RB Global Inc (RBA) 2010 Q1 法說會逐字稿

Good morning. My name is Tracy. I will be your conference operator today. At this time I would like to welcome everyone to the Ritchie Brothers Auctioneers Q1 earnings conference call. (Operator Instructions). Thank you. Mr. Peter Blake, you may begin your conference.

Thanks, Tracy. Good morning, everyone. Thanks for joining us today on the Ritchie Brothers Auctioneers investors conference call for the quarter ending March 31, 2010. I'm Peter Blake, CEO of Ritchie Brothers. I'm joined by Bob Armstrong, our Chief Operating Officer, Rob Mackay, our President, Rob McLeod, our CFO, and Jeremy Black, Vice President of Business Development and Corporate Secretary.

Before we get into the details on what's happening so far in 2010, I'd 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 risks and uncertainties are 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 period ended March 31, 2010, which will be filed this morning and is available on the SEC, CR, 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 we'll speak only as of today's date.

We started seeing signs of improvement at our auctions in the first quarter of 2010, signs that have provided us a measure of optimism for an economic recovery, however, we remain cautious on the outlook in several of our major markets, including the US and Europe. Our GAAP for the quarter came in at $730 million, which is within the expected range we discussed on our last call. We have anticipated the uncertain market conditions from 2009 to continue into the first part of Q1, and that's exactly what we experienced. Right now we're optimistic that auction values and customer optimism are showing signs of sustained improvement and we're still expecting accelerating growth from our continuing improving economies through the year. Our caution stems from lingering uncertainty in economic and construction activity levels in the US and Europe. Before I continue, I should point out that all of our comments today about gross auction proceeds, auction revenues, and auction revenue rate exclude the $47 million in gross auction proceeds and $850,000 in auction revenues from the auction of the yacht Apoise in March 2010.

This was by far the largest single item we have ever sold and it was an exciting auction, however due to its unique nature we are excluding the results from our discussions so as not to skew our performance metrics for the quarter. It may seem disappointing to some that our adjusted net earnings for the first quarter were down $0.07 compared to the first quarter of 2009, yet we anticipated this erosion and executed pretty much on plan for our first quarter. The decline in earnings in Q1 was mainly due to our continued investments in our people, auction sites, and systems and processes in preparation for targeted future growth. As many of you have heard us say in the past we do not manage the business for a single quarter. We invest capital and build our team for longer-term results. Recall that our sales force grew 14% last year.

We grew an additional net 4% in the first quarter of this year and this, combined with overall effect changes, have had a meaningful impact on our G&A. We will talk in more detail in a few minutes about G&A and earnings guidance, but let me assure that our Q1 results were in line with our plan and we remain on track for the flat earnings that we forecast on our last call. Given the uncertainty and fragility of the global used equipment market and to ensure that we aren't caught flat-footed if things take a turn for the worse, we have taken a number of proactive steps to slow the growth in our G&A for the balance of 2010. Until we see a little more sustained certainty in the market we intend to be extra vigilant about our operating costs growth. We have some very exciting developments in the quarter that I would like to highlight before we start addressing some of the questions we might expect you have.

We made significant steps forward in continuing implementation of our sales force automation tool, launching our new powerful industry leading website, and commencing the roll out of our new timed auction system. Each of these innovations has the potential to have a highly positive impact on our business. Our sales force automation tool has been very well received by our team and we're already seeing signs of the benefit this tool will have on our productivity. Our new website was launched two weeks ago and the feedback we've received to date has been very favorable. The new site addresses what our customers have told us is most important when buying equipment online, more detailed high-resolution zoomable photographs and better ability to compare multiple units.

Our customer focus groups and other research indicated that these features rank much higher than written inspection reports in terms of importance. Almost 90% of our customers said they prefer to trust their own judgment rather than rely on third-party inspection reports. Another important aspect of the new site is that we have a full features in 21 languages, which makes it significantly more appealing to a much broader range of customers. This is particularly critical considering the growth of developing economies is expected to outpace that of developed economies in the near term. In 2009, we had more than 2.8 million purely unique visitors to our website, which represents growth of 23% over 2008. Now with our new website, we believe it will prove to be a very powerful tool for gathering market intelligence and for generating leads, particularly because the vast majority of these visitors are not yet part of our customer database.

Our new website is allowing us to extract much more information about and develop richer relationships with these customers. Our timed auction system is a computerized auction process that enables bidders to place bids online from kiosks at the auction site or through their own computers, blackberries, iPhones, or other PDAs. The new system has been rolled out so far in nine of our auction sites with 21 more to follow, and we are selling many of the lower value items, such as buckets, equipment attachments, and other more consumer oriented items using this system. Our bidders like the system, because it allows internet bidder participation and is much more convenient and flexible, allowing them to place bids on their own schedule rather than having to wait around at the auction for lower-value items to be sold.

Consignors like the system because it has resulted in overall higher proceeds. These lower value items are now receiving more bids because of the convenience factor. And we like the timed auction system because it generates greater efficiencies and lower costs and allows us to focus our efforts where we can add the most value, the sale of higher value equipment items. A number of our auction sites that have enjoyed the benefits of the new system have been able to eliminate entire auction days, which is a tremendous win for controlling operating costs and improving the customer experience. So in all we are very positive about the benefits we're already seeing from our recently introduced innovation. Rob Mackay, can you offer some commentary on the global used equipment market?

Thanks, Pete.

You may recall in our past calls or comments about the unique environment experience in 2009, particularly in the US and spreading into Europe in the latter part of the year. The uniquely synchronized global downturn of 2009 resulted in many customers choosing to park their idle equipment rather than sell it at reduced market values or for less than the value of the associated debt.

We talked about the state of paralysis in the US market and similar circumstances spreading into the European market as well. While there have been promising signs of improvement at our markets to date in 2010, many owners have remained on the sidelines and, quite frankly, it may be too soon to say if the used equipment market is truly out of the woods yet. As demand has picked up somewhat we're pleased to see that equipment values at our auctions have continued the upward trend that we mentioned in our last call and we continue to see consistently higher auction values across most categories of equipment, particularly for later model, low-hour gear. The increased demand for equipment in most domestic markets have been intensified by a marked increase in interest from international buyers.

