come to the auction and afford or even get financing because there's a very high comfort level for lenders that even if there's an issue or a problem and the buyer gets into some financial distress, there's an immediate liquid channel that that lender can access. So there's been very -- somewhat less of a constriction of credit, so I don't know that that's the particularly -- a big change for us if credit becomes more readily available.

Okay. And, Bob, just in your opening comments, you focused a lot on GAAP growth as your leverage point. I'm wondering if you can give us a sense in terms of your people, part of your people, places, process, what your expectations are or have you changed your ramp rate in terms of your sales force, And just give us what you're thinking for '09 and as we head into 2010 in terms of growth on the sales force side.

Sure. Sales force growth for us needs to be at a sustainable levels of between 5% and 10% per year, in my view. And last year we fell way below that, we were close to zero. So this year in almost a catch up basis, I'm hoping we're north of 10% on an annual basis. That's where we are right now, so we're in good shape to pull that off, 12% over the last 12 months and 10% so far. So it's looking very good. If we can hold it around 10% going forward, that would be a sign of success. That's the number one driver of our sales volume. So focusing on that sales force growth and quality of the guys is critical. So far this year, it's done really, really well. We just want to hold that together.

Okay. And just quickly, ag auction GAAP in the quarter?

Ag auction GAAP in the quarter? I don't have that --

Little bit north of a hundred.

In the quarter. About a hundred.

Okay. Thanks a lot.

Okay. Rhonda, any other questions or can we go? (laughter)

Yes. We have many more questions.

I'm just kidding!

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

Hi, guys.

Hey, Ben.

Good morning.

How are you doing?

Good.

Couple of things that -- first of all I'm going to go back to my favorite topic on G&A. I recognize that it was down a little bit year-over-year. Most of that is FX and, in fact, if you -- and there's some leverage in your margin, but that looks to me like it's come mostly from your auction revenue rate because if you look at the volume of equipment that you sold or the value of the equipment that you sold relative to G&A, which is the way I think about the leverage in the business, there wasn't really much there. I mean you basically had flat -- look at the first six months, rather flat gross auction sales and relatively flat G&A, which is better than seeing the G&A go up faster than gross auction proceeds as we used to see it, but again, currency is helping you a little bit there and it just runs a little bit counter to the commitment to get that operating leverage, at least as I look at it, into gear. Should we expect that to accelerate in the second half of the year or are you happy with where that ratio is leveling off right here?

Hey, Ben, it's Rob. And the -- good question, and we'll give you a good answer. The -- your comparison is a little bit apples to oranges. When -- our G&A is about flat when you take out the currency effect, but then when you take out the currency effect on GAAP, we're up about 6% in local currency terms and so from our point of view, that is the plan, that we're growing our GAAP faster than we're growing our G&A. And so kind of stripping out the foreign currency effects on both lines gets us there, I think, and so we're on track.

Okay. And then the other one, just a point of clarification on your guidance for the back half of the year. I can understand -- I appreciate the fourth quarter was slow last year and you're getting an acceleration in both selling and buying, but if I understand it correctly, the start of the year you were talking about a 12% increase in constant currency and some of the currencies have moved around since then. So we're looking at a different kind of situation. It looks to me mostly like on the US/Canadian dollar exchange rate, so the Canadian dollar got stronger from the beginning of the year, which if I'm thinking about this right, means that some of your Canadian sales translate into less US dollar sales and so by maintaining your guidance for the year, aren't you effectively saying you believe in constant currency, at least in so many important markets you actually see your sales going up more than you originally thought?

Ben, Jeremy here. Actually, you've got it backwards, I think, there. In the latter half of the year, we expect our sales in Europe, Canada and Australia to be translated into more US dollars versus the same period last year.

Yes, but I'm just thinking about how you looked at the world on January 1 and came up with the number, that 12% constant currency, but, of course, there were different currency rates in effect at that time.

Right.

Right? So the currencies have changed since then and the Canadian dollar has gotten a little bit stronger.

Right.

So doesn't that mean that some of the sales that you would expect -- like, doesn't your thinking change as the currency environment changes?

