RB Global Inc (RBA) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Ritchie Bros. 2009 Q3 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded, Tuesday, November 3, 2009.

I would now like to turn the conference over to Peter Blake. Please go ahead.

Thanks and good morning, everyone. Thanks for joining us today on the Ritchie Bros. Auctioneers investor conference call for the period ended September 30, 2009. I'm Peter Blake, CEO of Ritchie Bros. With me on the call today are Bob Armstrong, our Chief Operating Officer; Rob Mackay, our President; Rob McLeod, our CFO, and Jeremy Black, our VP of Business Development and Corporate Secretary.

Today we will be talking about our financial results for the three and nine months ended September 30, 2009. Following our formal 30-minute presentation, we will open the call for questions.

Before we start, I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact are considered forward-looking and involve risks and uncertainties. These include statements about our projected future results of operations and financial performance, growth and other strategic initiatives 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 in operating results and end markets, and other risks and uncertainties as detailed from time to time in our SEC and Canadian Securities filings, including our Management's Discussion and Analysis of Financial Conditions and Results of Operations for the three and nine months ended September 30, 2009, 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 would also like to note that during today's call we will be talking about gross auction proceeds, which represents 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 our 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. So far in 2009 in the used equipment world, it has been a more interesting, challenging and unpredictable year than we anticipated. Although we have a lot of good news to report today, we cannot ignore the fact that we misjudged the market, and our gross auction proceeds for the third quarter fell short of our expectations that we laid out in our last conference call in August. I will talk about some of the reasons for that in a minute, but first I'm very pleased to report that Ritchie Bros. achieved record adjusted net earnings of $71 million or $0.67 per diluted share in the first nine months of 2009, which represent EPS growth of 7% compared to the equivalent period last year. This EPS growth is in line with our previous earnings guidance.

Although our gross auction proceeds of $2.6 billion for the first three quarters of 2009 was 4% less in US dollar terms than in 2008, it was achieved from the auction of a record 209,000 lots compared to 179,000 in the 2008 period, and we earned an above trend auction revenue rate of 10.79%. Our gross auction proceeds growth in local currency terms, excluding the impact of currency fluctuations during the period, was 3%.

I'm sure you are all interested to hear more information about GAP, but before I get into that, I want to reiterate our Company's goals. As we've talked before, we have two goals that our strategy is designed to accomplish. One, maintain and enhance our culture and grow our earnings per share by at least 15% per year on average over the long term while maintaining a reasonable return on invested capital. I am reminding you of these goals today because 2009 not only has highlighted the need for us to remain focused on our strategy to accomplish these goals, but also it has been a good opportunity for us to remember what we are all about, earnings growth.

No doubt you have heard us say it before, we are focused on earnings growth. Our earnings growth can come from a number of sources, and this year has demonstrated this concept in spades. GAP is a critical driver of growth, but it is not the only means by which we grow our EPS. Improved operating leverage and higher auction revenue rates all can contribute to EPS growth, and we have seen that to date in 2009.

So far this year we have been very successful keeping our costs in check in the face of challenging equipment markets. In addition, we have been very successful managing our at risk business in response to the high degree of uncertainty in the market. This effort to stay ahead of the curve was part of the reason why we achieved a significantly above trend auction revenue rate, but it is not the whole story. We sold 17% more items in the first nine months of 2009 compared to 2008, and they included a higher proportion of lower value lots. For the 2009 period, we sold 26% more items valued at $2500 or less compared to the 2008 period. We generally charge a higher commission rate on these lower value lots, and they also attract an administrative fee charge to buyers, which is another reason why our auction revenue rate has exceeded our target range to date in 2009.

This impact on our auction revenue rate and our gross auction proceeds highlight the critical importance of mix in the price versus volume debate. If you do the simple math of GAP divided by the number of lots sold at our auctions, it appears as though average values have plummeted. In fact, we sold a radically different mix of equipment in 2009, and this impacted our GAP growth in a meaningful way.

Earlier in the year it seemed like we were selling generally later model and larger equipment at our auctions, which are usually worth more money. However, this was not the case in Q3, and our GAP results demonstrates this impact. As we said before, we only sell what is available for sale. We generally cannot control the mix of equipment and what we sell, and we cannot control when our consignors decide to sell. The third quarter was a good demonstration of what we mean.

Rob Mackay will talk in a second about more of the pricing environment, but let me just say that our lack of GAP growth in 2009 was only partly attributable to used equipment price erosion compared to the comparable period in 2008. It was further impacted by what we are calling the crisis of confidence in the US market. The best way to connect this situation to the investment world is a simple analogy. Many in the investment community in the US are sitting on pools of capital waiting for the right time to reenter the market. No one knows for sure when that right time will be, but they do believe it was not the first nine months of 2009. As a result, many portfolio managers and other investors are just sitting waiting for more certainty.

This is very similar to what we are facing in the US used equipment market. Many equipment on earth are sitting tight waiting for the right time to sell. We know that time will come and the equipment will come to market, but it has not happened yet to any great extent. We take heart in knowing that we do not appear to be losing transactions to competing channels. Owners are just not selling. So we are at least maintaining or as evidenced by the increased number of lots sold in bidder registrations even growing our market share.

We believe there are several factors holding some people back from selling. One is that equipment owners are uncertain about when construction activity will start to pick up in a meaningful way. The other, the price of used equipment, which Rob will speak to in a moment.

A third factor at play now in the United States is the credit situation. Interest rates are currently at historic lows, so there is not the same pressure to sell like we have seen in previous down cycles. Add to that the challenges faced by the banks and other lending institutions over the last year, which has made them somewhat less aggressive with delinquencies than they have been in the past. The combination of these factors is reducing the impetus to sell. We have not seen a dramatic increase in distressed selling to date in 2009, though it seems likely this situation will change in the future as lenders start to become more aggressive with their delinquencies.