We've noticed the weaker US dollar -- with the weaker US dollar foreign bidders have become more active at US auctions on any product line that has local parts and service support in their home markets. Specific equipment categories with increased recent interest in recent sales include motor graders which are often destined to the Middle East and Asia, and hydraulic excavators which our Asian customers are snapping up in greater numbers than we've seen in many years. Our new website greatly enhances the ability of those bidders with limited English abilities to interact with us and bid on equipment at auctions around the globe. Uncertainty in the market continues to exist with many customers in the US and Europe, while supply is tightening on low-hour, late-model used equipment, other product remains in the hands of the owners who are still reluctant to sell the equipment until equipment values improve more or there are other signs of a sustained recovery in the economy.

It's still a curious market, and we remain cautious about the sustainability, particularly because there's not yet been a material uptick in the volume of available work in the US, which is what typically drives confidence amongst contractors, dealers and the banks. We have started to benefit from the recent optimism and increased auction values and are comfortable that the longer it carries on the more positive the impact should be on the confidence of our customer base. However at this point in time the second half of 2010 is still somewhat cloudy. Jeremy, do you want to talk about what it means for our gross auction proceeds guidance for the year?

Thanks, Rob. While we remain focused on flat adjusted earnings in 2010, in light of the challenging conditions with which we are faced, we also know that GAAP is an important metric for the investor community. It is important for us as well, but we do want to emphasize again that adjusted earnings is one of our more important metrics, and in the current environment, auction revenues is very important as well. With that said, I can tell you that we have reevaluated our GAAP target for 2010, and after much back and forth with our sales team we are reducing our expectations for GAAP for 2010 and now believe a realistic target to be in the range of $3.9 billion for the year, still an 11.7% increase over 2009 GAAP. As Rob just talked about, the recovery is still shaky, and we are expecting 2010 to be another unusual year.

Our ability to predict the market in the face of the many uncertain variables at play is challenging, as it continues to be for many organizations these days. After our last call, we had a number of people express concern about the aggressiveness of our $4 billion GAAP target for the year. As a result, we want to discuss some of the key drivers that we expect to help us as we aim for GAAP growth in 2010. One is the 14% growth of our sales force in 2009. This is a key driver of our gross auction proceeds growth, and these new sales reps will help us increase GAAP in 2010.

A second lever is increasing equipment values. As Rob described, we're seeing improvement in auction values so far in 2010. And a third contributor is currency. If the geographic distribution of our GAAP in 2010 is roughly consistent with 2009, and the Canadian and Australian dollars in particular remain strong relative to the US dollar, the currency impact alone would provide a roughly $100 million increase in our GAAP and while it is always possible we may come in with GAAP below our target range, we are confident about our ability to deliver our 2010 earnings target outlined earlier. We are projecting Q2 gross auction proceeds to come in somewhere in the $1 billion range.

This means we're expecting a meaningful acceleration of our growth during the second half of the year, which is not unlike what we've already heard from a number of other public companies recently. It is reassuring to see that our recent auctions in Q2 have pretty consistently outperformed our expected GAAP numbers, and we recently held our largest ever sales in Salt Lake City and Albuquerque. This gives us confidence for the rest of the year, but a crystal ball remains murky in this uncertain environment.

Good morning. It's Rob McLeod. I might add that the dynamic between gross auction proceeds and our auction revenue rate that we experienced in 2009 and talked about in the last call has continued to play out in 2010. We have continued to be successful in managing our at-risk business in the current opaque environment by understanding the competitive pressures on getting a deal done. Those competitive pressures include other sales channels as well as debt levels. As a result, our auction revenue rate came in at 11.33% for the quarter. Significantly above our expected range.

Our auction revenue rate also benefited from a slightly stronger straight commission rate and higher fees. So although GAAP contracted during the quarter compared to quarter one last year, we were able to achieve essentially flat auction revenues. If the market continues to improve, we expect those competitive pressures to intensify, and so it is important to acknowledge the inverse relationship between gross auction proceeds and our auction revenue rate. It is perhaps more important in 2010 that than it has been in the past to give some color around our auction revenue expectations.

We believe we can achieve auction revenue growth in the 10% to 15% range in 2010, but we still can't be certain what portion will come from GAAP growth and what portion will come from achieving an above trend auction revenue rate. At the end of the day, what we're saying is that we have more confidence around our auction revenues and earnings guidance for 2010 than we do around our GAAP target. I'm sure many of you are thinking that it's about time we increase our auction revenue rate guidance based on our above trend experience over the last five quarters. We now believe that our auction revenue rate for 2010 will be above our expected range of 9.75% to 10.25%, but do not expect this well above trend rate to be sustainable over the long term.

Bob Armstrong here. I'd like to briefly talk about our Cap X plans. We're still on track to spend roughly $100 million in 2010, and most of the spend relates to project nearing completion, but we're looking closely at the timing of new projects in 2011 and future years. Investments in our auction site network and business systems are very important to sustain efficient and profitable growth over the long-term. But we're mindful of the impact of these investments on our earnings and our return on invested capital. We're expecting slower-than-usual earnings growth, which is prompting us to follow a more prudent approach with our investments. We're working on sustaining and enhancing our return on invested capital in the near term by working to deploy capital in an optimal manner.

And we're not curtailing auction site development projects but we are looking at more long-term leases with purchase options and other creative ways to tie up property over the long-term without necessarily tying up a large amount of capital. Fortunately, we have plenty of capacity in our network, thanks to investments made in recent years. On future conference calls, once we have solidified our 2011 Cap X plans we'll provide you with more specific information about our planned investment levels. In addition to looking for ways to optimize our capital investments, we've been looking long and hard at our operating plan for 2010 and have implemented contingency plans to minimize our G&A growth. We've implemented a number of cost control initiatives and delayed non-sale hires.

Although we've trimmed costs and curtailed new spending in many areas we've maintained our commitment to areas that we see as crucial to our long-term growth and where we need to support the investments made in recent years so we can obtain full benefit. We are very focused on adjusted earnings growth, and we're taking difficult but necessary steps to better match the timing of some expenditures to the growth of our revenues. An example of what I'm talking about is our recently implemented systems, the Oracle ERP system, Sales Force automation, Fame, our new website, and our new timed auction system.

