RB Global Inc (RBA) 2011 Q1 法說會逐字稿

Good morning. My name is Andrea and I will be your conference operator today. At this time would I like to welcome everyone to the Ritchie Brothers Auctioneers 2011 Q1 earnings conference call. (Operator Instructions). I would now like to turn the call over to our host, Mr. Peter Blake, CEO. You may begin your conference, sir.

I'm Peter Blake, CEO of Ritchie Brothers, and thanks for joining us today on our 2011 Q1 investor conference call. I'm joined today in Vancouver by Bob Armstrong, our Chief Operating Officer, Rob MacKay, our President, Rob McLeod, our CFO, and Jeremy Black, our Vice President of Business Development and Corporate Secretary. 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 including projections of future earnings, revenue, and gross auction proceeds, and other items are considered forward looking and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our SEC and Canadian securities filings, including our management's discussions and analysis of financial condition and results of operations for the period ended March 31, 2011 and subsequent quarters, which is available on the SEC, CEDAR and Company website.

Actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained 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 of our items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. It is not a measure of financial performance, liquidity, or revenue, and is not presented in our statement of operations. The most directly comparable measure in our financial statements is auction revenues, which represent the revenue we earned in the course of connecting our auctions.

Before I jump in and speak about our results, consistent with 2010 first quarter, we will be excluding the impact from the Q1 2010 auction sale of the yacht Apoise, being GAAP of $47 million, auction revenues of $850,000, direct expenses of $180,000 and $450,000 of after tax income, due to the unique nature of this one-time transaction. And to better compare quarterly performance. In future quarter end discussions we will not be excluding the Apoise results, since it is only important for comparing Q1 numbers. This is consistent with the presentation last year.

Since we spoke in February, we have been hard at work and I'm very pleased to report the results of our efforts. Record first quarter auction revenues of more than $88 million from record first quarter gross auction proceeds of over $850 million. Our first quarter adjusted net earnings were up 11% compared to last year, a good start to the year.

We are clearly seeing signs of momentum returning to our auctions in many of our markets around the world and last week's auction results in Edmonton are a great example of this. Our Q1 gross auction proceeds grew by 17% year-over-year. We benefited in Q1 this year from strengthening pricing at our auctions and generally improved dynamics in the used equipment marketplace. Q1 was encouraging for us in lots ways, as well as for other industry players.

There is no shortage of good news in the equipment space these days and we are happy to be participating in that as well. That being said, we maintain a certain guarded optimism about the near-term future of the used equipment space. Unusually low construction spending is acting as a bit of an offset to replacement capital spending, and it somewhat complicates the certainty of a more robust construction sector recovery. We believe it is too soon to say we are completely out of the woods, but it's fair to say we feel good but where things are going. I want to leave lots of time for questions on the call. So, I am sure you are keen to get onto that as well, so I will pass the call over to Rob MacKay for a market update.

Thanks, Pete. And good morning, everyone. On our last earnings call, I talked about the headwinds and tailwinds we faced at the start of 2011. Now that we are well into the year, I thought I would update that discussion to give you a sense of where we believe we now are. First, the tailwinds are positive signs we see in the marketplace. Pricing has improved meaningful compared to last year, both sequentially and year-over-year. We saw strong prices across virtually all categories of equipment at our auctions in Q1 and the scarcity of new and near new equipment is helping drive that.

New equipment deliveries vary from weeks to over a year, depending upon manufacturer and model being sourced, and these long lead times are contributing to robust pricing in the used market. We talked last time about seeing more optimism at our auctions and in discussions with our customers. We have continued to see this play out to the point we are now seeing momentum return to our auctions.

Just to be clear what I mean, successful auctions help to attract buyers and sellers to subsequent auctions and more buyers and sellers make those auctions even more appealing to other equipment owners. This is something that worked against us last year and now is working in our favor in most of our markets around the world. Business and consumer confidence has are returned meaningfully in recent months and it appears that buying and selling behavior of equipment owners is becoming more typical, which is benefiting Ritchie Bros.

Rental companies and other large fleet owners have announced CapEx plans for 2011 to the tune of over $1 billion combined for the major rental companies alone, and new equipment flowing into these channels will help stimulate used equipment transactions. As anticipated, we haven't felt an impact yet mainly because of the long lead times and demand for equipment being high, but we do expect to see more of an impact in the second half of the year as new equipment deliveries pick up.

OEM production has turned the corner. Construction machinery, assembly unit sales and consumption statistics all turned up in 2010 for the first time in years after precipitous drops in 2008 and 2009. Projections are even higher for 2011.

This equipment will eventually flow into the market, and when delivered it will stimulate used equipment transactions. Owners have aged their fleets over the last few years are now looking to replace these older machines to optimize their operations. Commodity prices are driving demand in many markets around the world. Oil, gold and many other commodity prices are at historic highs and this is creating demand for equipment at other auctions, supporting prices and stimulating used equipment transactions, all of which benefit Ritchie Bros. Credibility in the broad market is a tailwind we have been seeing lately.

Credit is more widely available than it was a year ago and many equipment owners have equipment locked in. These factors combined with threat of increasing interest rates are encouraging them to spend on replacement equipment, which fuels the used equipment market. Now the headwinds or challenges we still see in the market. Construction spending in the U.S. and some other markets has not yet shown any meaningful signs of improving in the long-term. This is a key driver of used equipment transactions, so it is important that it starts improving for there to be sustained strength in the used equipment market in the U.S. Fortunately, we create a global marketplace which combines domestic demand with overseas participation, resulting in steady demand and strong prices in our auctions.

In the past we have talked about how low interest rates being a headwind because they give many equipment owners the luxury of not having to make decisions about selling idle equipment. This situation has abated somewhat, as more normal behavior has returned to the market, though U.S. equipment owners are only now starting to sell idle equipment. Competition for late model equipment has continued to be intense, mainly because of the shortages of new and near-new equipment.