Well, the currency is -- it's a fascinating component, because you've got global buying from all over the world. So as currencies change, so do buying patterns and habits, so it's not as simple as saying we expect Canadian sales to be X on January 1 and it's going to be at that X at December 31. So what we've done is we looked at each of our environments and said, well, you're had great growth in this environment -- in this country, and this country is behind the mark, so let's go and focus on that and see why we're not executing as best we could. And these are minor tweaks on the way through. So when we go through that process and look at the balance of the year and go and survey -- this survey that we do and try to give you guys guidance on the top line is very detailed. We go back --

I know. I appreciate that. You guys have spent a lot of time educating me and I think everyone on that process, but I still think at the end of the day what you're implying, if you're saying the same number in US dollars as you thought at the beginning of the year, but some of your important currencies -- I mean even the euro actually has got marginally stronger since then, so it must imply that the sales activity in constant currency would actually be a little bit higher than you originally expected.

Yes, I think you've got it backwards. Or maybe I'm confused by your question, but I think my understanding of your question here is January 1 we give you guys guidance about what we think we're going to hit for the full year. We reiterate that guidance today. Currency has an impact all the way through, some higher, some lower. In general, you've seen strengthening non-US currency, right? Just recently, right?

Just recently.

Just recently, Yes. It's not in the updates for sure. So when we go through and try to update it, we try to estimate a currency for the balance of the year to say, well, where do we think it's going to be? Let's pick a number. And that number may be at today or may be high, may be low, so trying to micro analyze that in the face of what is the Canadian dollar going to be, what have you converted your Canadian dollar sales in Q4 '09 estimates to be X and Y, we don't get into that detail in the call. I think 3, 8 for us is a pretty good high level number and increasing our EPS guidance on the bottom line is a pretty good number for us and I think that -- from a guidance perspective, we think that's probably enough.

Okay. I won't -- we can take it offline. I won't belabor it here.

Sure.

Finally, on your auction revenue rate, so you had a strong showing, but you also had -- and actually, it sounds like your mix of underwritten didn't shift a whole lot. Does this reflect any impact of your -- of the fact that your online purchases actually have a fee attached to them, so there's a mix issue? Like if you're selling more online, your average auction rate should just naturally be higher, all else being equal because you get that buyer's fee as well?

A fair comment, Ben. If there was a dramatic change in the online buyers, there is a fee that goes with it. It wouldn't have moved the needle at all in this particular quarter. If I recall --

You said it was a strong -- you highlighted the online buying as particularly strong, you said --

It was strong, but the fees are trivial in comparison to everything else.

Okay.

You did reference a very interesting point, which was the quantum of the underwritten business was up to 22% in the second quarter, up from 17% in the first quarter. So it's interesting that it's working its way back toward kind of our average, around 25%, so the first quarter appears to have been a bit of an outlier on the low side.

Okay. Thanks, guys.

Thanks, Ben.

Our next question comes from the line of Scott Stember with Sidoti & Company. Please proceed with your question.

Good morning.

Good morning.

Good morning, Scott.

With one month essentially of 3 Q gone, could you talk about if you've actually seen any movement with selling consignors sending some of the bigger pieces of equipment to auction yet, or is this something that you would expect to happen later this quarter and heading into the fourth quarter?

Say that again, Scott, sorry, with the bigger pieces?

Well, you alluded to the fact that you expected some of the larger pieces of equipment or just some of the pieces that have been held on to up until this point,, would you expect that to happen in this quarter or really just start later this quarter heading into the fourth quarter?

We would start to see it later this quarter and into Q4. Typically in many parts of the world, we're in a construction season right now, summer months. Anywhere where there's climate differential between summer and winter, people are out working, utilizing what they have, so we would start to see it happen later on in Q3 and well into Q4.

Okay. And just going back to the G&A growing slower than gross proceeds. With the sales force growing a little bit faster than normal, what can you pin -- what specific areas can you pin to the slower growth?

Good observation, Scott. It's one of the things I saw as well when we played with the numbers over the last month. The sales force growth -- sorry, I said play with the numbers (laughter). When we analyzed the numbers, the sales force growth was very impressive. The nonsales force headcount was very -- the growth of that was muted.

In prior years, we had seen quite dramatic growth in our nonsales headcount and we put a lot of emphasis this year on full growth on the sales force, no controls there, get it done, get it done. But on the nonsales side, we've had a lot of rigor around the hiring, and the change there has been very small. So that's one of the keys for sure. It's quite impressive to all of us has been the effort and dedication throughout the company on almost every line item within G&A, whether it's travel and entertainment, repairs and maintenance, boy, I don't know, start naming categories there where we had discretionary spending, the boys have just done a great job of being very careful. We settled this year to put a lot of discipline on ourselves without impacting the top line, and it's just worked out really well. So I can't point to any particular thing, but I can, with great comfort look up and down the whole G&A list and see improvements in almost every line which has been exactly what we needed and what we did.