Each of these initiatives is important foundational step for the future growth and is critical to our ability to grow GAAP to $10 billion and beyond. They need to be supported and maintained from day one. We do not want to jeopardize the success of these strategic investments so support for them continues as planned. While other less strategic areas are being reviewed with an eye to managing our expenditure levels.

It's Jeremy again. We should probably talk briefly about the expected impact of currency in the near term. In light of recent developments in Europe, the meaningful drop in the value of the Euro relative to the US dollar will have a direct impact on certain components of our income statement. For example, if the value of the Euro continues to fall, our European GAAP will be translated into US dollars for reporting purposes at a lower rate than planned. However, our European overhead from our administrative office in the Netherlands and soon to be five auction sites in Europe will also be translated as a lower rate, meaning lower G&A. Our Canadian dollar FX is looking pretty good as the Canadian dollar is trending as expected.

This is Rob McLeod again. I might add there's a similar foreign exchange impact on direct expenses, depreciation, and G&A. Exchange rate changes from quarter one 2009 to quarter one 2010 alone resulted in a $3.8 million increase in G&A in the first quarter of this year, and that accounts for nearly 10% of the increase in quarter one 2010 G&A compared to quarter one last year. The balance of the increase was mainly due to higher head count and higher expenses related to our new facilities. As we mentioned in our last call, we're looking at significant depreciation expense growth in 2010 compared to last year. Primarily as a result of our recent investment in systems and auction facilities.

However, it will not be as large as the 40% we predicted, in part, because of an error correction recorded in quarter one related to the classification of assets out of depreciable categories and into non-depreciable categories. The effect of this correction was that our depreciation expense in quarter one was reduced by $2.7 million reflecting excess depreciation expense taken in prior years. This adjustment, plus the fact that a depreciation expense for the remainder of the year will be lower than originally expected means that our depreciation growth should be in the range of 25% for the year.

Okay. Thanks, Rob. I'm going to conclude our prepared comments so we can field some of your questions. Let me briefly recap some of the main points we covered today. While the recent equipment pricing trends we've experienced in Q1 are encouraging, we remain cautious around the economic environment and outlook for the balance of 2010. As such, we are anticipating that GAAP will likely be in the range of $3.9 billion for the year, being an 11.7% increase over 2009, with an expected auction revenue rate above the high end of our traditional 9.75% to 10.25% range. We are laser focused on driving adjusted earnings per share, and are taking the steps necessary to match the timing of G&A growth, capital projects, and revenue growth.

We're still expecting flat adjusted earnings for 2010, and believe this should drive free cash flow for the year. We're working hard to make the right investment decisions to set our company up for success over the long-term. Our strategy is very sound, our people are very engaged, and our business model remains very well positioned for continued future growth. We look forward to sharing more information with you in early August about the rest of Q2 and the balance of 2010, but in the meantime we're going to stay busy. Tracy, can you please open the call for questions?

(Operator Instructions). Your first question comes from the line of Bert Powell from BMO Capital. Your line is open.

Thanks. Rob, what's the total depreciation adjustment that we should expect this year for the -- I guess the restatement maybe is not the right way to categorize it.

The correction from prior years depreciation was $2.7 million booked in quarter one.

Yeah.

Then for the balance of the year, it's about a million dollars lower than it might have been otherwise.

Per quarter or that's it, absolute for the rest of the year?

Total.

Okay, total. And just looking at the ARR, this is one of the first quarters I recall where you haven't emphasized the underwritten bans the overriding contributor, that the straight commission and the fee business were much higher. I'm wondering if you could just give us a little bit more color on what's going on there.

Hey, Bert, is Rob McLeod. I guess we can emphasize the performance of our at-risk business, because it's similar to last year in quarter one. And so the at-risk business is still performing really well. So that for sure is the main driver of the higher -- than -- the higher rate compared to our expected range, but in quarter one this year we did see a slight uptick in our straight commission rate and our fee revenue, but the majority of the above range rate is due to the at-risk -- performance of the at-risk business for sure, and it continues to be.

Okay. So when you talk about competition coming back into the market, are you referring to more the dealers, brokers, other auction companies? Can you just maybe help us understand that a little bit?

Bert, Rob Mackay here.

Hey, Rob.

The competition is slowly coming back into the market from all sorts of those folks that you mentioned. Right now the uncertainty in the market is still holding some of them at bay, if you will, or they prefer to take less risky deals or pursue less risky business. We've seen a marked increase in pricing, but the sustainability of it is a big question in most people's minds. So there's dealers out there today, and there's end users out there today that are chasing the late-model, low-hour equipment, pushing the price up, making deals that comprise that sort of asset more competitive.

So is it likely, then, that the average age at the auctions is now going to start to tick up, you know, given that the -- I guess for lack of a better description, the short end of the curve is becoming more competitive?

I'm not so sure about that.

I wouldn't say it would tick up. The supply of the late-model, low-hour stuff is diminishing.

Okay.

Hence the more competitive nature on it by all the forces in the marketplace. So there may or may not be more of it into our sales depending on who we're competing with.

You can see the reaction is -- it's Pete here, Bert. You can see the reaction of the OEMs, some of the guys that are taking steps forward to ramp up production in some of the key equipment categories. They're trying to react to this shortage of later-model, low-hour equipment, but there's still lots of stuff out there, lots of stuff that's kind of still sitting, even though the market has turned somewhat in terms of pricing, there's still a level of uncertainty. I know we mentioned that about the impact of the lack of clarity longer-term, and the less than high comfort level with particularly guys in the US about where the jobs are coming from, lots of those, you know, sustainability and infrastructure type jobs are being let, but they're usually big jobs. They're usually highly competitive. Instead of having four or five bidders, there's 10 or 12 or 15 bidders on them. So there's an awful lot of -- an awful lot of things that are happening in the marketplace that are not usual, I guess is the best way to put it.

So your view is still very much, it's the uncertainty, not the competition as we move into a tight environment that's really starting -- that people are still staying on the sidelines?

Probably a combination of those two, I think.