As demand has increased, there is not enough new and near-new equipment to satisfy this demand, which has resulted in strong prices at our auctions but also intense competition from other participants in the market. Dealers, brokers, and other auction companies are all very active. As OEM production ramps up and lead times for new equipment shrink, the market will become more balanced, which should help alleviate this challenge.

As a result of this competition, we have been more aggressive on our underwritten business. This caused our at-risk business as a percentage of our total business to increase to 32% in Q1, which is not out of the ordinary if you go back over the years. Around the time of our IPO in 1998, our at-risk business made up one third of our business on average.

So this is not a meaningful change in the strategy or our model. Underwritten business performed well in Q1 and was in line with our expectations. We will continue to be aggressive on all business and continue to believe that the percentage of business that is at risk will be above the range we have experienced in recent years. Those are the key points I wanted to discuss today. Bob, can you connect this discussion to some of the operating staffs we have been seeing lately and our ongoing strategic initiatives.

Thanks, Rob, and good morning, everyone. I think that one of the best way to connect the dots to this sentiment we are seeing in the market is to look at how to plays out in terms of our web statistics. For the first quarter in 2011, we saw a 29% increase in the number of unique visitors to rbauction.com, up to 1 million unique visitors during the quarter. And they conducted 10.7 million equipment searches, which is an increase of 35% compared to Q1 of last year. Perhaps more meaningful, especially as we have just celebrated the first anniversary of our new multi-language website, is the 29% increase in business from non-English speakers from Q1 2010 to Q1 2011.

We sold over $223 million to online buyers in Q1, representing growth of 24% compared to Q1 of last year. Our website is a good example of the success we've had with recent initiatives. However our current focus is the new services we will be introducing, starting July 1, 2011. We gave you lots of detail about our updated strategic plan on the last call, so I want to focus today on our progress to date in 2011 as well as answer a few questions that we've been getting recently. Let me start with a discussion of, why now?

Because lots of people have asked. When we went through our annual strategic planning process, we took a deeper dive in to what has made us successful today, to try to understand what will be important as we move forward. There was very broad recognition that we have an extremely powerful business model and we have no intention of abandoning that model. However, there was also an acknowledgement that all great companies have to continue to evolve in order to meet the need of their existing and potential customers, otherwise they risk being relics of bygone days. We have no intention of being that. When we look at the broader equipment marketplace, we have very strong relationships with lots of equipment owners around the world, but we are doing business with only a tiny fraction of them.

There are many equipment owners who do not do business with us, and many more who do not even know us. In the past, we have set our sights on a relatively small segment of the market and focused on meeting their needs through our unreserved auctions. We did not tend to look at how we might make our auctions more appealing to equipment owners beyond that segment, and we definitely did not consider offering solutions that would appeal to those who do not find our unreserved auctions attractive. Our strategic plan addresses these points. How do we broaden the appeal of our auctions and develop services so that we can work with as many equipment owners as possible? We've expanded our horizons without losing sight of the power of our core unreserved auction model, which remains our primary focus. So how are we doing?

I won't go through all of the initiatives, but will instead focus on some of the highlights. We are on track to begin the implementation of our free detailed equipment information program on July 1 of this year. We have realigned our auction operations to accommodate this program, developed software, and hired people and the Pilot program is taking place over the next two weeks in Fort Worth. This initiative is going to have a meaningful impact on the ease and confidence of our auctions, helping us to attraction non-customers to our auctions, by making it easier for them to participate. Ritchie Bros. Financial Services is now up and running. This is a joint venture with Travelers Financial, a Canadian based financial services firm.

Our customer finance program is on track to begin rolling out through the U.S. and Canada on July 1. As a reminder, Ritchie Bros. owns 51% of this joint venture, but will not be lending its own capital and will not be taking on any credit risk. We are merely acting as a broker or middle man to connect our customers with lenders who are participating in the program. The response to date from lending participants, as well as our customers, has been very positive. We have also defined and signed term sheets with underwriters for our customer warranty and insurance programs.

These initiatives are also on track for a July 1 launch, and we believe they will go a long way to helping our customers feel more confident when buying at our auctions. In addition to these major initiatives, which are close to launching, we have a number of other initiatives in the works under our grow, add, and perform strategic pillars, and I look forward to providing you with ongoing updates as we progress. Jeremy, do you want to talk about the financial impact of these initiatives and our guidance?

Good morning, everyone. Let me give you an update on our guidance for 2011. We are reaffirming gross auction proceeds for 2011 in the range of $3.4 to $3.8 billion. Q1 was a strong quarter and we are pleased with that result, however, it is still early in the year and any more precision is still not warranted. As a result, we are not going to sharpen this range at this time. Our guidance reflects the best available information we have right now, including recent sales results, discussions with our territory managers and their customers, and the external factors we see developing in the marketplace.

We continue to expect auction revenues in the range of $385 million to $415 million for the year. This range includes estimated incremental fee revenue of $25 a million in the second half of the year from our expanded administrative fee, that will be charged to buyers starting July 1st, 2011 and will be recorded in auction revenues. As a reminder, our current expectation for the incremental revenue benefit of this expanded fee on a full-year basis in 2012 is $50 million. A reasonable range for auction revenue rate for 2011 will be 10.25 %to 10.75%, excluding the expected impact of the incremental administrative fee revenue in 2011. We continue to believe we are earning a sustainably higher commission rate and this was demonstrated in Q1 with our actual rate of 10.39%.