The replacement cycle for used equipment is another significant factor that affects the used equipment market. Although many of the larger more stable contractors are still busy and needing to renew their fleets at normal intervals, many other contractors have extended their equipment replacement cycles in the face of capital restrictions and uncertainty about future construction activity. This has benefited us on the buying side because these contractors are not likely to buy new equipment, which in part explains the precipitous decline in sales of new equipment. But it has also limited the flow of used equipment to the market in the US.

And finally, bonding has become an issue for many of our customers. Often major projects require bonding, and that bonding is secured by the value of the contractor's fleet. If the contractor sells equipment significantly below the value specified to his bonding company, he puts his bonding at risk because the value of his remaining fleet, which is the underlying security for the bond, may be in question. These customers are forced to hold on to idle equipment rather than sell, and this has impacted us in 2009.

The combination of these factors has created a unique paralysis in the United States used equipment market, which has been the primary reason why equipment in the US has not been coming to market at the pace we expected, particularly the bigger, higher value equipment. This in a nutshell is what we mean when we say we only sell what is available for sale. When we spoke in August, we anticipated that the US used equipment logjam would have freed up more quickly. Although the market has over the last three or for months repeatedly showing signs of easing, it has not played out nearly as quickly as we expected, and this has had a meaningful impact on our GAP today in 2009.

I want to be clear here. This is a unique situation that we have not seen before, and it is only playing out in the United States. In the first nine months of 2009 compared to 2008, we experienced local currency gross option proceeds growth of 15% in Canada and 10% in Europe, and most of our other markets have returned to a more normal state. What we have experienced to date in 2009 is not a down market phenomenon. It is more rooted in a crisis of confidence in the United States. Clearly many industry observers and OEMs believe the market is about to turn the corner. We are well-positioned when it does, but we have not seen any meaningful movement yet in the United States.

We said before that we can do well in good times and in bad. The used equipment market is massive and fragmented, and although we are the largest player, our share of the market is only about 3%. To us this means that our ability to grow is not dictated by growth or contraction of the broader used equipment market, and we still believe this to be the case. We have consistently said in the past that the most important factor affecting our growth is execution, and this is another important factor at play this year that has had a meaningful impact on our growth. So while one part of the story is the economic environment in the US; another is our own execution. While many of our customers have been facing unprecedented challenges over the last 18 months or so, this has created a challenging market for us.

We don't believe we have also executed as well as we should have. We misread the rapid changes and paralysis in the US market and have not managed as well as we could have. We have been doing our best to support our customers and deliver value, even if it has meant helping them make the decision not to sell their idle equipment.

But, as a company, we cannot just stop there. If the business from long-time traditional customers goes dormant, we need to extend our reach, and we as management need to help our sales team accomplish this. We have a very small share of the market, which means there are hundreds of equipment owners out there who do not even know who we are. If one door closes, we need to go to the next door and the next and so on until we find someone with a crawler tractor or a crane or a dozer that they want to sell right now. In this unusually challenging environment, we have to work harder, and we have to train our sales representatives to be more creative when looking for consignment opportunities. We clearly have not done this effectively enough in 2009.

This does not mean the model is broken. It just means we need to work smarter. We are not rethinking our business model or revising our growth strategy for one simple reason. We have proven that they work, and our customers are telling us that we are delivering value.

The other bright spot is that most of our customers are choosing not to sell their idle equipment through our auctions -- are not even selling it through competing channels. They are just literally sitting tight. Thankfully as a direct result of many months of rebuilding our infrastructure to support our growth, we are about to roll out our new sales force automation tool, which will help our territory managers be more effective mining their territories and uncovering new customers.

In addition, our new leading-edge website is scheduled to roll out before Christmas, and we expect that this will significantly enhance our online relationship with our customers. These are all very positive developments, and we are confident that these changes will help support our territory managers to grow their customer relationships and help them be more productive.

Before I pass the call to Rob Mackay, I want to emphasize one other important point about our year-to-date results. Efficiency. We sold 17% more lots and registered 25% more bidders in 2009 so far, yet we have kept our costs in check. This is a significant accomplishment, especially considering that we sold a much higher proportion of low value lots than normal in Q3, and they generally require more handling to sell.

In addition, we held our costs while we grew our sales force by 12% during the same period. And these territory managers are just beginning their several year journey towards being fully productive RBA salespeople.

As we said many times before, the key to our growth is our sales force. Our future growth is tied to us successfully attracting, training and retaining high-quality salespeople and improving their productivity over the long-term. Our growth model is very much intact in that we are continuing to position our Company for growth over the long term. We misjudged the timing of and the return of confidence by participants in the US used equipment market on our last call, but we do see light at the end of the tunnel and remain focused on earnings growth. That goal because we feel strongly this is what matters most to our shareholders.

On that note I will pass it over to Rob Mackay to give you a brief market update.

Thanks, Pete, and good morning, everyone. The past 12 months have been tough for the industries we serve, and that has been reflected in a general decline in the value of used equipment around the world. That is what you expect when supply suddenly exceeds demand. What we did not expect was the lasting effect that it would have on seller behavior, particularly in the United States.

In the first nine months of 2009, we generated 55% of our gross auction proceeds in the US, making it our single largest market. This year it has been an extremely tough market. Most people are holding on to their big equipment until the market rebounds. Others are telling us I cannot afford to sell at today's prices. They are leaving machines idle, running older fleets, and in many cases delaying the replacement cycle. What they are not doing is making a decision to sell their dozers, excavators and other big machines in what they viewed as a depressed market either through Ritchie Bros. or through other channels. Used prices do not seem to be dropping or going up in a meaningful way, which is continuing to create uncertainty. Rather than take the risk of selling in an uncertain market, equipment owners in the US are choosing to wait for signs of sustained stability.