The longer the certainty remains in the market, or prices remain constant and the confidence level returns back to the contractor and dealer base, that they see future work ahead of them, the competitiveness of the market will increase, but as it is right now people are still uncertain as to whether pricing is going to stay where it is, because lots of the market -- particularly in the US -- is not seeing any increased volume of work coming up.

Okay. Thanks very much.

Your next question comes from the line of David Wells from Thompson Research Group. Your line is open.

Good morning, everyone.

Good morning.

First off, can we talk a little bit about the first quarter in terms of the number of auctions that happened in the quarter, look to be up about eight auctions from last year. Any thinking about what drove that? And, then, maybe secondly, can you provide us with a clean comp number as you look at the 32 auctions you had in Q1 '09 versus that same32 bucket in Q1 2010.

The number of auction may go up or down depending on the number of auctions in the marketplace. We've scheduled auctions at all of our permanent sites at any given quarter, and as opportunities arise in the marketplace for offsite sales that are traditionally not at our full-time or permanent auction sites, we'll take those deals on and take those auctions on as they come to us. So in Q1, we had a number of situations where customers had a sufficient mask that they were more interested in selling it at where it sits, in their own yard, or in a location that wasn't one of our permanent sites. That dynamic is driven by what's available in the marketplace, if there's more offsite sales available we'll go and do them.

So in your mind, then, does that create an additional headwind from Q2 or is it not -- or were these not auctions that were -- that would have typically been scheduled in Q2 that got pulled forward in Q1?

David, it's Bob Armstrong. Interesting question, because it's one of the few things we can actually count is number of auctions. I agree with Rob Mackay, it's not something we track that closely, other than we count them. For sure, there's nothing in there that suggests a headwind or a tailwind, or anything else. It just happens to be when auctions of held. I'm not aware of any substantial movement of auctions from Q1 to Q2 or Q2 to Q1. We move our schedule all the time, just as Rob said, based on when and where the equipment is available, but I don't recall an extent of swaps around in the quarter.

The one thing David, it's Peter here, I will point is out the more offsite sales that we have, the proportionally higher cost to have an offsite sale, but we also get tremendous benefit because proportionally higher number of new customers who have maybe never heard of us before, we get into a new area and allows to us expose the channel and the selling our name and brand to those customers. As Rob said, we're happy to do these things. In fact, in the long run it's a great benefit for us to do the offsite sales because it helps us penetrate more market.

Okay. That's helpful. In terms of your outlook for the second half of the year, could you talk about some of the macro drivers that you're assuming? We continue to see the ABI be pretty soft. Are you anticipating that as we get into late -- you know, the second half of the year, late summer, that as seasonal projects that have come out begin to wrap up to some extent, I mean do you anticipate some equipment becoming available from that, kind of a slow-down as we go into the third and fourth quarter? Any kind of color on that would be helpful.

Any kind of color would be helpful for everyone, I think, but for us it's quite -- you know, we mentioned in our prepared comments, there is a level of uncertainty out there, primarily stemming from the lack of work that is available to many of the contractors, particularly in the United States. Canada seems to be chugging along very well. Europe is probably somewhere in between the US and Canada. But for the most part, you know, we're looking to continue, you know, the penetration of thousands and thousands of new people we're seeing coming to the auction. The question that we really have a hard time answering is how predictable is the market going to be and react to economic environment in the second half. You see a lot of the OEMs that came out, and first quarter results are proportionally significantly lower than their full year. You'll see the same thing with us. We're looking at it, talking to our guys in the field W he do analysis up and down and sideways to get a feel for where things are, and the further you go out the murkier it becomes. We're getting particularly interesting noise from our guys, the prices are up, it's great, the guys are very much more optimistic, there's more buying, non-domestic buying that we're seeing at the auctions, Asia, Middle East, product going overseas to developing economies that are consuming more product, which is great, and, again, for us it translates into a lot of positives, especially with the 21-language website just recently being launched. So we're going to see see good benefit from that, but it's murkier than we're normally used to. That's why we have an element of caution around it.

Okay. That's helpful.

Rob here again. You know, one of the things we're in constant dialog with is some of our bigger customers. And we're quite focused on what their Cap X is for the year. These big guys are out buying fleet every year, and some of them obviously buy millions and millions of dollars of fleet every year, and their used equipment becomes product that we have available to us. Early part of the year, most of these large companies their Cap X was limited. As the year goes on, they see more work on the horizon, they will see some Cap X become available to them to go out and purchase new equipment and release some of the old stuff that they've been running for 2,000 or 3,000 hours more than they typically would. That whole effect, by more work, more confidence in the market, spirals down to the midsize contractor and so on and so on. But, you know, we're still uncertain as to whether that confidence, and that amount of work is coming to the market later on in the year.

All right. Great, thanks. I'll drop back in the queue.

Your next question comes from the line of Scott Stember from Stember & Company. Your line is open.

That's Sidoti & Company.

Congratulations on the promotion.

Thank you so much. Can you talk about the things you guys have control over? You talked about you've increased your sales force by 14%, and you expect to see some benefit. Can you talk about what you've seen so far, any metrics that you're looking at that suggests you guys should start to take some share in the next couple quarters?

That's a good one, Scott. You mentioned one of the ones that I would have quoted, which is our sales force, within our control, and we're pleased with how that grew last year, 14%. It's already up 4% so far this year. We need to do that. It's one of the key drivers for GAAP . Our auction site expansion plans are on track. That's also within our control. We've added a significant amount of capacity over the last year and a half, two years, and that's awesome for our ability to service our customers all around the world. Our customer count is up dramatically. Registered bidders, consignors, participants on our website, a number of internet bidders, sort of all the metrics that we can look at to talk about participation in our auctions have all been increasingly meaningful in the last while, and that's extremely positive to us. The one that hasn't gone up as much as we'd like would be the total GAAP, but as we just discussed we think that's on its way. All these metrics are the ones that drive that metric. I guess the final one would be equipment pricing. We saw that sliding down for, you know, an extended period of time, probably the full two years. And that's starting at the beginning of this year, we watched equipment prices starting to head back up, which not only helps in terms of the total volume -- or value of what's sold at auction, but it provides a lot of comfort and confidence to our potential consignors. So there's a sort of a shopping list of some of the metrics that we watch. They're all sort of sending positive signals to us. That's why we're cautious, but feeling pretty

Related to the customer count that you talked about, could you share how much it's up?

