RB Global Inc (RBA) 2011 Q3 法說會逐字稿

Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers 2011 third quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Mr. Peter Blake, CEO of Ritchie Brothers Auctioneers, you may begin your conference.

Thanks, Melissa. Good morning, everyone. I'm Peter Blake, CEO of Ritchie Brothers. Thanks for joining us today on our 2011 Q3 investor conference call. Also on the call today are Rob MacKay, our President, and Rob McLeod, our CFO. Bob Armstrong, our COO, and Jeremy Black, VP of Business Development and the Corporate Secretary, are also here with us and available to participate in the Q&A. We're going to focus today on our performance to date in 2011 and our expectations for the remainder of the year, as well as explain some of the recent dynamics we've seen in the used equipment marketplace.

I'm sure many of you have been caught off-guard to some extent by our performance for Q3. Although we did not provide guidance for the quarter, I'm aware that our gross auction proceeds and net earnings fell short of expectations and clear dropped considerably compared to last year's relatively strong third quarter. My goal today is that you come away from the call with a clearer understanding of why this happened, and I want to assure you right off the top that we are very much on track to achieve our full-year pre-tax earnings targets that we set out at the beginning of the year and that we reaffirmed on our last call.

Our gross auction proceeds for the third quarter were impacted by a pause in equipment selling by many of our customers during the quarter. Economic uncertainty slightly triggered by a financial pullback in July and August affected the fragile confidence levels of our customers, particularly in the United States and we experienced many of them temporarily postponing selling decisions fearing they were heading back into the rhubarb patch. However, we can share with you that the situation has improved markedly in the fourth quarter to date. While we believe month-over-month comparisons and isolation carry certain risk in analyzing a lumpy business like ours, which is better suited to year-over-year comparisons, we feel the increased transparency is warranted at this time and may help to quell concerns some of you may have regarding our 2011 performance.

For the month of October 2011 alone, we generated in excess of $280 million in GAAP, which is about 55% ahead of the $180 million in GAAP we generated in October 2010. Although we will caution you to avoid excessive focus on one month, other internal indicators including estimated dollar volume of GAAP contractually committed to upcoming Q4 sales are tracking well ahead this time last year and Q4 is shaping up very well. Rob MacKay will give you more color in few minutes, but I will say that with the vast majority of our remaining forecasted GAAP for the quarter occurring in next six weeks, we have pretty decent visibility and are confident that we will achieve our text targets for the year, the same targets that we shared with you in our last conference call.

Before we go on, I need to make the Safe Harbor statement. The following discussions will include forward-looking statements. Comments that are not statements of fact, including projections of future earnings, revenue, 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 securities filings, including our management's discussion and analysis of financial conditions and the results of operations for the period ended September 30, 2011, which is available on the SEC, SEDAR, and Company websites.

Actual rules may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained on this call, which speaks only as of today's date. I'd also like to note that during the call today, we will be talking about gross auction proceeds, or GAAP, which represent the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. GAAP is not a measure of financial performance and is not presented in our financial statements. The most directly comparable measure in our statements is auction revenues, which represent the revenues we earn from our auctions.

Before I pass the call over to Rob McLeod to talk more about our financial performance of 2011, I want to highlight some of the strongly positive events from the recent quarter. In particular, we are especially pleased with the implementation of our strategic initiatives on July the 1st. Our detailed equipment information program, or DEI as we call it, which involves detailed inspections of and reporting on most of the equipment that we sell has been a huge leap forward in providing confidence and ease for our customers, and they have been very pleased with this addition to our service offering. In addition, customer feedback regarding our financial services, insurance, and warranty programs have been very favorable. We also introduced our expanded administrative fee structure on July the 1st.