As always, our actual performance in future periods could be above or below this range, depending on the performance of our at-risk business and other factors. Incremental G&A costs in 2011 associated with our strategic initiatives will be roughly $15 million for the year with corresponding revenues of $25 million resulting in incremental pre-tax earnings of $10 million in 2011. Some of these are one-time costs, but the bulk of them represent a step up in G&A in 2011 and future years. The G&A impact started in Q1, but the cost increases in the first half of the year will be modest. The bulk of the costs will kick in in the second half of 2011. This incremental G&A includes all of the costs of the strategic initiatives we will be rolling out in 2011, including detailed equipment information, ancillary services, and some head count associated with operational realignments, among others.

Based on currently available information, the annual run rate for this incremental G&A in 2012 should be approximately $20 million. We continue to believe adjusted earnings before tax will be at least 10% higher than last year's earnings before tax. Actual results could be above or below this range, and in the near term, there remains uncertainty so it's difficult to forecast with any more precision.

Many of the factors that may impact our actual results are outside our control, but we believe this to be a reasonable growth expectation for 2011. Our long-term target remains annual adjusted EPS growth of 15%, while maintaining an average return on invested capital of 15% over the long-term, and we will provide refinements in our guidance in future costs. Finally, we expect our CapEx for 2011 to be in the range of $70 to $80 million. Now over to Rob McLeod.

Thank, everyone. Good morning, everyone. I hope you've all seen our press release this morning. Our MD&A is being filed so I won't go into details. I would, however, like to briefly talk about our operating costs in quarter one and our recent transition to IFRS. Our direct expenses decreased from 15% quarter one 2011, compared to quarter one 2010, even with the 17% increase in GAAP. This decrease reflects the fact that our average auction was 25% larger this quarter than quarter one 2010. This operating leverage shows up in our direct expense rate which fell from 1.44%, quarter one last year, to 1.05% this year. This operating leverage or efficiency is a function of the capacity we have in our current auction sites and our ability to handle increasing volumes of equipment without a corresponding increase in costs.

It is also a result of our timed auction system, which has allowed us to sell more items in a shorter time, causing a decrease in the number of auction days and therefore reducing costs. Our selling, general, and administrative expenses in quarter one increased by $3.3 million, compared to quarter one last year. The largest component of this increase, which is $1.3 million, related to the foreign exchange impact from translating our non-U.S. dollar denominated SG&A into U.S. dollars for reporting purposes. The amount of the change was due to increased personnel costs, including some related to our strategic initiatives. Finally, our depreciation expense increased by nearly $4 million in quarter one, 2011.

The majority of this increase relates to the $2.7 million reduction in our depreciation expense recorded in quarter one, 2010, resulting from a correction of excess depreciation taken in prior years. Depreciation also increased in quarter one this year over quarter one last year as a result of the new facilities and systems we introduced during 2010. Before I pass the call to Pete to wrap up, I would like to comment briefly on our conversion to international financial reporting standards or IFRS. We adopted IFRS commencing January 1st, 2011, and our quarter one interim financial statements this year have been prepared in accordance with these new accounting standards, including the prior year comparative figures.

Conversion to IFRS has many potential impacts, including accounting policies and financial statement presentation and disclosure. The main impact on Ritchie Bros. has been on the presentation of and the disclosure in our financial statements. Our financial statements look slightly different now, but with increased disclosure. We have converted our Q1 2010 results to IFRS, and this resulted in a reduction of our Q1 2010 earnings of approximately $100,000, compared to our published results last year. This relatively small change arises from an adjustment to share based compensation expense to reflect a different treatment of option grants that vest over a period longer than 12 months. Now over to Pete.

Thanks, Rob. Before I leave you with some closing remarks and open the call to questions, I would like to comment briefly on our sales head count. Our sales force contracted by about 4% to 300 sales representatives during the quarter. This is in part a result of our decision to slow sales force increases to allow GAAP growth to catch up with territory manager additions that we've made in recent years, and partly attributable to higher than normal turnover, both voluntary and involuntary.

In the short time frame of the three months ended March 31, we are not seeing any particular trends that causes us concern and do not believe this modest contraction of our sales force will have any impact on our ability to grow. We believe the fundamentals in the global equipment market have improved in recent months and we are very pleased with our results to date. We remain cautiously optimistic and believe we are well positioned to capitalize on the strengthening of the used equipment market and to meet the need of our customers, the builders of the world, and help them easily and constantly exchange their equipment.

GAAP being up 17%, auction revenues being up 7% and adjusted net earnings being up 11% for the quarter are all gratifying signals that the toughest times are behind us. However, we would feel more comfortable if some of the key macro factors, such as construction spending, were showing signs of returning to more robust levels. We are hard at work here every day and are confident in our ability to deliver on our plans for 2011.

Andrea, can you please open the call to questions, now?

(Operator Instructions). Our first question is from Hamzah Mazari from Credit Suisse. Your line is open.

The first question. If you could just add a little more color on how to think about your at-risk business going forward and the impact on the auction revenue rate. Is that just because you're being more aggressive relative to last year on that piece of the business?

Sure, I will answer that. It's Rob Mackay here. As we go through economic cycles, both up and down, the market reacts in different ways and the competition reacts in different ways. And we've entered a market today where the supply of equipment is low. Confidence in the market has returned. And there are a lot of people out there looking to sell used equipment and exchange used equipment and compete on that. So competition, who in a down turned market, are reluctant to go out and risk their money because they are really unsure of where the market is going, have returned to the marketplace. And we have seen prices increase all the way from mid-2010 to today with quite a substantial strengthening in Q1 and that gives some of your competitors a lot more comfort that if they are going to go out there and risk their money on a deal, the opportunity to make money and not lose is pretty damn good. So we are seeing a lot more competition out there on deals.

The customers themselves understand that, and the customers are having multiple players come to deal on packages of equipment that they are looking to sell. So, it's general behavior that occurs when we come out of a downturn cycle that competition increases. And we are seeing that today. In order for us to get the business and get more pieces in our auction sales vis-a-vis other channels, we are having to underwrite more business in different areas of the Company.