Yes. In the first quarter of this year, bidders at industrial auctions was 76,500. Last year, first quarter, was just under 74,000. The number that became buyers was 21,500 versus a little under 21,000 last time. Consignments went from 6800 to 7900. So all heading in the right direction. And website, trying to recall the script, we're up, like, 25%.

23%. We didn't do quarter one 2010 numbers on that, Scott, but, you know, overall 2.8 million unique visited. It's important to understand how you measure the website traffic, because there's a lot of gray data out there. What we do is measure the IP address from which a hit or visit comes from, and these are 2.8 million unique IP addresses, so these are different computers hitting our website over that period of 2009. It's a meaningful increase over the 2008 period. So, you know, we're winning the battle. We're starting to get more and more awareness out there. Part of the big picture, you've got this massively large market, $100 billion-plus market, and if we're doing $3.5 billion, how do we get the rest of it? We did customer information, poking and prodding last year, and learned that many customers out there that are private selling don't see the industrial channel, don't even know who we are. So as big as we think we are, there's lots of market out there that really has no idea what we do and who we are. So we're working on raising awareness, and brand, all those other things from a marketing perspective.

Last question about the credit environment. Have you seen any impact on your business? I know in the past you've said that your customers were able to readily get credit, but with the credit market, have you seen any positives there?

I'll repeat the question, because Rob Mackay is going to answer it. The question, Rob, are there any credit issues? Are customers still able to get financing?

As far as we've seen we've had no negative effect from the customers. They're not coming to us and saying before the auction they can't buy because they haven't -- they don't have credit available to them. Nothing that we've seen.

And interesting, we were still continuing to have finance companies coming to us looking for access to our customers. So on the other side of the equation, the supply side, I think speak from experience that we have finance companies that would like us to give them access to our customers. They have money they want to lend to our people. So that dynamic appears to be playing out just in the last couple years.

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

Your next question comes from the line of Ben Cherniavsky from Raymond James. Your line is open.

Good morning, guys.

Good morning.

Things I want to discuss have been touched on, but if I could just go back for more clarity on the auction revenue rate, because in the last quarter, the last call, correct me if I'm wrong, but I think you guys talked about trying to drive your GAAP a little higher by getting more aggressive with the underwritten business in light of some stability on equipment pricing. And I'm just curious how that unfolded in the quarter relative to your expectations. I mean, I would have thought that the auction revenue rate would have come down to reflect -- well, maybe it's not the right word, but a more aggressive approach to underwriting equipment to get that business into the yard.

Ben, Rob here. As we were fortunate in managing the risk business on the way down, the market has been some what kind to us on the way up. And we have been getting more aggressive on the underwritten business that we're pursuing, both because the customers in some instances are pushing us to it because they see an increasing market value. In some instances it's the competitive nature of other people in the marketplace. So we have been getting more aggressive on deals that are out there and with the rise in the equipment prices we've been fortunate that the business that we're underwriting at risk has been delivering us the right results or the anticipated results with the increase in pricing. So we've had a few little bumps in the road as we've gone along, but nothing that's out of the normal course of our business. We've been more on the success side than not. So the underwritten business has done quite well in an increasing market.

I think, Ben, keep in mind, too, it's Pete here, last time we spoke to you guys was early March. We're still peeling away from results and people still sitting back to wait and see if this is a real market in terms of the pricing adjustments and increasing values that we were seeing. As we gain more confidence in that, we'll step up a little bit more, ahead of the curve, to make sure you're as aggressive as you can to attract that iron. That's only transpired in the last month or six weeks or so. So, I mean, you're not going to see a meaningful impact of that in the first quarter results for sure, because a lot of these guys -- even if we were to price a deal and get hard and fast on some deals in early March, they wouldn't come to market until April anyway.

We've had the experience today, Bert, that the -- sorry -- in our sale in the Middle East, and we had a beautiful package of equipment over there that we got quite aggressive on, and the results of it were last night, day two out of a three-day sale, and the purchasing power and the attendance by the Indian market at that auction was quite significant, and the bidding of individual Indian buyers against each other has resulted in some very favorable numbers on a package of equipment that we took some significant risk on.

So what was the mix in the quarter of underwritten business?

17% of the volume was underwritten.

So that's quite low, is it not?

Yes. Actually pretty similar to quarter one last year.

Okay. And again, I apologize if I missed, this but you did mention some initiatives or some intent to manage the SG&A a little more closely. Did you or could you quantify that or maybe even speak more specifically about some of the initiatives you're focused on?

Sure, benefit. It's Bob. With the initiatives broaded across the company, we've got initiatives in the field, as well as at our administrative offices, looking primarily at non-sale situations. So, for example, one of the untouchables was the hires of new territory managers and territory manager trainees, because that's just fundamental, but for sure there are a number of less number of strategic initiatives that we always have underway. It's the right thing to do at a time like this. All companies are making a similar call as you delay those initiatives, you prioritize.

What would they be, though, for example.

Well, we never announced what that they were so I think I'd be getting myself in trouble if I said what they're no longer going to be but I can tell you some of the ones that are preserved are things like our Sales Force automation and FAME, our field asset management, but things you've never heard of in the first place because they were sitting on the back burner, and every year a number make their way to the front of the stove, and we dial them back. We have no choice but to do this.

These are more reductions plans you were planning to put in place to pursue growth opportunities rather than a cutback of existing costs?

There are probably are some that will look like cutbacks in existing costs, because we had money being spent on things that had longer-term deliverables, and we're just saying we don't need to spend that money right now.

I'm sorry, did you quantify that in any way?

I tried not to.

All right. Thanks.

I don't want to be silly about it, but to put a number on it would be misleading at this stage. I don't have a firm number, because we haven't saved the money yet.

Benefit, it's Pete here. Probably fair to say it's a combined effort of both administrative office and field operations, and proportionately higher on the administrative office side than the field.

But we would still expect that -- I mean, assuming the current currency environment, you're still going to see the SG&A line increase this year, I would assume, if not for any other reason than the -- well, the training initiatives you spoke of, plus currency factors.