Looking at our aggregate auction results across a number of major categories of equipment, used auction values are probably 40% to 50% off since their peaks, which is tough for many equipment owners to take.

On the other hand, our customers have shown greater risk tolerance when it comes to selling lower value equipment items. We have seen more of these lots in our auctions lately.

More lower valued lots, softer pricing, reluctant consignors, all of these factors add up to lower gross auction proceeds at our US auctions this year, despite the significant increase in the number of lots sold. The $1 million question now is what happens next, or more accurately when will all this equipment finally come to market?

That is tough to predict. We thought we would see the start to happen in the third quarter but we were wrong. We have seen recent signs at our auctions in the US indicating that pricing may have hit bottom, and our aggregate auction data tells us overall prices may be creeping up slowly. If prices do start inching up in a meaningful way, we would expect to see some freeing up of the used equipment market.

Another factor we may see as 2009 draws to a close, provided equipment prices remain relatively stable, is that some companies may want to trigger some unrealized losses in 2009 and sell before the end of the year. Some customers have told us they see brighter days ahead so they might as well clear the slate and set themselves up for better results in 2010 and beyond.

We also believe that while some of (inaudible) well during the recent turmoil, many equipment dealers still have an overhang of inventory. And this may or may not come to market in Q4, depending on what else happens. We are still being cautious in our underwritten business because of this uncertainty. It seems like many of the rental companies rightsized their fleets earlier this year, but utilization rates still are subpar. These rates will need to tick up, and capital will need to be allocated before rental companies start to reconsider renewing their inventories, which would have a positive impact on the levels of equipment we are seeing coming to market.

We often get asked what will happen when used equipment market starts to improve. Will there still be equipment to sell, and will we still be able to attract bidders to the auctions? Rest assured as economies around the world start to improve, we expect to see more activity buying and selling at our auctions. When construction activity increases, existing contractors will need more equipment, and new participants will enter the market. In our experience these new participants often will start with used equipment, and the existing contractors often buy used until the supply side of the equation stabilizes, which continues to drive transactions at our auctions.

At the end of the day, as Peter mentioned, there are thousands of equipment owners all over the world, including the US who don't even know who we are. We just need to remain focused on introducing more and more of them to our value proposition.

When you boil it down, we depend on change, both positive and negative to drive transactions. What we've also said is the worst thing for our business is paralysis. If the transaction is not happening in the used market, used equipment market, 2009 will go down in record books as a year of relative paralysis for the end users in the used equipment market, and end-users represent the vast majority of our consignors.

This is important to understand. Rental companies, lenders and dealers are an important source of equipment for our auctions, but the bread and butter still remains the end-users and contractors who are facing unprecedented challenges in these difficult times.

And because you are probably interested to know, Jeremy will now update our guidance for the remainder of 2009 and into 2010.

Thanks, Rob. In light of our performance in Q3 and the current uncertainty in the market, we are revising our gross auction proceeds guidance for 2009. Based on what we're seeing in the market and our field manager's perspective on expected activity for the remainder of the year, we believe gross auction proceeds will be in the range of $3.6 billion for the year. This would represent a marginal increase over 2008 GAP results.

If the US situation that Pete and Rob discussed improves and we see more confidence in the US market, we would expect to see more used equipment coming to market. This would provide some potential to exceed this guidance.

We are maintaining our auction revenue rate guidance to be in the range of 9.75% to 10.25% for the fourth quarter of 2009. We achieved an auction revenue rate of 10.79% in the first nine months of 2009 and 10.95% in Q3 alone, which are both well above our expected range. While we are pleased with this result, we do not believe that this rate is sustainable over the long term. If you look back at the history of our auction revenue rate, you will notice there have been periods of time in which we consistently exceeded our guidance range. During those times, we were often asked if we felt the above trend rate was sustainable, and we always answered that it was not. We have the same answer this time.

Although we will take all of the above trend auction revenue rate performance we can get, we do not believe that this is the new normal. History has shown that our auction revenue rate always reverts to the mean, and we believe this time is no exception. Competitive factors, the mix of equipment in our auctions, and the uncertainty in the market will inevitably normalize, and this will cause downward pressure on our auction revenue rate. We will keep you posted if we see a trend developing, but for now we are maintaining our guidance range.

We remain confident that we can achieve average annual earnings growth per share of 15% over the long term. Some years we will exceed this target, while other years we won't.

Looking at our recent performance and our updated gross auction proceeds guidance for the year, we continue to believe we will achieve adjusted EPS growth in the mid to high single digit range in 2009, which is consistent with our previous guidance. We believe this is a pretty significant accomplishment and demonstrates one of the benefits of our model. Our earnings growth is not dependent solely on gross auction proceeds growth. Operating leverage and margin expansion are all possible scenarios in our business, and at the end of the day, EPS growth is an important measure of success.

And before I sign off, I would like to offer some preliminary guidance for 2010. I will caution you that this is preliminary guidance, but based on recent discussions with our field managers and a fair amount of internal review, we are projecting gross margin proceeds in excess of $4 billion for 2010. The environment in which we play is pretty opaque right now, which makes accurate predictions more challenging. But we are confident about our strategy, our team and the viability of our 15% long-term EPS growth target.

Bob Armstrong will now give you an update on our growth initiatives.

Thanks, Jeremy. Good morning, everyone. Our growth strategy is centered on our people, places and processes, and it is designed to take us to gross auction proceeds of $10 billion and beyond.

As Pete mentioned earlier, we have not executed parts of our strategy as well as we would have liked this year, but we remain confident that it is an effective strategy. Attract, train and retain good people. Expand and improve our global network of auction sites, and invest in processes that enable us to conduct more auctions, and sell more equipment in a more efficient, consistent and scalable manner. We have lots to report in 2009, so let's get into it.