It will ebb and flow in the quarters as we goes through this year. Some of the areas of the Company that we undertook a fair amount of risk business in Q1 will be down dramatically in Q2, their at-risk business. So it will ebb and flow throughout different groups in the Company and it should tail out or level itself out as we go through 2011.

Just a follow-up, you talked about your sales force contracting. Could you maybe add a little more color on how to think about your cost structure and what kind of additional volume can it support? And at what point do you start adding back sales people? Do we have another year of 17% GAAP growth or two years before you start adding salespeople? If you could just frame that for us?

Sure. The guidance that we gave our guys in the field was we believe our cost structure is solid to deliver upward of $4 billion plus. We didn't want to get too Fr ahead ourselves because we grew our sales force purposely in the last couple of years to get on track and the GAAP did not get delivered. So we think we are well positioned to move forward with existing staff as it is, albeit that you can't ignore it and turn the light on and start hiring people instantly.

So we are very cautious. There's only one guy in the Company that's allowed to okay hires, and he's sitting beside me here. So he's pretty frugal on making sure we make good decisions around the people that get added to the team. It doesn't mean that you can't net replace guys; as they leave you can certainly replace them. And there's always transition in every type of economy.

But in terms of net adds, we are pretty focused on making sure we have good productivity. When you bring people in, you want to make sure they are right for the culture, right for the work ethic, and all the other things that we have. So we have taken an inordinate time to find those people, and we have a very, very solid HR team that goes about recruiting and very methodical and very rigid and heavily processed way. So we are not going to be zero hires through the year. I expect if we get back our GAAP on track as we plan it to be, then we will start to ease our hiring strings in the latter part of the year, but for you, the direction of our guys is, go ahead and replace hire for those vacant positions that are there.

But we don't necessarily want a whole bunch of new adds and this is excluding, of course, the impact of the strategy and strategic initiatives underway. So there is hiring going on. That's part of the numbers we exposed in terms of the G&A lift that we are expecting for 2011. But absent that, in terms of the sales force. Rob Mackay is the guy who has got his hands around that and making sure that all of our guys are properly wired within their regions to start delivering productivity levels we think we should be hitting

Not to say that the guys that are out there in the field, they are all working their tail off, but in prior years when nobody wanted to sell anything, then they are making ten sales calls a day sometimes, which is huge production for guys to be able to go around and make calls and knock on doors and shake hands, but when nobody wants to sell anything, it doesn't get very productive in the day. So they are out there working very, very hard and now they are starting to see fruits of their labor come to pass when people are willing to sell in the market because of improving conditions. So that is heartening and we are optimistic that it's going to carry on and continue with that pace, but for now it's rebalancing the initiative that we had with our sales force and productivity to the GAAP levels that we are targeting.

Great. Thank you.

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

Good morning.

Good morning. Rob, could you maybe just talk about the how the different regions performed in the quarter and some trends that you see going forward, from a geographic standpoint?

Regional differences.

How they performed?

Yes, exactly, yes.

Well, we don't really break down how each region performed. Overall, our at-risk business is in line with our expectations. A little bit down over what it was last year. But we anticipated with the competition that was out there and the aggressiveness that we had to, behavior that we had to have in the marketplace, that we were going to have variations. Each area performed according to expectations, and each area had expectations that were different. We know that going into the beginning of each year and each quarter, that some areas are more competitive than others, and we have different expectations. So for the most part, they have performed in sync with what we were going after and in total we performed that way. But we don't typically talk about the breakdown of each individual region's performance.

Okay. Fair enough. As far as the at risk business, just going back to that, n the last quarter you said that's to go up to as high as 40% of total GAAP. Is that still a reasonable target?

That was a number that got out at the last conference call.

To be clear, it wasn't a target.

It was not a target. It was a comment made that it could get as high as 40%. And in different regions in the Company, we've had some experience like that. But on average, it was below that. And we see that coming down as we go through the year. I don't anticipate that it's going to go up from the levels that it is. But it's still a bit of an unknown in the marketplace given the forces of the supply and demand.

As far as the internet statistics you put out, 42%, of bidders were off of the internet. That seems like one of the highest percentages you've had in a while. Can you can talk about how that is materializing and where that could go?

The internet has been a phenomenon hat's been fun to watch. We launched our service first in 2002, so it's 10 years old, essentially, now. It went from 0 participation over the internet to where it is at today, which in some cases is sitting in the range of half of our registered bidders could be online, sometimes higher, sometimes lower. We have no idea whether it keeps going up or down. It's been fairly stable for the last little while now with numbers like that. It's very heartening to see what has been happening with the trends in our bidders. We are seeing dramatic increase in numbers of bidders, overall. Two segments of that, just the folks who show up live and the folks who are online.

Most of the people who are bidding online are people that started their experience with Ritchie Bros. bidding in person at our auctions. And then, once they've developed the trust and confidence in our system, they are quite comfortable, apparently, to bid online and therefore they are able to bid in more auctions. So we are watching our onsite bidder attendance very, very stable, since we launched the internet. We have had roughly the same size of live crowd, but the online component has been able to grow because you've got those on site people now being able to participate in more auctions.

So it's been great for our system to be able to deliver the best of both worlds. You've got the on site for those that want that, and then you've got the online experience for those who don't have the time or prefer to bid on two auctions on the same day. So it's just been a great marriage, if you like, of technology with the more analog model. So, it's done well but it's hard to say where it heads to.

Part of it is it's easy for the people to be able to participate. They can dial into two or three or four auctions in a day, and they do. So, we make it relatively easy for people to want to participate online, and they register to bid and they may not end up actually bidding but they certainly register to bid and there is always that increasing appeal broadening the market and making sure you're getting broad participation, so that aspect of the internet service that we have created has been very, very positive just because it's easy. So number of bidders online, the more the merrier, I think.