Yeah. Hey, Ben, it's Jeremy here. As you know, we don't give specific guidance on the G&A line, but we've talked about it generally increasing as a result of our investments. Really, we reiterated our guidance of flat earnings for the year, which is what's most important.

Okay. Fair enough. Thank you.

Your next question comes from the line of Craig Kennison from Robert W. Baird. Your line is open.

Good morning. Thanks for taking my questions. Some of them have been addressed, but maybe I'll follow up on the sales force. You've made a number of new hires. Can you quantify in any way what you expect the impact to be, or how well those salespeople are ramping relative to your past experience when you hire new sales reps. In other words, you're providing these salespeople with additional tools that may help them be more productive. Does that give you more confidence that this sales force will ramp as quickly or even better than past sales forces?

Craig, it's Rob here. Each year when we add to our sales force, people come in to it with different calibers of sales experience. We have TTMs, or territory manager trainees, and we have TM4s, the older gray, experienced guys, and each one of them sort of hits at the ground at a different velocity and gets into their marketplace adapting to what we do. One of the positive tools that we have out there now is our Sales Force automation, which provides any new salesperson joining Ritchie Brothers with a database of his customers that are new to Ritchie Brothers or have done business with Ritchie Brothers, and he's able to classify them into A, B or C categories, depending upon their consignment volumes, where they live. He can go into a town and visit one customer and then look on his SFA tool and see anybody else on his database that lives in that town, and able to make sales calls right away as opposed to an antiquated system that we had before. So each one of those guys will be -- achieve a different level of productivity when they join the company in the first year, but each one of them is strengthened by some of the tools that we have out there today.

And then secondly, I'd like to pursue a better understanding of your timed auction systems. First of all, is there any impact at all on the auction revenue rate as you move to that platform? And second, could you maybe give us a case study that would help us understand how your direct expenses may drop as you layer in that particular service?

Sure, Craig. It's Bob. On the auction revenue rate, no, I wouldn't expect much of an impact there. The items that are sold are still being sold. In cases -- for the same commission rate. However, prices are -- have been noticeably higher than average. So as a result you might have more auction revenue dollars, but let's be honest, this is a fairly large number of lower value lots, and so the total impact on dollars is relatively small on the revenue side. From a Ritchie Brothers financial statement's point of view, the bigger impact is on the expense side. I'll talk about that for a second.

You suggest a case study. Boy, live example, we just had an auction this week -- last week in Edmonton. It was a 5400 lot sale, and we did it in three days. A sale of that size would more logically have taken four days for us to do, but we did 1,000 of those lots using the timed auction lots system. 1,000 lots is close to a full day of selling focus. We didn't do it in four days, we did it in three day, and there's a significant savings to that. We had a sale in Los Angeles several months ago that was a one day shorter than it would have been. It normally would have been a two-day sale. They did it in one day, because 1,000 lots in that sale were taken out and handled by the timed auction lot system.

A number of our other sales, where they haven't changed the number of days, they've change the staffing dramatically, because rather than having auctioneers and crews of bid catchers working to sell lots simultaneously, you know, instead of having two groups like that, we only need one, because 1,000 lots are being pulled out and sold with the timed auction system. In a number of our sales where they haven't changed the number of days, they've changed the staffing dramatically because rather than having multiple rings, multiple auctioneers, and crews of bid catchers working to sell lots simultaneously. Instead of having two groups like that we only need one. Because 900, 1000 lots have been pulled and are being sold with the timed auction system.

And in all of those cases, where you save a ring or save a day, we can staff the auction differently. Either send less people to the auction or send them home earlier. You get a big win there right away in terms of staffing costs literally out of pocket, but to the extent that you have territory managers who no longer need to be in Los Angeles, or Edmonton, or somewhere else, in other words, they can be back home in their territory, that's a day of them with customers producing revenue in theory. And that's a huge opportunity for us.

So we have true direct cost savings in travel and accommodation and contracts, all that kind of stuff, as well as a revenue opportunity by leaving our territory managers back in the field. And truthfully, that's one of the most precious resources we have, is the number of days a territory manager has. And a number of our initiatives in the last year have been designed to maximize the number of days our territory managers can work with their customers rather than dealing with other parts of our business. And timed auction lot is one of the better tools for that.

Thanks. Last question, just on your direct expenses, it appears they jumped about 20% despite a decline in GAAP of maybe 9%. Is there something to that metric? Did it include the Apose? Is that the deviation that we're seeing?

Craig, it's Rob McLeod. It doesn't include the -- depending the number you're looking at -- it generally doesn't include Apoise. And Apoise wouldn't have moved the needle on that metric. Part of that for sure was the number of offsite auctions that we had, and auctions we had in frontier markets. So first auction in Japan, auction in India, in Panama, in Turkey. Those auctions are relatively more expensive to run than an auction at a permanent auction site in Edmonton or Fort Worth. And so that's the majority of the uptick in the direct expense rate and dollars relates to those offsite and frontier markets.

Craig, it's Pete here. As our guide in the Middle East pointed out when Rob was talking to him this morning about the market for cranes in the Middle East, those Indian buyers were exposed to the channel through our Indian operations. So, I mean, this is -- it really is a global marketplace you get comfortable with the Indian buyers coming to the Indian auction. They hear about us, they want to come over to Dubai. And pretty soon there's a whole new level of demand that's been exposed to the channel and been exposed through our channel to allow consignors to realize better proceeds by having a broader global audience, and all that is linked with this frontier market investment. So for us not to do an Indian auction or Turkish auction or Panamanian auction, this is part of the longer-term, bigger picture strategy. We're willing to take a punt on the first go out and spend a bit more money in these front markets to keep penetrating the marketplace because it has an impact on the global operations and the long-term prospects for our company.

Great. Thank you.

Your next question comes from the line of Gary Prestopino from Barrington Research, your line is open.

Hi, good morning everyone.

Good morning Gary.

Most of the questions have been answered, but I just want to make sure, Jeremy, you said you're looking at about a billion dollars of GAAP in Q2?

That's right, Gary.

And your GAAP guidance does not include the sale of the yacht, right?

The GAAP guidance does not include the sale of the yacht.