All right. That's all I have. Thank you.

Rhonda, are you there?

Yes. Our next question comes from the line of Jamie Sullivan with RBC Capital Markets. Please proceed with your question.

Hey, good morning, everyone.

Hey, good morning.

Good morning, Jamie.

Question, just a follow-up on the auction revenue rate in the quarter. You talked about prices improving from 4Q to 1Q. Should we interpret some of the improvement there as prices improving again in 2Q or was it the continued conservatism as you approach those deals?

I would -- it's Rob here. I would say it's continued focus on managing the risk. We've just seen from Q4 into Q1 and Q2 price stabilization as opposed to any price increases in any particular product line, and it's just a better evaluation, an ongoing evaluation by our guys in our pricing group on the guarantee and what the guarantee comprises. If somebody comes to you with 150 concrete mixer trucks or somebody comes to you with 150 items that are all completely different, you have a different approach to how you evaluate and where you want to take risks on that sort of deal. So our guys are very cautious and very analytical and we put a lot more focus into these things and a lot more dialogue with each one, depending upon the complexity of it.

Okay. And are there any different trends in the international markets in terms of taking underwritten deals versus putting it up at auction, or is it pretty consistent across your different areas?

No. Each place that we operate in is somewhat different. There's areas overseas where they like guarantees more than they like straight commission, and we've got other areas where we do predominantly most of our business in straight commission, so it's a mixed bag.

Okay. On the -- and thanks for the clarity on the -- where you see the second half acceleration coming from. I know you talked about some of the idle equipment and pressure from lenders driving people to sell. If we think about some of the rental companies specifically, I mean they've been pretty vocal about the defleeting cycle and also about the use of auctions as a method of liquidity. I'm just wondering how much of your gross auction proceeds today come from rental companies and those type of consignments?

Well, we're just looking around going, who wants to answer that question, we could all answer it pretty easily. Jamie, it's Pete here. The -- we've consistently said there's no one consignor that accounts for any more than 2% plus or minus of our proceeds. That really carries through. It changes every year, however, so some of the people we're seeing bring to market, like the rental companies, we have a had some increased business with some of the rental guys, but there's no one particular run away guy that's accounting for a large percentage of what we're bringing to market. I think that they're being very prudent, they're adjusting their fleet to make sure they're getting good utilization and this idle equipment that sits around it does not increase in value, and they're smart people that are running those companies and they understand that. So they're very good at managing fleet and we help them in that respect.

Some of these guys they try to sell it themselves, they have an existing sales force at a lot of their rental outlets and if they can't rent it, they would still like to generate income, so they make their own efforts. But we tend to be able to provide them a broader audience for their equipment and a lot of stuff that we sell on behalf of them ends up exiting the markets that they operate in. So they like that because it allows them not to cannibalize their own customer base in some respects. So we have a great relationship with many of these companies and we continue to -- they use us when they need us and we continue to serve them as they need to defleet and they're in the mix of adjusting their business to make sure that their margins are meeting the expectations of their investors and we're a tool that they use on the way through, one of, yes.

Okay.

Does that answer your question?

Well, I was kind of looking at it as a category and not any specific rental company, how much it makes up of the total.

Yes, I don't know that we have stats on -- we don't look at the business that way. We know we have thousands of different consignors from all parts of the world and all parts of industry as well. So we don't necessarily look at just the rental companies as being our line of component. We've got even equipment dealerships that are using us today to move fleet that they've got that's plugged and hasn't left their yard, so there's some of that. There's some end users that are adjusting their fleet needs as well.

So we don't necessarily look at just end user or just a rental company or just an equipment dealer. It's a very, very broad thing. And it's very similar to the comment that we made at the outset was we sell a broad array of equipment on behalf of a broad number of consignors to a broad number of bidders, and that's really the beauty of the business model. It's like a stock exchanges, we sell what's for sale and whenever it is for sale, that's when we get involved in our relationships and try to create some value for the people that are not only selling the equipment, but also on the buyer's side to create convenience and ease of getting equipment to market and getting it back in play for them to go and make money with.

Okay. And then just quickly on -- for Rob McLeod, just wondering -- I know you talked about constant currency growth of GAAP and SG&A. Were you talking about the first half or the second quarter and if it was the first half, do you have the second quarter numbers available?