The interesting thing is the number of buyers that end up buying online and talking to them and how they go about getting that comfort on condition. One of the initiatives, of course, is to increase with detailed equipment information, rolling out July 1st to give them greater comfort, but they still -- the large majority of these guys have a way of going about it and inspecting, because effectively they end up having to trust their own eyes and they go about that by having someone, one of the mechanics come and inspect the equipment there. They actually, physically come and attend the auction days in advance and then they just don't want to be there on the auction day, so they go home to their office and they sit and they bid in the comfort of their own office on the three or four or ten lots they may be interested in.

So they are going about their business in a very methodical way, but ultimately they are still relying on their own eyes to test and inspect to assess value, And condition is so, so important when you're determining evaluation on this equipment that you have to provide that. We believe that is fundamental to our business and we are going to continue to make sure we keep that forefront of our model.

Last question for Jeremy. I don't know if I heard. Did you give the pretax income growth, the target for the year?

Yes, we talked about pretax income in excess of 10% growth.

Got you. That's all I have. Thank you.

Your next question comes from the line of Cherilyn Radbourne with TD Newcrest.

Thanks very much, good morning. I wanted to ask a question first on the at-risk business and just whether you saw any change in the level of customer demand for at-risk arrangements during the quarter. I would presume as they become more confident about the pricing environment that perhaps there would be more desirous of enjoying the upside in the auctions, rather than locking in a price going in.

I think that's a fair statement. In particular, in one of the areas of the Company in the U.S., we saw a significant growth in our at-risk business in Q1. It was a result of customers wanting to maximize their net return out of the package of equipment. They knew that given the competitive nature of the marketplace, that they could have multiple entities compete against each other to provide them with a guaranteed net return that they may be comfortable with. As a result of the performance in Q1 of the pricing that was achieved in the marketplace, that same region or division within the Company, so far in Q2, their at-risk business is down significantly because the other players in the market are now currently bringing their equipment to market, are quite comfortable that the pricing levels are where they are at or are growing and would rather pay a smaller straight commission fee than having to play a higher at-risk fee.

So we are seeing somewhat of a transition in different groups or different regions of the companies, where people are more comfortable that market pricing is strong, will remain strong and would rather take some of the risk themselves and pay a less fee to Ritchie Bros. for guarantee or to any other entity. So it's ebbing and flowing and changing a bit from group to group, or region to region within the Company as we go through 2011.

Maybe just as a comment for all -- there's been a few questions already for the at-risk business. I'm wondering if there's perhaps a faulty assumption that if you have more at-risk business, it means your auction revenue rate goes down. I'll just put out there that is not the case. The quantum of at-risk business is interesting and if anything, it maybe leads to volatility or potential volatility but it doesn't mean it goes down.

So if somebody is trying to figure out whether Ritchie Bros. is going to do more or less at-risk business in the next quarter, that doesn't necessarily help you figure out whether our auction revenue rate will be higher or lower. The more at-risk business we have, the more potential for volatility, but it could be dragging the auction revenue rate up or down. It really depends on the performance of it. So it's interesting to talk about what's going on in the marketplace and I agree with what Rob is saying. We are watching it closely. Obviously, it is interesting. We spend a lot of time on. But it's more the performance, not the quantum, that drives the rate.

It's Jeremy here. I might add too, in each quarter, regardless of what else is going on, it is customer demand that determines the relative proportion of our business that is at-risk. So when we present a deal to a customer, we will present both straight commission and at-risk proposals, and that customer makes the decision. So, when the at-risk percentage is up, it's a reflection of increased demand, because it is driven by customer sale objectives.

That's helpful color. I guess the point is we are at a transition point here in the market. The other question I wanted to ask was just whether there was anything of note in terms of mix during the quarter. Just looking at some of your stats, it did look like you had more consignment, but fewer lots, you had lower auctions overall, but larger auctions where you held them. So just wondering if there is anything notable in terms of the mix.

Cherilyn, it is Rob McLeod. Yes, you are correct. Obviously, the GAAP was up. The number of lots was actually down and to get to one interesting point on the number of lots was the majority of that decrease related to our low-value lots. So when you look at the statistics, on average our mix was a higher priced equipment, and because of those low value lots, and also the number of consignments was slightly up. So you're having consignors bringing larger pieces, if you will, or more valuable pieces, if you will, to the auction. And other than that, the mix is very challenging to determine because of the unique nature of each piece. Whether it's a three-year-old 30-ton excavator . If you have three of them, all three are going to be quite unique and quite different and have different

Then last one for me, just any comment on the disaster in Japan and what you are seeing in your business? I gather you've postponed your auction in Narita, somewhat indefinitely. Anything else are you seeing in the market?

It's Rob here. I guess the biggest effect that is going on right now is the supply of parts and attachments coming from smaller entity factories in Japan that are feeding some of the other bigger manufacturers, but I don't believe that there's a significant or material effect on that. There definitely is a slowdown and later deliveries of some of the stuff that is being produced over there to the manufacturers around the world.

For us in Japan, there still is a lot of uncertainty there. Our auction site is not all that far from the disaster area, and as such, we are monitoring it weekly. A number of the other competitors in Japan have canceled their upcoming sales also, until people get a better understanding or feeling on what's going on there overall and what will happen there. And there's still lots of aftershocks And a lot of challenges still in that market. So it's a bit of a wait and see for us right now in our sales there. So we are about 150 miles south of the affected area.