We've had at least one auction at all of our major sites since we introduced the revised fees. It seems clear that our customers appreciate the enhanced level of the services we are offering and they're accepting of the revised fee structure. It's gratifying to note that our first time bidder numbers have continued to grow and that there does not appear to be have any impact on our bidder registrations or GAAP as a result of these changes to our fee infrastructure. I'm personally very proud of our team for the tremendous effort in executing these very significant changes to our business, and it wall all done on-time and well under budget. I offer well-deserved kudos to our team for that. Let me turn it over now to Rob McLeod who can give us some color on our financial performance to date in 2011.

Thanks, Pete, and good morning, everyone. I hope you've all seen our press release this morning and our MD&A filing is being filed as we speak. Rather than reviewing all the details, there are a couple of key items I would like to focus on this morning.

Our quarter three GAAP was 10% less than what we achieved in quarter three last year. The primary reason for the decrease in GAAP was, as Pete noted, the pause in selling decisions that we experienced mainly in the US and the western Europe during the third quarter. However, we did also rescheduled a number of auctions in the third quarter this year and that resulted in roughly $80 million of GAAP being shifted out of the quarter and into the second and fourth quarters compared to Q3 last year. As Pete mentioned, our October 2011 GAAP was about 55% of October 2010 GAAP, demonstrating the lumpiness of our business month-to-month and quarter-to-quarter. This growth in October GAAP and the GAAP contractually committed to date is well ahead of our comparable 2010 pace, giving us comfort that we're on track for the remainder of the quarter and year.

In terms of expectations for remainder of the year, we are reaffirming gross auction proceeds guidance in the range of $3.4 billion to $3.8 billion for the year, and we are currently tracking towards the top half of that range. Our auction revenue rate for the first nine months of 2011 was 10.57%, including approximately $9 million of incremental new revenue from changes to our fee structure implemented on July the 1st. Excluding this incremental revenue, our auction revenue rate would have been 10.23% for the nine months ended September 30, 2011. This compares to 10.85% during the comparable period in 2010 and slightly below our expected range of 10.25% to 10.75%.

This decrease in our auction revenue rate was driven by the performance of our at-risk business, which, as discussed in prior calls, has been impacted by strong competition from brokers, dealers, and other participants in the market recall that we achieved particularly strong performance in our at-risk business in 2010 and it has returned to more historic norms in 2011. The incremental revenue from our revised admin fee is tracking just shy of our expected range of $25 million for 2011, and we continue to believe it will be in the range of $50 million for the full year in 2012.

For the third quarter of 2011, we achieved an auction revenue rate of 11.84%, including the approximately $9 million of incremental revenue discussed above. Excluding this amount, our auction revenue rate would have been 10.5%, which although squarely in the expected range, is below the historically high rate achieved in the third quarter of 2010. The primary reason for this decrease is again the performance of our at-risk business, which returned to what we considered a more sustainable level in 2011. Our at-risk business represented 30% of gross auction proceeds for the third quarter, more in line with historic norms and lower than the 40% we experienced in Q2.

One of our competitive advantages is our ability to bring our financial resources to bear when pursuing packages of equipment in a competitive environment. In quarter three, we continued to see a much more competitive marketplace compared to a year ago and we have strategically used at-risk proposals to win business and get significant packages of equipment into our yards. The 8% interest in GAAP we achieved in the first nine months of 2011 is in part due to these efforts. Our GAAP growth also has been impacted by a combination of stronger pricing for used equipment and a greater proportion of higher value lots being sold at our auctions compared to equivalent period last year.

We sold 8% fewer lots in the first nine months of 2011 compared to last year with the majority of this decline attributed to lower value lots. We expect auction revenues for the full year 2011 to be in our guidance range of $385 million to $415 million, which includes the incremental fee revenue from our expanded administrative fee. We expect our auction revenue rate for the full year in 2011 will be at the bottom end or possibly slightly below our expected range of 10.25% to 10.75%, excluding the expected impact of the incremental administrative fee in 2011. 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.