Yes. We were talking about the first half and the second quarter numbers would be pretty close to the same as the full six months.

Okay. So the --

Similar story.

6% and I think you said $3.6 million benefit from currency?

Yes, yes.

Okay. All right., thank you.

Thanks.

Thanks.

(Operator Instructions) Our next question comes from the line of Gary Prestopino with Barrington Research. Please proceed with your question.

Good morning, everyone.

Good morning, Gary.

Good morning, Gary.

Really impressive with the increase in bidders, just over the first six months and Peter, you mentioned something about a third of them are new bidders coming to the auction. Can you talk about what you are doing differently in terms of trying to attract the bidders? I would assume part of that is what your sales force does as well. And if you may have pulled some of these new individuals, where had they been buying equipment before hand?

Yes, thanks Gary, that is a great question. We're continually focused on making sure that we penetrate the market because to me if we've got 3% or 4% of the big market, the big question we ask internally is, well, what about the other 96 or 95, where are they going? Let's continually focus on them. So lots of things that we do, that we've always done, sites that are high profile, convenient website traffic, all those other things. But the real driver in the increase in the bidder is the economy right now, and people are just more cost conscious and more wary of trying to find the right deal and a good deal because money is tight. So once they get exposed to that channel that we've got here, we start creating more customer relationships. And even when the economy turns, and it will one day of course turn to the positive, these people say, ah, this is -- first time there, but that's a pretty convenient way to get the business. So the -- we're doing a lot of the same things we used to do.

Some of the other things we've tried that have been successful are incenting our sales guys to go out and get new customers coming to the auctions from their geographic areas and we measure that and we reward that as part of their score cards. And try to hit targets for them to have new people added to the database and new customers coming and identify these new guys when they're at the auctions and make sure they're looked after because it's their first time there. Maybe you remember your first time to an auction, but it's a bit of a carnival atmosphere and these people have to figure out what's going upon because it's Commerce 101 and it goes very quickly. So we're taking our time to make sure that we're integrating them educationally into understanding what we're doing. We do new buyer seminars. We're currently conducting a bunch of new buyer and new bidder seminars in markets that are in the Central America and northern part of South America right now for a Panama sale coming up and in India as well. So things that we're just doing a little bit smarter, a little bit better, a little bit more proactively, and it's just sort of this cultural shift of paying attention to the new bidders that are coming. We've always had a great customer service focus, but we need to make sure that we're continually pushing to get the other 95% of people that don't even know who we are.

Here's a great anecdotal story. We had a sale in Vancouver, Washington a couple of weeks ago, and we had people coming to the auction, probably half of those people had never been to an auction. And a lot of people were 150 miles down the highway and had never heard of us before. So there's lots of people out there that really don't know who we are. Even though we're the largest and blah, blah, blah, we've got to continue to keep focusing on getting those new bidders in. And I was really very pleased and I think it was a huge statistic for the quarter to see the number of people attending and the number of first-time attendees being over a third of those bidder registrations.

I might add something there, Gary, it's Rob here. The human being is a unique creature when the market changes, and you have to look at managing your business differently. And today, we see our customers drive to our auction sites and they'll drive by four or five yards full of equipment that belong to dealers or brokers or OEMs, and they have no intention of stopping in, nor will they stop in, but they will drive down the highway to the auction site, register and attend the auction and they're there for a number of reasons. One is they typically have more time on their hands right now. Two, they don't want to go in and be hounded or negotiated into trying to buy something.

They want to go sit in an atmosphere that they can just watch and see what's going on. They're interested to see where market prices are. They're still working. And when the opportunity at the auction arises that they can upgrade their fleet and buy a newer model for something that they have in their fleet that they can get rid of, they'll put their hand up in the air and bid. So they continually drive by these yards full of equipment and come to our sales to sit there to meet their fellow contractors, to see what's going on in the marketplace. And in their own personal mind, there's a good buy there for them, they'll have their hands in the air and they're buying. So we're seeing a lot of people today that traditionally in an up market when they don't have time to go shopping and they need something tomorrow, they're showing up on our doorstep where in the past,they may have bought from some other venue.

Okay. And then very briefly, Panama and India, these are the first times you're having auctions in these countries?

First time in India, but not first time in Panama.

Okay. And then in terms of -- not to beat a dead horse, but pricing, stabilized with Q4, so there's really been no change. Are you anticipating any uplift in the back half of the year or is it just steady as she goes?