And the good news is all of our staff were safe and, in fact, the good news too, the building was built last year and it was built to a standard that could withstand a nine magnitude and it held up extremely well. Just minor damage and that was it. So we were very lucky, I think, in that respect. But we are being very respectful within the culture of the country and we had some equipment lined up for an auction that was going to be held in April and then postponed to May. And then we decided that the reality is there's too many unknowns right now. And it's not the right time to be working on anything other than getting the country back in order, so we are assisting with that process as best we can. But thanks for asking. It's something that has been on our minds and we spend an awful lot of time during the quarter making sure, and we had quarterly calls with all our team there, to make sure everybody was safe. In fact, one of our guys had a -- his wife was eight months pregnant. So we got him out there pretty quick and they just had their baby, so everything is all good, but it's the human connection to the disaster that you sometimes don't get, and we lived that this quarter in a real way and I appreciate you asking about that.

That's helpful color. Thanks, that's all my questions.

Your next question comes from Nate Brochmann with William Blair & Company. Your line is open.

Good morning, everyone.

Good morning.

I just wanted to talk a little bit more about that last question a little bit. But as you are seeing the pricing improve across most of the segments, one of the things we have been talking last year was a lot of folks sitting on the sidelines waiting for pricing to improve to be able to sell this hoard of equipment. I'm just wondering if you could talk a little bit what you are hearing from your customers on that dynamic, in terms of whether they are starting to come off the sidelines a little more rapidly, or whether, now that they are having maybe a little bit more work to do they are holding on to that equipment.

Sure. Rob here, again. Again, it varies across the countryside and across the world that we operate in. And there's different areas of the world that are quicker to react. And we are seeing some of that, where the people are more comfortable now with the pricing levels. Pricing has increased pretty significantly from August of last year to today. The reality in a lot of people's minds is, I think they are accepting of the fact that it's not going to return to the peak of the heydays, and that's out of most people's minds. And we are for sure more active in the number of appraisals we're doing, more active in the number of customers we are talking to and for sure more active in the number of deals that we are pitching out there every day. And we are seeing more and more of these people willing now to come to market.

And those are predominantly people that are, that it's excess equipment, but in addition to that, there's now the people that are into the replacement mode. A little bit of CapEx being released for some of the construction companies, a fair amount of CapEx being released for the big boys, and we are in discussions with many of them to take that used equipment that they've been hanging onto and aging longer than they typically are used to, and they are now getting new orders placed and delivered from the factories and we are seeing that stuff coming to us. So, still people around. The mid-west mentality is pretty interesting in the North American market. And they are the hanger-oners to the end, if you will. The other people on the extremes, to the east and west, are starting to move a lot quicker and move the stuff. And we are starting to see a lot more activity in Europe with the banks, who are now getting more active in dealing with delinquent customers and more active in discussions with us.

So one thing, Nate, we have also experienced, and this is not a new phenomenon, but just sort of highlighting it now is that -- seeing an awful lot of people bidding contracts, so the margins on some of the construction jobs. Any of the public construction companies, you will note that the margins have been challenged a bit, because there are just more people bidding jobs and just discussions we've had with some of the folks through the quarter, there's s till a relative oversupply of capacity to produce a road, a bridge, a school, or whatever. And where normally you might see five or six contractors bidding a job, you're seeing 10 and 15 bid still. So there's still a relative overcapacity to produce and with the construction spending down like that, that's putting a lot of people into a position where they, maybe now it's time to sell because the pricing has returned and because the margins are so thin, or they can't get the job, or they didn't get the job.

So we are seeing an awful lot of discussion going on with clients as Rob referred to, people who have idle equipment. A lot of reason that it's idle is because the work margins are thin enough for these guys not to really want to take that risk and they will jump back into the market at a later time when construction spending returns to a normal state. Luckily for us, that's a good supply of equipment. These are all end user guys, and that's the core of our customer base ,so we get lots and lots of discussion going on there and luckily for us as well we have the global selling platform that we sell that equipment into the global market and off it goes to wherever it's needed most. So we have seen, obviously, uptick in some of those buying markets that are currency, or, sorry, commodity driven like Australia and Canada, as examples.

Does that also, though, maybe kind of to some degree benefit Ritchie Bros. in used equipment sales while certainly OEM production is really strong and a lot of that is replacement. If the margins are thin and while people have more optimism in the market, if there's still a little bit of splotchy work here and there, are they more apt to maybe buy used in terms of looking for their project equipment?

For sure, we've seen that during the latter part of last year and this year. The small to mid size contractor today who is fortunate to go out and bid a contract and be successful, probably very thin margins on It, he has got one or two contracts on his workload, vis-a-vis five or six contracts. He's going to go out and buy a 1,000-hour wheel loader, as opposed to going out and buying a brand new one. One is, it's going to be cheaper for him, and the other side of it is, depending on whether it's a wheel loader or articulated truck, he may have to wait four to six months to get it. And the project starts next week. So, he's going to go to the used market.

The same we are finding with dealer rental fleets. The competitiveness out there for pricing on rental equipment is still pretty aggressive and dealers are looking to the used market to go and buy a 1,000-hour used articulated truck and put it into their rental fleet vis-a-vis going to the manufacture and buying a brand new one. They can charge lower rates on a used truck that they bought vis-a-vis going and buying a new one. So those are the guys that are coming as strong buyers to the auction sales these days, and/or competing against us on packages of equipment that end users are selling.

Fair enough. Very helpful. Thank you.

Your next question comes from the line of Jamie Sullivan with RBC Capital Markets. Your line is open.

Hi. Good morning.

Good morning.

A question on the at-risk business. I think historically you've talked about, let's say 8% to 10% outright purchases and the 12% to 15% guarantees. I'm just wondering how that mix has changed with the overall at-risk business getting up to these levels.