Okay. Maybe for Rob, you mentioned that prices started to get a little bit stronger throughout Q1. Could you maybe give us an overall quantification of how much higher the prices moved from the beginning of the quarter to the end of the quarter and then relative to where they were last year at this time to where they are now.

Sure. We started out Q1 with a couple sales on the West Coast in Phoenix and Vegas, and we saw a marked increase in pricing over what we had seen in Q4 of last year. The marked increase would have been anywhere from 5% to 15% depending upon categories. Some at the lower end. Some exceeded 15%. We then jumped over to Orlando, which traditionally, you know, is the big event of the year. It's a significant attraction for overseas bidders. Typically has higher prices than year-over-year than some of our sales we see in the increase. So we saw strong prices on the West Coast. We went over to Orlando, we saw just as strong, if not stronger pricing there. And the trend continued all the way through Q1. We didn't see -- I would say we didn't see a change upward or downward through the quarter, and compared to last year's fourth quarter I'd say we're anywhere from 5% to 15% up. The smaller stuff, like loader back, skid steers, the run-of-the-mill equipment that didn't see as much as a downturn, you know, maybe in the 5%, 8% range up. Other things like motor scrapers that last year we could have been selling for $200,000, we have seen them sell for $300,000 this year. So that's a significant increase in a specific category, but small quantum of items that are sold vis--vis the run of the mill loader back hoe. I would say in general it is fair to say there's a 5% to 15% increase across the board.

Okay. Thank you.

Your next question comes from the line of Mike Marburg from Ramsey. Your line is open.

Hi, guys. Wanted to ask about auction days because that's we started to focus on more, just to get a sense of what's going on. You mentioned that you didn't notice any meaningful change in the number of auction from Q1 to Q2, but the auction days are going down from 91 to 79. And as a result of that, in the first quarter, your auction -- your GAAP per day declined by 17% year-over-year. So it was down by 17%. So to hit your guidance for the second quarter the GAAP per day has to go up by 5% so have you seen that -- you know, you've had a month of auctions, you've had a couple big ones. Have you seen the GAAP per day increasing meaningfully versus the first quarter?

It's Bob Armstrong. GAAP per day is something that we're actually trying to improve by reducing the number of days. So you're probably going to see auction days changing because we're trying to. Towel is a good example, every time we have success with Towel, you'll see the number of days going down. It's more efficient for an auction site, if they have the ability to do it in one day instead of two days that's cost effective. We're trying to do that. We'd rather have -- it's an operational efficiency move on our part to reduce the number of auction days. It's also a strategic initiative of ours, because we're going to run out of calendar days. There's only 365 of those. By the time we get to $10 billion in sales we'll need to have quite a different approach or else we'll be having 20 auctions a day on some days, and that's not something we have in our plans. It's interesting to talk about auction days. You're talking about it in a way quite differently than we do. Our goal is to get rid of them, minimize them, get them down as low as possible. So I expect that will be a metric that will drive you crazy if you keep watching it.

No, no, I think it's a good thing, but the reality is in the first quarter your GAAP per day, your revenues per day was down 17%. So it's good that in the second quarter you're doing a lot fewer days, but the reality is because you're doing a lot fewer days and the guidance that you've given your GAAP per day has to go up by 5%. So my question is, are you seeing a meaningful shift in your GAAP per day, in the first month of this year, given the results that you've already reported? You reported one option.

Meaning the first month of this quarter?

This quarter yeah.

I can't speak to that, because that's obviously not disclosable information at stage. But a number of our auctions in the frontier markets that we spoke of minutes ago are significantly smaller than an auction we had in Edmonton last week that was a huge auction. So your GAAP per day -- I apologize, I was speaking of number of days. You asked GAAP per day. GAAP per day is driven largely what is we're selling for who, where, and when, and you could easily have a number auctions that are generating total $2 million, $3 million, $4 million, $5 million total GAAP for the auction. We do those happily. Those are offsite sales that break us into our new markets. We do them to service our customers. We had a lot of those in the first quarter, and we'll have them whenever we need to. So that will definitely throw that number you're looking at in a -- in the direction you're hoping it doesn't go, but it doesn't bother us.

Mike, it's Jeremy Black here. I might add, just for comparison purposes,Q1 last year, we had one offsite sale. Q1 this year, we had seven. That's going to have a material impact. As Bob said, those are typically a smaller average size. That's going to have a material impact on your GAAP per day, which, by the way, is not a metric that we track.

That's interesting. So in the back half of the year, your GAAP will have to go up by about 35%. In the first half of the year your guidance with the GAAP is down 10%. So it's going to go from negative 10% to plus 35%. Do you anticipate that with the continuing trend in the second quarter of, you know, 10% to 12% fewer auction days, are you going to keep having fewer auction days because of the online system and expect that to deliver, you know, 35% more GAAP year-over-year?

Mike, it's Jeremy again. When we develop our guidance for the year, we don't actually have a variable in there that measures the number of days. It really truly is the total GAAP we can do at each of our auction sites regardless of how many days it takes.

Okay. All right. Thank you.

Tracy, we probably have time for one more question, then we'll get underway here. If there's one in the queue, we'll take it now.

Your final question comes from the line of Cyrus de Weck of QVT. Your line is open.

Yes. Hi. Thanks a lot for taking the question. Just had a couple questions, because I think I'm a little bit confused about a few things. Sometimes we hear two different things on this call. I guess firstly more of a technical question. At the beginning of the call, when we talked about GAAP guidance, you mentioned that FX would lead to expected higher GAAP, but later on you mentioned the Canadian dollar was in line with your forecast, and the Euro was lower. I'm trying to square up those two statements and try to understand why one place you're going backwards and in another place on this call you're going forwards.

Sure, Cyrus. Jeremy Black here. I can address that. When we talked about the comeback of the Canadian dollar, $100 million in incremental GAAP, that's looking at last year's volume, gross auction proceeds, translated at this year's rates. So the rate's in effect this year that would have a $100 million impact. When we talked about the Euro, you look at the Euro this year versus the average Euro exchange rate last year, that's the impact that we talked about.

So NAT is going to be $100 million higher in your forecast?

That's correct.