Our people are the core of our business. We now have 1140 full-time employees worldwide, including 300 sales representatives and 20 trainee salespeople. We have grown our sales force by 12% this year while slowing the growth of our non-sales staff, which is a positive development. We expect the recent additions to our sales team to reach full productivity over the next several years, which bodes well for future growth. Our salesforce productivity stats have eroded somewhat in 2009, in part because we did not grow our sales team in 2008, and we're now growing it more rapidly and in part because of this year's slower GAP growth, coinciding with that accelerated sales team growth.

On the places front, we recorded capital expenditures of $117 million in the first nine months of 2009, primarily related to the acquisition of land and the construction of new and replacement permanent auction sites. To date in 2009 we have opened replacement permanent auction sites in Houston, Texas and Minneapolis, Minnesota and a new permanent auction site in London, Ontario. We also significantly expanded our Orlando, Florida permanent auction site and undertook major renovations at our existing Edmonton, Alberta and Fort Worth, Texas sites.

We are also nearing completion of replacement permanent auction sites in Grand Prairie, Alberta and Vancouver, British Columbia and our permanent auction sites that will replace regional auction units in Italy and Mexico. We are well underway on our new permanent auction site in Narita, Japan, Madrid, Spain and St. Louis, Missouri, and these three sites are expected to be complete in 2010. So this has been a peak year for capital projects at Ritchie Bros., and we expect our CapEx for the full year to be in the range of $160 million. So we anticipate CapEx will be in the $100 million range in 2010 and remain there for several years.

That being said, if the right opportunities come along, we will seize them. So there is a chance our actual expenditures could exceed this range. We have identified a number of markets around the world where we intend to make our presence more permanent, particularly in the United States and Western Europe. And when we find the right property in the right place at the right price, we will buy it.

Some of the other places accomplishments this year include our first-ever auction in India and our first auction in Central America in Panama since 1999. Auctions in emerging markets are critical for future growth because they help introduce Ritchie Bros. and our unreserved auction block methods to thousands of new and potential customers. And while we're talking about new markets, we have three more frontier auctions on our upcoming auction calendar, including our first auction in Turkey, our second auction in Poland and our first auction at our new Japan auction site.

The third component of our growth strategy is our processes. Two of the most exciting projects currently underway at Ritchie Bros. are nearing completion, and they both have the potential to revolutionize parts of our business. The first is our sales force automation tool, which will enable our sales representatives to manage their customer relationships more effectively and to be more productive.

The second is our new multilingual website. People all over the world will soon be able to search the world's largest used equipment inventory and find option results and equipment prices and bid online at auctions around the globe, all in their own language. In the same way that online bidding expanded the audience for our auctions, the new rbauction.com website will help us reach a massive audience of non-English-speaking equipment buyers and sellers and take us one big step closer to our $10 billion goal. The reality is that we get massive traffic to our website, but we have never had the capability to establish relationships with these people or market directly to them. Our new website will open up significant opportunities to capitalize better on success of our online brand.

Rob McLeod will now give you the highlights of our financial results.

Thanks, Bob, and good morning. I hope you have had a chance to read our earnings release and MD&A for the three months and nine months ended September 30, 2009, which will form the basis of my comments today. These documents were filed this morning, along with our year-to-date financial statements, and all three will be available shortly on the SEC, SEDAR and Ritchie Bros. websites. All the dollar amounts on our filings and on this call are stated in US dollars.

In the first nine months of 2009, we conducted 156 auctions in 10 countries and generated gross auction proceeds of $2.6 billion, which is 4% less than the same period in 2008. We will report in US dollars that conduct our auctions in a number of currencies, notably the US dollar, Canadian dollar and the euro. And note the currencies, our gross auction proceeds grew 3% year over year.

Peter has already given you lots of color on GAP so far in 2009, so I won't repeat it here. We generated auction revenues of $280 million in the first nine months of 2009, a 3% increase over the same period in 2008. Our auction revenue rate, which is auction revenues as a percentage of gross auction proceeds, was 10.79% for the first nine months of 2009. Significantly higher than our expected range of 9.75% to 10.25%. Our above trend auction revenue rate so far this year can be attributed primarily to the relatively strong performance of our underwritten business, which represented 18% of our gross auction proceeds in the first nine months of 2009.

In addition, our higher average commission rate due to a change in the mix of items sold at our auctions, mainly in the third quarter, also contributed to the above trend rate. Proportionately we sold more lower value lots in the third quarter of 2009, and these items generally attract a higher commission rate and an administrative fee. Our direct expense rate reflecting the costs we incur specifically to conduct an auction were 1.36% of our gross auction proceeds for the first nine months of 2009. This compares to 1.35% of gross auction proceeds in the first nine months of 2008.

Our direct expense rate is impacted by the average size of our auctions and whether it takes place at a permanent auction site, regional auction unit or off-site location. Although the average size of our auctions decreased year over year, we achieved greater efficiency in 2009 and kept our direct expense rate in line with 2008.

As Pete mentioned, maintaining this rate is particularly impressive in light of selling 17% more lots.

Our general and administrative expenses decreased 2% year-over-year to $123 million for the first nine months of 2009. Wages and other personnel costs formed the largest component of our G&A, and our full-time workforce increased by 6% between September 30, '08 and September 30, '09. This growth was offset by the effect of the translation of local currency expenses into US dollars for reporting purposes, which resulted in a $9.8 million decrease in our G&A in the first nine months of 2009 compared to the first nine months of 2008.

Although we have started to see improved G&A leverage in the first half of 2009, our lower than expected gross auction proceeds in the third quarter meant that we did not experience an improvement for the nine months ended September 30, 2009. We believe we are on the right track and expect to see operating leverage in the future. However, based on our reduced GAP guidance, this will likely not be achieved until 2010.