Jamie, it's Rob McLeod. That mix, in fact that mix hasn't really changed that much. And in fact, we are really indifferent. To us a guaranteed contract or an inventory contract is - presents exactly the same opportunities and risks. As Jeremy said when we go pitch a deal to a customer, we will present a straight commission deal, a guaranteed deal, or an inventory deal. The guaranteed deal and the inventory deal are exactly the same thing. We use a slightly different formula for getting to the net number. And the gross guarantee, obviously, is your gross number, your inventory deal is your net number where we have taken into account our commission, cost of money, and any repairs that we may be doing. So, as I say, we are indifferent between the two types of at-risk business. So that's why we are continually talking about at-risk as a whole category, as opposed to breaking it down between the two of them.

So the competitive environment hasn't really changed that mix.

No, and it comes down to the customer preference. Maybe a customer needs, for reporting purposes, some assets off their books at a particular time, and so, therefore, they would prefer an inventory deal versus a guaranteed deal, because the guaranteed deal, technically it doesn't get off their books until the day of the auction. And so it just comes down to customer preference.

Great. And I was just wondering, there is a lot of talk about the shortage of late model equipment. I wanted to get your perspective on the supply in the marketplace of older equipment. What does it look like out there for the marketplace there? Do you see similar shortages or do you see an oversupply? What are your views on that?

It's Rob here. I don't think there's a shortage or an oversupply. Again, there's a whole bunch of middle aged equipment sitting out there, which is the lion's share of this idled equipment that owners have been hanging on to. And it's more, it's slowly being released back into the marketplace as these owners become more comfortable with the pricing levels and/or are challenged or fed up with the competitiveness of bidding on projects. These guys are used to going to a tender and having two or three competitors and today there's 10 or 20 and half of them are from out of state. So that's where the middle aged equipment is starting to come to market. And that middle aged equipment is demanded, even more so outside North America than the newer late-model stuff. So that four to ten -year-old, one or two series older machines, that's the desirous stuff that's being sought after by the Middle East or South American or Latin American buyers, mostly because they can fix it. They are not interested in chasing down tier three and tier four products. So when that stuff comes to market, there is ample demand in the balance of the world, outside the U.S. and that's what has been supporting a lot of that stuff over the last while.

Great. And then one last quick one on G&A. Were there any one-time charges in the quarter, severance, anything that won't repeat?

It's Rob again. There isn't anything unusual. There's some just normal calendar year presentation that you're going to have a front end loading on benefits related to personnel costs, just because that's the way it works, and it happens every single year, but there aren't any significant costs for quarter one that aren't going to repeat.

Thank a lot.

Except for foreign exchange, and I will leave that for you to figure out.

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

Good morning, guys.

Good morning.

One question, I just wanted to clarify something you said --

Ben, we can hardly hear you.

I'm sorry, you can hear me now?

Yes.

I'm sorry about that. The question I had, with respect to a comment you made about the unique visitors being up. Was it 29% in the quarter?

29% was two different numbers. Unique visitors was up 29% and also the non-English visits was up 29%.

So I understand how you define a unique visitor, I think, Peter, you went over that in detail last week. Being someone who comes, basically a new cookie on the website, a new visitor on the internet who had gone to the website that you had not seen before, is that correct?

You only count somebody once, no matter how many times they come on. So during the quarter, we had just over 1 million unique visitors making multiple visits, but there were 1 million unique people on the website for the first quarter.

I think Dan's point is it's not measured by IP address, which can be skewed. It's measured by planting the cookie on that particular computer. So we can actually measure that as a real unique visitor.

Well, my question is, do you know if that person, is that a measure of completely new people to RBA, or could there possibly be some influence of someone, an existing customer of yours, who had previously not gone to the internet? It's probably more indicative of a trend of total new customers to Ritchie Bros., but is it in any way skewed, perhaps, by some change from the medium which your current customers are using?

I don't think we say it's new customers. But it could be you and me, well, probably not me, I think we blocked out our VP people but anyone who goes to the website counts as a visitor. We are saying there were 1 million unique in the first quarter. Meaning there were a million different people. Some would have been long-time customers who visit every quarter, visit every week. Some would be coming for the first time. So it's not 1 million brand new people. It's just a measure of saying how many people are using the Ritchie Bros. website and the answer is it's over 1 million in the last three months. So the number itself is impressive by its size, but it's not intended to suggest those are people that have never been to our website before.

I'm not sure if I follow, then, how you're defining the unique visitors, but we could maybe take that offline, if you like.

Bob's point is right. The logic would be if there's 29% more people that hit the first quarter, the likelihood of some of those being brand new people for the first time is probably pretty high, but we don't go through and distinguish between first time ever visitors and a guy who visited two years ago and now he's decided to come back. It's comparative year over year and I think we saw a nice lift and we're encouraged. And that's just the Q1. We have looked at 12 month rolling stats and whatnot, and the intent of the comment then was just to give you all a sense that we are seeing very positive trending for people that are looking to rbauction.com as a source for information and searching equipment. Inventory searches are way up, results searches are way up so that indicates to us the traffic flow tells us that that the people are in the buying mood.

It's like anything, if you go to buy a new car, typically the first thing you do before you buy even a used car, you go and do your research online. So you look and see what is for sale, what the people are saying about it, what are the recent transactions and what are things selling for. Our base of customers is exactly the same thing so that increase in traffic that we started seeing in the latter part of last year and then through the first quarter just tells us that people are much more in the market to buy something right now. They are doing the research, they are checking things out, they're coming to the site and poking away at all the different things we have available for sale to get a sense of what they want to pay at the auction.

Okay. And the second question is related to utilization rates. In the past, I think the number you threw around was that you could manage 50% higher GAAP just with your existing auction yards increasing utilization without adding new yards. Is that still a measure you believe is accurate of your utilization, effectively?

I'm pretty sure I'm the guy who said it first so I will answer this question. Everybody is responding. They said, yes, Bob, you are the one that said it first.