If our crystal ball were that clear, we'd all be retired. (laughter) From our best evaluation right now, I would say she's probably steady as you go.

Okay. Thank you very much.

Rhonda, we probably have time for one more question.

Okay. Our next question comes from the line of Nate Brochmann with William Blair and Company. Please proceed with your question.

Hey, great quarter, gentlemen.

Thanks, Nate.

Thanks, Nate.

Hey, just wanted to kind of explore something that you guys threw into the prepared comments in talking about a new inspection system and a new website. I was wondering if you could elaborate a little bit more on what that means or what that is.

Sure. Two separate initiatives, Nate. The first one you'll hear us talk about it, it's FAIM, F-A-I-M, Field Asset Information Management. It's an automated way for our guys in the field to gather information about equipment and then share that information throughout our company to assist in our appraisal and pricing process. And biggest immediate benefits are significantly improved data accuracy and also speed with which we can turn around an inspection. If you're my customer, I can go look at your fleet, take the pictures, gather the information and I can be back on your doorstep within 24, 48 hours with a full proposal, whereas that might have taken me three, four, five days in the past to run it through the system. So significant improvement in customer service and significant improvement in territory manager efficiency.

The second initiative we referred to is the website and stay tuned for that one. Later this year, you'll see an all new Ritchie Bros. website at rbauction.com. All the same functionality that you've grown to love and admire, plus some new functionality that will address some of the needs and requests that our bidders and sellers have asked for over the years. I think it will be a significant step forward in terms of servicing our customers and truthfully, we're working on a website that while it looks like it's being improved over time, it's essentially about six or seven years old in terms of technology and usage is just going through the roof on us. So we need to make it significantly more robust. We're taking advantage of that opportunity to improve the functionality, deeper dive into the data, better presentation of data, more, bigger, better photographs, really hopefully a significantly improved experience, so it should be a good compliment to our live experience.

That sounds great. And then maybe my second follow-up question a little bit in terms of what are you guys seeing in terms of the overseas demand in terms of equipment and gear moving from the US overseas right now in terms of where that percentage is and kind of what the demand is looking like?

Well, this is Rob here. We're still seeing a fairly active overseas market. As much as you read about the Middle East being in decline, any quantum decline over there still makes it one hell of a busy place. So we're still seeing our overseas buyers in the Middle East, in Africa, northern part of South America where the commodity and oil activity is going on, they're still pretty active buyers. They're not buying to the degree they were a year ago, but they're still quite active.

European market is probably lagging the US market in its bringing to market the overhang or the surplus of equipment that it has, and we've started to see that probably in Q2 of this year and anticipate seeing more of it in Q3 and Q4. Asia is somewhat quiet. The demand for equipment has gone down dramatically, and we're starting to hear and see inventories of equipment over there, both from the dealers and also from contractors starting to spring up in some pretty significant packages. Australia, for sure, is still digging out of the ground and selling commodities to China, but the importation of new and used equipment into Australia has dropped dramatically.

And with the dollar going up a little -- or going down a little bit recently compared to some of the other currencies, I mean does that -- do you see an incremental uptick in the demand from the US over there, or do you see still more of the interregional kind of auctions doing a little bit better?

Yes, it's hard to put a finger right on it. Anecdotally, you see auctions in the US where you've got a lot more Canadians that are bidding now. You could jump on the website right now and watch Las Vegas and see where the bidders are coming from. There are a lot of people from Saskatuan that are interested in bringing iron back there because they're relatively active compared to years ago. So there's lots of change afoot everywhere in the world. Currency is one of those changes, demand, supply. To us it's all good because it's all volatility, and volatility breeds needs for decision and again, we're the marketplace.

As long as we can provide that marketplace for people to come to transact at, Irrespective of where they're from or what currency they want to pay in, that he is what we're about . So this whole economic environment for us is a very nice environment for us to be able to add value to customers both on the buying and the sell side, and we are just going to continue to focus on executing strategy and carry on. It's not complicated. We don't need to make it complicated. We're pretty focused on serving our customers and growing our business, and that's what we're going to

And you guys are doing a great job. Thanks a lot.

Thanks, Nate.

Thanks, Rhonda, for -- thanks, everyone for joining us on the call and encourage you if you've got nothing to do, jump on rbauction.com, go to the Las Vegas website and they've got an sale on right now. And we'll carry on and we'll look forward to chatting to you at the end of Q3.

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