That being said, we remain focused on improving our efficiency and growing our revenues more quickly than our operating costs, both of which we achieved -- accomplished to date in 2009. Our effective income tax rate was 29% for the first nine months of 2009 compared to 28% in 2008. Income taxes for the nine months ended September 30, 2009 included a $1.9 million favorable tax adjustment relating to uncertain tax positions. The effective tax rate for the nine months ended September 30, 2008 includes adjustments recorded in 2008 to reflect our actual cash tax expenses arising from our 2007 tax filing.

Income tax rates in future periods will fluctuate depending on the impact of unusual or one-time items and the level of earnings in the different tax jurisdictions in which we are operate.

It is relevant to note that there were also a couple of significant items included in other income for the nine months ended September 30, 2009, including the $1.8 million decrease in interest income arising from lower interest rates applicable to our cash balances and a $1.3 million increase in our recorded foreign exchange loss, all compared to the nine months ended September 30, '08. We achieved adjusted net earnings of $71 million or $0.67 per diluted share in the first nine months of 2009, 7% higher than adjusted net earnings in the equipment period in 2008. Our GAAP net earnings in 2008 included a $7.3 million after-tax gain on the sale of property, which we do not consider part of our normal operating results. Adjusted net earnings also exclude the impact of nonrecurring foreign exchange items as discussed in more detail in our MD&A.

We believe adjusted net earnings offers a better comparative measure of our operating performance. We define adjusted net earnings as net earnings excluding the after-tax impact of significant foreign exchange gains or losses that result from activities we don't consider a normal part of our business and also the sale of property.

Looking at Q3 by itself, our auction revenues remain consistent with 2008 even in light of the 10% decline in GAP. Our at risk performance and an increase in low value lots relative to last year contributed to the above trend auction revenue rate. Our at risk business represented 15% of our total GAP for quarter three 2009. This was lower than our historic range of 25%, but we do not believe it is a trend. G&A grew by 3% in quarter three of 2009 compared to quarter three last year, mainly as a result of our sales force growth. Adjusted net earnings for the quarter were $12.9 million or $0.12 per diluted share, which were consistent with the third quarter last year.

We paid total dividends of $29 million in the first nine months of 2009, a 12% increase over the same period in 2008. Our board of directors declared another quarterly cash dividend of $0.10 per common share payable on December 11, 2009 to shareholders of record on November 20, 2009. We expect to pay out approximately $10.5 million for this dividend.

Please note that our earnings press release this morning had incorrect dates for the payout of the dividend. Peter will now go over the highlights of today's presentation before opening up the call for questions.

Thanks, Rob, and to briefly recap the main points we covered today, we achieved record adjusted net earnings per diluted share of $0.67 in the first nine months of 2009, which is a 7% increase over adjusted net earnings for the nine months of 2008. We achieved an auction revenue rate of 10.79%. We attracted a record 247,000 bidder registrations and conducted 156 unreserved industrial auctions in 10 countries in the first nine months of 2009, including our first auction in India, our first auction in Central America since 1999. 24% of those bidder registrations were first-time bidders.

We adjusted our gross auction proceeds guidance to approximately $3.6 billion for the year with 2009 full-year EPS growth rate guidance reiterated in the mid to high single-digit range. We grew our sales force by 12% year over year, and we expect the growth and maturity of these new hires will translate into improved productivity in the future.

We continue to expand our capacity for future growth by adding auction sites in markets around the world, and we are about to roll out a new website and a sales force automation tool, both of which will contribute to better productivity in the future and a stronger relationship with our customers.

And finally, we provided preliminary gross auction proceeds guidance for 2010 to be in excess of $4 billion.

It has been an out of the ordinary year so far in 2009. In the face of unusual times we have achieved excellent operating efficiency and remain as confident in our growth strategy as we are in our auction model. We have increased our market penetration, exposed thousands of new customers through our sales channel, and made good progress in our efforts to grow the team and auction site network that will serve our growing global customer base. And we have delivered earnings growth and are confident about our ability to do so in the future.

Thanks for joining us today. Would you please open the call to questions?

(Operator Instructions). David Wells, Thompson Research Group.

First off, just to get a comparable number. If you look back at the second quarter and the sales force figures that were given there, did that include trainees as well as this quarter's number, the 293?

The 293 did not include training numbers, I believe.

Yes, that is correct.

How many trainees were in the second quarter? I'm just trying to get a sense of the growth rates in salesforce.

At June 30, the number of trainees was 19, and at September 30 the number of trainees was 20.

And maybe just going into 2010, how much further do you feel like you need to grow the sales force to meet your longer growth targets, or would you expect to plateau as these folks ramp up and begin growing their productivity levels?

It is still our intent to continue to grow our sales force. Most of the markets that we serve -- a typical TM today has many, many customers, and we have to find the right efficiency level on the ratio of those customers to TM. So some of the bigger markets that we are in today in North America, there is still an opportunity there to dissect those markets, add another sales person to that team, and dig deeper into the market to get at customers that we are not touching today.

And then looking at the third quarter's results, I was curious if you could break out or quantify how much of the performance in your auction revenue rate was tied to underwritten mix or increase in underwritten business relative to mix?

Our underwritten business in the third quarter, as I said, was about 15% of our total GAP, and the performance of that underwritten business for sure would have the most weighting and the most impact on the overall auction revenue rate relative to '08 for sure.

And I guess in thinking about the underwritten business, would you expect as used prices firm up, that consignors would be less likely to choose that option just as there is less uncertainty with regards to the results that they would get from the disposition of their fleet?

Historically as the market returns to some normality or there is growth in it and confidence in the pricing levels and if prices are trending upwards, you do have a section of their customer base that is more apt to take the straight commission route.