I would still stand by that number. I have no doubt in my mind. It's the conservative number, I think. As you know we probably do an average of four auctions per year at each of our sites, almost every one of those auctions could be larger. We could do more auctions at each site. Our busiest site in the system right now, Edmonton, is doing 6 a year. If every one of our auction sites simply went from four to six, that's 50%, they would all have larger auctions. It would be easy. I have no doubt in my mind that our current capacity could handle at least 50% more volume, if it had to. So if the board came down tomorrow and said there shall be no more capital expenditures, that wouldn't hurt our growth in the near term, it would in the long-term.

That raises another question I was going to ask, is why. If you could get another 50% growth in your gross auction proceeds and that presumably would take you a few years and require some resources, why wouldn't you focus your efforts on that kind of low-hanging fruit and contain your CapEx and your growth? I recognized, obviously, your long-term philosophies. But why wouldn't you just let that cream rise to the top and perhaps generate higher free cash flow and more operating leverage and all those sorts of things?

It's an excellent question and it's one we have to consider every time we look at an investment. Is it really one that's going to help us grow in a certain region, a certain area? For sure when we do our CapEx spending, we are spending it in areas where we don't have sufficient capacity. As an example, I think to the latest two announcements of sites that are going to start construction, one in Washington state and one in South Carolina. Those are both areas where we believe we are at capacity. We don't have the ability in our network, in our local sites there, to meet the demand, so we have to add capacity. In other areas we don't need to add capacity so we are not growing there. You're right, we could slow down our expense, but if we did, that we find ourselves in a challenging spot in certain regions and we concern ourselves.

An example in Napavine, in Washington State, in southern Olympia where we are building. That project took us five years to get to the point where we are at right now. These don't easily happen overnight. Our property people are working. It's fair to say, on the CAP- EX site, we are at the tail end of this mass of expansion that we announced a number years ago. We said we would ramp it up, we ramped it up, and then we announced we would tail it off. Now we are trailing it off. It's a good point we've are mindful of that and certainly our board is mindful of that when we present anything to have a discuss about ROIC and how that will affect it in the long-term.

Good question.

Good answer. Thank you.

One more. Operator we have time for one more question and we should wrap it up.

The last question comes from Scott Schneeberger with Oppenheimer . You're line

Thank. Good morning. The first question, when you elude to being competitive out there, is it the online channel, brokers, dealers, where are you seeing that?

It's Rob here, Scott. We are seeing it from everybody. As I mentioned earlier, we have the dealer network who has gone through this downturn and significantly diminished their inventories. They are seeing strength in the market. They have customers that they deal with regularly. They are looking for machines so they've got their hand and toes back in there, chasing the deals. We have other auction companies that are doing it. We've got individual themselves. We've got the broker network, which is the one-man band, so to speak, that run around the world buying pieces of equipment for customers that they're close to. It's a multitude of people that are out there. Some of the OEM dealers recognize that in an up market like, this there's an opportunity to play in a market and make some pretty handsome margins, if they can buy right and sell right. So they're back, active in the marketplace. And the interesting part is the customer themselves know this. So they are more apt to get a lot of players to come play on the packaged equipment that they are looking to sell. Its everybody. Those that went to sleep or retracted their aggressiveness in the downturn of the economy have all woken t up and come back to play.

Thank you.

Our job as auctioneers in the global market is to convince people we can get more net than they can anywhere else. Challenge is people have the old pricing regime in their heads. They will have a discussion with a local dealer, I will buy it for X. Meanwhile it's been selling for X plus at our auctions, and that individual may not be aware of that. So our opportunity is large and we believe we get net more than anybody else out there. So we look at performances all the time and we are very comfortable, we can deliver great value to people when we get a chance to do business with them. So it's a challenge to our sales force to get out there and get in front of these guys, make sure that they're aware of us and that at least people give us a phone call to give us a shot on these deals. That's why things like web traffic are very encouraging to us. Because it's an issue of brand and it's an issue of getting the brand out in front of the people so they understand that's an a option for them in a distribution channel choice. If we get that choice and show what we can, then we usually catch the customers and grow them for business.

Thanks for the call. One more if I can sneak it in. Someone asked earlier about the late model equipment versus older equipment. I'm curious, could you compare and contrast how well prices are moving up in both of those categories just to give us a sense of magnitude and that effect?

Rob here again. Again, as we have come through normal ups and downs in the marketplace and we emerge from a downtown to a growing market, the first thing we see in every instance is an uptick or an increase in the price of late model or equipment. The users instead of going to the store and buy a new one, have a shortened vision or their view of the jobs out there in front of them so they would prefer to go out there and buy late model used equipment versus new. So we typically see an uptick in the late model stuff. Particularly in this instance, we see supply being challenged in some product models, that demand is even greater. Not abnormal in the last couple of quarters to see late model equipment grow by 10% to 30% over what it was traditionally in the downturn.

The older used equipment trails behind. It always has as we come into these upbeats. And now we are seeing from the middle of last summer to now, very similar increases in the price of the mid- age to older aged equipment as the overseas market looks to buy it. Or the domestic market looks to buy it as opposed to getting new or can't get their hands on the late model. A customer will come to the auction and will he want to buy the 500 hour one--year-old wheel loader, but so do 20 other people. 19 lose and one win so now they have to move down the food chain and have to buy the 2-year-old 1200 hour one. If they don't get that they have to move to the eight-year-old one because they have a dump truck sitting on a job site waiting to be loaded and they need something to put to work. So it's everybody's desire to have the nicest one but only one guy gets to have it.

Thanks so much, guys.

Thanks, everyone. Appreciate you joining us on the call. Andrea you can close it off and we will get back to work and look forward to getting back with the Q2 numbers sometime in early August.

This conclude the teleconference and webcast. You may now disconnect.