Okay. Interesting. Then beyond that, I mean maybe looking towards Q2 and a little bit beyond, I mean, we've seen a trend in your sales where it seems to be that your items are -- at least your GAAP for items -- seems to be going down. In the past, we've seen a fair bit of reasonable stability in your SG&A per item. Are we going to see a certain amount of operating deal leverage this year, and how are you going to try to combat that given where the auction revenue rate is?

This is Bob Armstrong. It's hard for us to tell you -- to predict with certainty where we think the operating leverage or deleverage might come in. There's two numbers that drive it. One is the began and the other is G&A. We've talked about GAAP and we've talked about G&A. We do our best and see where it comes in. By our plan, we're expecting the GAAP to come in the range of 3.9 billion for the year. We talked earlier about our focus on G&A. There may be leverage this your or deleverage depending on where the numbers come in.

Okay. But, for example, your most recent auction in Edmonton, you had an average US dollar per lot was down, what, 38%. I mean, I'm assuming on that kind of a move that's an operational deleverage.

That's a mix issue. It's Pete here, Cyrus. I mean, the mix in Edmonton, it's a good example, a good illustration, you know. I think we were $90 odd million last year on fewer items. It happened that there were two very significant complete dispersals of very large items for sale at the auction last year that didn't occur this year. While they had a number of -- I think there was 690 different consignors in the auction for, you know, more items than they sold last year. Lots of onssies, twosies, lots of little things that all added up.

Right.

I spoke to our guys in Edmonton, you guys had a tremendous penetration, if you take out the significant impact from last year's two major complete dispersals of big, big fleets, put that on the sideline for a second, because those don't recur this year, and compare it to what you were able to achieve this year, you guys actually did a terrific job at growing your business and penetrating the market. So you have to be very careful when you analyze dollar of GAAP per item, because the mix changes at every auction, and that Edmonton example that you brought up is a perfect one to try to understand that concept.

Yeah. Dubai is a good example. Rob is saying, Dubai. Day two complete of a three-day auction in Dubai and you'll see the GAAP per item in that sale go north of probably where it was last year because of the impact of this big transaction that we were involved with, where we saw some very attractive pricing come off and penetrate more of that geographic marketplace in the subcontinent that we spoke to earlier.

And given you're going up against in Q2, I know you meant target about a $1 billion of GAAP, given you're going up some of the largest defleeting probably seen in the last couple decades by the leasing companies, I mean how do you see GAAP developing? I mean I think the Edmonton auction is a great example of the boost last year's Q2 got. Do you feel there's enough business out there and still defleeting to do that you can catch up to what was a very good winds from the back last year?

It's Rob here. We believe so. There's still a lot of defleeting out there that's idle. Lots of customers are coming to sales looking at the pricing, quite intrigued by the increased levels over last year. And then two weeks later they're scratching their head wondering what the next sale is going to be like because the amount of work that's out there, the confidence in the market for many of their peers or their competitive contractors is such they're all looking at each other, wondering who's going to get the work. Very competitive on the jobs. As Pete mentioned earlier, there's 10 or 12 bidders on jobs where historically there's been two or three. As that phenomenon wears on through the year, and if significant amounts of work don't come out there, these guys still have to defleet, because they're sitting there with idle equipment still.

So which kind of plays into our value proposition for consignors. You know, they have to be able to access those Indian buyers and Middle East buyers and Japanese buyers all over the map so to the extent we can create that marketplace that attracts the eyeballs and the money from those marketplaces, the developing economies is where the demand really is, that's where those sellers need to put their iron in, and they can do it through us. So it becomes a very attractive selling proposition for our sales guys to be able to go in and talk to those -- you know, maybe of those 10 or 15 guys that would bid a job, two or three would say, we're done here, we're going to sit on the sidelines for a while, we're going to trim down our fleet, and they need to access that global market. So, you know, especially again with that 21-language website that we've got now in play, those are really, really significant value propositions that we throw in front of consignors that lend well to our business.

Okay. Then I promise thinks the this is the last question. Do you feel you've actually spent shareholders' money wisely given I've heard the term website about 50 times on this call, yet, you know, $440 million has been spent, and a lot of it on physical plants and expansion, and you're looking at flat EPS growth.

Yeah, that's a great question, going straight to return on capital, how you're doing that. This was a number of -- you know, probably two or three years, even more back, we said to the market, listen, we're going to accelerate our capital expenditure program for a period of a few years, and get these things in place. We know that, as an example when you put a Japan auction site in place you're not going to get immediate return in the first year, but as a long-term strategy, you know, we still have this very fundamental long-term view of the business, and we think like owners, because we all are owners, and most of our wealth as management sits in the stock price. You know, we're required compensation-wise to go and buy stock every year.

There's all those things that add up to us to say, this is a smart thing to do with shareholder money today. The nice thing about it, when we make an investment, we're investing in assets that tend to appreciate in value. So when you go out and buy land, as an example in the second quarter when we sold our Houston property, we'll end up reporting that in Q2, we typically resale the assets that we no longer need in the -- in the utilization for earning income in the business, at values that are greater than what we bought them for. So it's a unique model in that you're investing capital, but that capital is appreciating in value, in fair value over the period. And generating income at the same time, too.

So is it a smart use of shareholder capital? I'm a shareholder. I think it's a damn smart use of shareholder capital. And you can ask our board the same thing. You know, we go through quite a rigorous process to put something in front of them to look at long-term returns on capital, rates, is that a smart investment, no, yes, and we apply a tremendous amount of rigor just to get it to the board table before we present it to a series of very astute investors and very smart people who look at that critically and make sure we're making the right call in the long term.

I hope you got the message as well in the call that we're looking at this deployment of capital, and is it the smart, right time to be deploying the level of capital that we'd originally planned to perhaps a year ago, and the answer is, you know, maybe we should trim that back right now. So we're looking at that, and we'll give you carry-on guidance in the intervening -- or in the future calls to let you know what we're planning for 2011 and beyond. Much of the 2010 Cap X we've got in the hopper is completing projects that are underway that are just wrapping up.

So I really applaud the question. It's a very good question. We spend a lot of time talking about return on capital here at the company, and we just want to make sure we're doing the right thing for all of us, us being the shareholders. So with that, we'll conclude our comments. Thank you very much for your attendance and participation. And Tracy, you can close the call. Thanks.

This now concludes today's conference call. You may now disconnect.