In today's economic times, many consignors have the need or requirement to have a definitive net return to satisfy financing situations or capital requirements. And because of that, they are looking for that guaranteed amount. But in different economies that we work in as things free up and we get back to more of a growing economy, it is quite likely that you will see some that take guarantees today that will go back to the straight commission side.

And just to be clear, David, not everyone is offered a guarantee on the way through. It's a choice that we give to certain consignors if they have got a certain level of fleet, and others are only offered a straight commission alternative.

Jamie Sullivan, RBC Capital Markets.

I know you mentioned in the release and on the call that the mix impacted the GAP per lot. I'm wondering what your expectations are for the mix as we move into the fourth quarter? Are you expecting larger lots to be sold?

It is possible. As we mentioned in our release here, we saw a lot more of the smaller type lots in Q3 and a lot more indecision in our customer base with regards to the largest size equipment. I don't anticipate that we are going to see any significant decline in this smaller stuff. It is still out there, and it still wants to come to market and trade. And the big challenge and question for us is, how many of the holders of the larger equipment are going to make the move in Q4?

That phenomenon again for us as we saw it quite radically different in the United States versus the other markets we are operating in, so. It was quite interesting for us to notice that the US was the guys who were really in our view struggling to get to their numbers, and the other markets were well above trend for where they had planned to be.

So it was also a curious comment as well that you had said that particularly Europe I guess is what I'm thinking, you are seeing that Europe is actually doing better than the US and a lot of the markets, or is it just a smaller subset of higher confidence customers that you are working with?

Well, there is still a lot of certainly in Europe and the other markets that we are operating in, but our salesforce is managing to achieve their growth targets in both Canada and the overseas markets. And so we are gaining market share, we are getting more customers, and we are achieving our targeted numbers there vis-a-vis the experiences we have had in the US.

Okay. So you reiterated the roughly $1 billion for the fourth quarter in GAP, and given some of the challenges that happened in 3Q, I was wondering how the quarter played out? Were there larger -- a few packages pushed from September, or was this kind of even throughout the quarter? And then what gives you confidence that the 4Q will come in as you planned before?

Well, I guess the confidence that we are having is in our discussions with our sales force and our managers in the field. As we mentioned, we went through Q3, and equipment that we felt was out there that was going to come to market in Q3 did not. The owners chose to hold it or decided not to sell it, and that equipment is still sitting there. It has not gone anyplace. And unless those equipment owners find work for that equipment, it is going to come to market, some of it in Q4 this year. So in our discussions we have had with our sales team and they are looking and watching these packages of equipment and their customers out there, and they feel that more of it is going to come to the market in Q4 that did not come in Q3.

Okay. So the biggest change is really that some equipment got pushed from 3Q to 4Q?

I don't think it is quite as simple as that. But, you know, if you want more detail on that, we can probably take a call offline. We just want to move on, and operator, just open up the next question.

Mark Altschwager, Robert Baird.

Your salesforce has been growing, which is a measure for long-term growth, but can you help us understand the difference in productivity between a first-year sales person, the average salesperson and perhaps a top quartile performer?

Depending on the new sales guys when they come into our fold, they are either new into the sales game or they have been a salesman in another industry. They come to us and those guys typically take anywhere from one to three years to get from a rookie, if you will, to full productivity. So some of them get on stream relatively quickly depending upon the market they have and the territory they have, and others will come in and move from $3 million to $4 million to $10 million to $12 million over a one to three-year period.

The old guys that have been around for a long time that have the good territories -- (multiple speakers). They well and truly have developed the territories they have been in, and they far exceed the average GAP per TM that we look to measure. So our goal is the average weighted amount of all of them, we are trying to increase that productivity each and every year as they mature, as the whole salesforce matures.

And then it appeared after Q2 that creditors backing the surplus equipment were pushing some sellers to liquidate, but that did not appear to materialize in Q3. Can you talk about this dynamic a little bit and whether owners are still feeling pressure from the creditors? Or to ask it another way, how long can the equipment owners continue to sit on the idle equipment before they are forced to sell?

Well, each one varies. With interest rates the way they are, the opportunity is there today for some of these equipment owners to sit somewhat longer. It is interesting some of the feedback we are getting from the finance side of the world, and there are indications from the economists that work for some of the bigger financial institutions that the market is stabilizing, it's going to continue to stabilizing, and they are forecasting an increase in the price of used equipment coming towards the end of the year, early 2010. And, as a result of that, some of the finance guys are not pushing equipment owners to sell, or in some instances they are sitting on some of their own inventory that they have that needs to get remarketed because they want to wait for a better pricing market.

Scott Stember, Sidoti & Co.

Could you guys just touch on the composition of your selling customers again? You touched about how some of these bigger rental companies have de-fleeted already. Just talk about some of the smaller contractors and just how important that is to you for them to essentially de-fleet as well?

Their composition changes week to week almost, so that's a hard question to answer in a short conference call response. But, in general, we are appealing to the multinational rental company type and dealer organizations and all the way down to the guys with single backhoes. But our core customer base has always been that end-user contractor and end-user buyer. So these guys are particularly facing tough times right now with some of the margins on jobs out there, jobs not getting let. People still sitting around waiting for the stimulus, and that has been a real -- a bit of a red herring out there. We have not seen a whole lot of impact from any of the economic stimulus packages the governments have announced in the past. And that almost gave people a little bit of oxygen to wait and wait and wait and hope and hope. That has not really come to pass yet. Perhaps it will but not yet.

So these kinds of things have all affected the decision around the guys to whether they want to de-fleet now or de-fleet later or maybe they wait that job might get bid. We want to make sure we can position ourselves to bid it. So don't sell and the banks hang on with them.

So it's a very interesting environment. The mix of those consignors is different every quarter. You heard some of the comments of some of the major rental companies that have already reported about their plans to increase their utilization by ensuring their fleeting off, de-fleeting some of the stuff that may be beyond their target range of age. We are working with them every day. So it's a pretty broad question to be able to nail down in a conference call.

Fair enough. And Rob, you made a comment about current pricing, actually seeming like it might be upticking a little bit? Is this one of the reasons for your optimism about the gross auction proceeds for fourth quarter?

Well, I think so. You know, the statistics show that the US market has reached the end of its recession sometime in June. We started to see over the summer months and into the end of Q3 a firming up of equipment prices. And in recent times, even the later model, lower hour equipment, you are starting to see a little bit more demand and a push on the pricing side of it. So once we find that stability level and the customers understand that we have reached the stability level of predictability, they are more apt to come to market with their equipment, and they are not as much worried that what they might achieve is less than last month or the month before or the quarter before.

Good. And just a last question on the tax rate. Factoring in this quarter's tax benefit, what would the full-year tax rate be?

The overall tax rate based on our estimate at the beginning of the year we had used 32%. So putting in the mix of the first two quarter actuals, you will probably end up somewhere close to in the range of 13%.

Cherilyn Radbourne, Scotia Bank.

I guess my first question is that I'm somewhat surprised that you seem as disappointed in your own execution as you articulated in your prepared comments. What as a practical matter are you sort of encouraging your US sales force to go out and do in Q4, assuming we that don't have any change in this paralysis that you referred to?

It is a great question. When we look at I think from a responsibility point of view, you can't just point at the market and say it is not our fault. We looked internally and said really what are we not doing that we should be. There are some things that we could and should and will be doing in terms of execution. Because we were relying on our US guys and particularly because Canada has been going great and Europe has been going great. Our other markets have been performing really well. These US guys, they go and they knock on the doors and they are facing that paralysis.

So we're trying to incent our guys to make sure that they are uncovering all the rocks they can and knocking on a whole bunch of new doors. Thanks for the comment about being particularly hard on ourselves, but we are looking at it as it is not a position that we could responsibly take and say, hey, it is not our fault. I think we have to look hard and react more nimbly in a market that does not achieve where we wanted to achieve and see what else can we do to our sales guys.

So we are talking to our people in the field. We are giving them guidance. We are directing them. We are giving them incentives to make sure that they are chasing some of these new clients and knocking on doors that they might not have knocked on before. Even uncovering them is a difficult thing. Our sales guys now are operating on a very antiquated system of contacting their customers. And with a new system that we will roll out in January for them, the sales force automation tool will help them be very, very efficient on the way through much more so than they are today, which is really more about paper-based system.

So we saddled our guys with the challenge and ability -- challenge to deliver, but not the best tools, and that is our responsibility. And thankfully we have been working with this for some time to make sure we're going to move to a formulated way of providing automation for our sales guys to be as productive as they can. But in the interim, we did not execute that early enough, and that is our fault. So that is why we said for us it was a combination of market conditions and lack of execution.

It is Bob. I will just add to that. We apparently did a good job of attracting bidders. We were up 25% in terms of bidder attendance and a huge proportion of brand new bidders, first-time people to the Company. So we have a bunch of new names to chase, which is good. I agree with Pete. We just need to work harder and more aggressively on the people that have not consigned in the past. We had great success attracting the bidders. We need to just translate that into sellers as well.

Okay. And second question for me and then I will pass it on to others. Do you have any comments specifically as it related to the ag market? It seems like that is kind of turning down with a bit of a lag. Nowhere near to the extent we have seen in the construction space, but that seems to be slowing a bit. Are you observing that at all?

Yes, that is correct. For sure the ag market lagged behind the construction market, and in the past few years, the commodity prices for farm crops has been quite strong, and the farmers have been -- have had access to money and have been out there buying new equipment. The demand side exceeded the supply side, and that phenomenon trickled past the downturn that we saw in the construction market. And in recent times here now we are seeing the supply side of the ag equipment exceeding the demand side, and there are adjustments occurring in the pricing of most ag equipment.

Okay. And the extent of that decline if you don't mind sort of quantifying.

Not anywhere like the construction we are in.

Neil Forster, Genuity Capital Markets.

If I could just ask a question on the A/R. So the most significant impact was the performance of the underwritten business. How much was this a function of favorable pricing now that you are able to charge because of a diminished appetite for risk in the Americas right now?

I think it has more -- reflects more the -- how we go about structuring our deals and being conservative in those estimates -- selling price estimates and, therefore, I guess reaping the rewards of a stable market. So it is more the structure of the deals and the ability to charge a higher commission rate, if you will.

The rates that we are charging in a downturn vis-a-vis an upturn are the same on our underwritten business. But, as the market declines, there is less appetite out there from the competition to the underwriting business. And our customers that still want to manage the risk levels, they are coming to us asking for the guarantees, and we are far more critical in our assessment of the valuation of the equipment and what we are willing to risk our money on as the economy goes down. It is very challenging to predict the downside vis-a-vis when the market is going up. As markets increase and people are out there underwriting risk business, everybody is anticipating that prices are just going to continue to increase, and the challenge is not as great as when we are going the opposite direction here.

So we've got a lot of customers still requiring underwritten deals with us, and we don't have a lot of people out there in the market today that are willing to step in and take that. So we are still doing it. We believe in our predictability of the market, but we are somewhat more cautious in the values we are willing to underwrite.

Okay. So there is not the -- you are not seeing much of a willingness among buyers to -- among sellers to pay a premium for the extra security?

Well, they are paying a premium over the straight commission rate, but that premium they are paying in a down market is no different than what we would charge in an up market.

Okay. Perfect. And just one on GAP per lot. It was down hugely in Q3. This is mainly the mix. But I'm wondering if there is anything usual such as a large number of low value lots from a small number of consignors, or is something else that otherwise impacted the GAP per lot that you would not expect to continue going forward?

I don't think there is necessarily an increase in the number of small lots that we have seen from any small or a single or a smaller number of consignors. I think what we did see is a disproportionate number of small lots because the larger lots that we were expecting to come to market have just basically been sitting. So we were expecting to see more larger lots come to market that did not, and that skewed the relationship between the two of those in the quarter. So that the GAP per lot metric really is -- it's such a small quarter for us, too.

So the GAP per lot metric really does get skewed quite a bit. And I think if you try to look at it on a bigger scale, even 12 months ended September 30 or nine months '09 versus '08, you would probably get a better sense of that. But we did see for sure fewer bigger lots come to market in the quarter. Largely out of the United States and largely because of this phenomenon we are seeing of just the crisis in confidence and where the market is going and people waiting for stimulus and they are waiting for everything to change back to the heydays of 2006/2007, and that marketplace environment just does not exist today.

So to the extent that the conditions in the US remain uncertain and sellers continue to wait on the sidelines in anticipation of a better price down the road, can we expect the auction revenue rate to continue to exceed your guided range as long as that is the case?

We knew that question was coming.

It is possible that it could exceed the guidance range in Q4. But we are sticking to our long-term guidance range of 25 basis points outside of 10%.

Obviously if we come in that range, the full-year performance is going to be higher than that range. But we are going to stick to that range for now.

Okay. And just a quick one on the tax rate. I am just wondering what impacted it in Q3? I know you spoke about it year over year, and I apologize if I missed that discussion. But it was very low, 16% versus 25% -- sorry, 28% a year earlier.

In the prepared statements, we mentioned the $1.9 million favorable tax adjustment. That was in Q3, so that is exactly what broke down the rates in just the one quarter.

Gary Prestopino.

I think most of my questions have been answered. But I want to just get at, you know, you had a prediction for GAP coming out of Q2, and then things changed somewhat in Q3 based on the US. But when your guys in the field went back to the people in the US that you thought were going to sell equipment, was it a function really of the market price, or is it just that they are waiting to see if the economy starts popping and they can put that equipment back to work?

Very much so. There's a lot of discussion down in the US still about the federal money that is out there, and they had $700 billion odd. About $100 billion was dedicated to infrastructure. There is only somewhere between 5% and 10% of that money that is actually in the hands of contractors. So there is a whole wall of unspent money there, and the contractors that have the equipment, they are in dialogue, they are aware of what the states might be spending or what the Feds might be spending. And they are all sitting around in anticipation that they are going to get access to some of this money and some of these jobs, and it is very slow to be rolled out there. So each quarter, each month these guys have excess equipment sitting there. They are talking to our people, and one month the guy has suggested that it's time to move it, and he cannot wait any longer, and a week later he is heard something in the news or is aware of a project that may be coming, and he is willing to sit on it for another month or another quarter.

So it creates kind of a vicious cycle in a sense, right?

Yes.

What about that intuitively, though, if in the US some of these entities are holding onto their equipment, intuitively it looks like you have still got fairly robust demand by the increase in bidders here. Shouldn't we start seeing in Q4 and into 2010 some increase in pricing at auction overall based on the fact that there is not enough of a supply out there?

We would anticipate so. It is going to be dependent upon the confidence in the market and the demand as the jobs come out. As we come out of any economic downturn, we traditionally see the market return to used equipment, and we see used equipment pricing increasing as the contractor's confidence medium to long term is not there. So instead of going out and ordering the new piece, it would drive them to buying a late model low hour used piece. Other contractors that come back into the market might buy an older model, more hours used piece. And then as time evolves and confidence comes back, the bigger companies are allocated CapEx to spend, and they start to go out and order new, which frees up some of the used that they have been sitting on and working.

So if the confidence comes back to the market and the work starts to trickle out faster than it does through Q4 and into 2010, for sure we should start to see an increase in used equipment pricing.

And then just lastly, I know it is fairly early after all this has happened, but with your sales force going out and reacting more nimbly, working harder, I mean so far what are you seeing out there from what the salesforce is able to do? Is there anything you can share with us there?

Well, they are out there -- they know. Don't forget that part of our -- most of our salesforce is remunerated based upon their salary, and the bonuses are based upon targeted GAP, and many of them are out there today not achieving their GAP numbers. And that, of course, affects their remuneration.

So they are a reminder to these guys that they have to get out there and find new customers that have a need to sell in this market. Because some of their old customers who have a need but are willing to remain in indecision, they have got to continually go there and find new ones to fill their pipeline. And we are pushing them hard on that concept, and we are seeing them get out there and then turning over deals from customers that we have not seen before, don't know who they are. So it is evolving, albeit somewhat not as fast as one would like to see.

Mike Smith, Kansas City Capital.

Well, I think you answered most of this before, but you have got your new salesforce automation tool. Can you give us some specifics of what is actually in that that will benefit your salespeople?

It is not out yet. We plan to roll it out toward the end of the year here for use in next year, and it is an automated system whereby each of the salesman will have on his device or access in his device to his customer base contact information, past history of business that he has done with this. It will be used as a lead generation tool. So when that customer goes to an auction and buys or may bid online or may call into the call center and have an inquiry, there will be an automated information flow to that sales rep that that customer is looking for something or wants something. So he will have far more quicker access through the data of each and every one of his customers and be able to manage his customers through call reports or call information. So there will be a lot more information fed to the TM, which would drive it more to the lower hanging fruit than he is able to get at today.

Okay. Thanks, everyone, and thanks, Ilyana, and we will look forward to speaking to you in February at the end of our Q4. So in the meantime, we are going to go out and get after the market. (inaudible) is on right now if you want to dial into rpauction.com and buy something. (inaudible)

Thanks, everyone. We will look forward to talking to you again next quarter.

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