Selling general and admin expenses, or SG&A, for the nine months ended September 30, 2011, included roughly $6 million in incremental spending for strategic initiatives and our approximately $3.5 million of that was recorded in the third quarter. We indicated in our last earnings call in August that we were expecting incremental spend to be in the range of $15 million for the year. Based on our success to date with execution, we are now estimating incremental SG&A related to our strategic initiatives of approximately $10 million for the full year. Some of these costs are one-time items, but the vast majority of them represent a step-up in SG&A for 2011 and future years.

Foreign currency fluctuations resulting from the translation into US dollars for recording purposes of our overheads incurred in currencies other than the US dollar increased our SG&A for the nine months ended 2011 by approximately $5.4 million compared to the comparable period in 2010. The impact on the third quarter alone this year was $1.9 million. When we look at our 2011 SG&A, it is best to analyze it by removing the noise factors and isolate what's going on with just our basic overheads.

Excluding our incremental strategic spend and the impact of currency fluctuations, our SG&A excluding depreciation compared to 2010 increased 4% for the nine months and 2% for the three months ended September 30, 2011. As a result, we believe we have a good handle on our basic overheads. We have restrained SG&A growth in 2011 and we continue to make prudent operational decisions to ensure we're being efficient.

One other item I would like to highlight is a $1.3 million deferred tax revaluation adjustment we recorded in quarter three this year. Although the impact on our year-to-date tax rate is limited, it did cause an abnormally high tax rate of nearly 35% for the quarter. Excluding this one-time adjustment, our tax rate for the quarter would have been 22%. The end result of these revenues and expense factors was adjusted earnings per diluted share going down by 8% for the nine months of this year compared to the equivalent period in 2010. Our third quarter adjusted earnings per share were down 54% compared to quarter three last year, mainly attributable to lower gross auction proceeds and higher costs driven mostly by our strategic initiative spending, which are mostly fixed in nature and therefore had an outsized impact and this seasonally low GAAP quarter.

Consistent with our guidance in the start of this year, we continue to forecast that our 2011 adjusted earnings before tax will be at least 10% higher than 2010. Actual results could be above or below this range. Our long-term targets remain annually PS growth of 15%, while maintaining an average return on invested capital of at least 15% over the long term. We're taking steps right now as part of our 2012 planning process to position us for sustained achievement of those two 15% targets. Over the last few years, we have been very focused on building our infrastructure, including growing our team, to expand our capacity and lay the foundation for future growth. These are critical long-term investment decisions to prepare our business for the future. However, this was contrary to our historic formula of growing the business first, followed by increasing structure spend.

Our 2012 plans are being modeled on this historic formula of revenue growth first with infrastructure to follow in future years. This should leave us well-positioned for improved margins going forward. Our CapEx expectations for 2011 are in the range of $70 million to $80 million. Looking ahead to 2012, I expect we will bring our CapEx down even further, likely in the range of $50 million to $60 million given the projects that are currently in the pipeline.

Before I pass the call to Rob MacKay, I want to ensure you that we have firm control on SG&A, strategic initiative cost execution, and CapEx spend, and are confident that our revenue, expense, and income targets will be achieved for the year. Quarter three was a unique confluence of events and we have taken clear and purposeful steps to ensure we are on track for the year and set up for success in 2012. Now over to Rob MacKay.

Thanks, Rob, and good morning, everyone. The used equipment market remains challenging, mainly as a result for supply constraints that are continuing to affect market dynamics. These challenges were further exasperated in the third quarter by a freeze that beset the used equipment market, particularly in the US and western Europe. Equipment owners lost confidence in the face of mounting economic uncertainty and a constant stream of bad news in the headlines and many delayed selling decisions and adopted a more 'wait and see' attitude. Fortunately, this seems to have been a temporary phenomena and nothing like what we experienced in late 2008, 2009, and 2010, and all indications are that selling decisions are now being made again.

Our GAAP is well ahead of where we were at the same time last year, as is the volume of business we have signed to date for the remainder of the year. Many equipment owners are taking advantage of the robust equipment markets and selling excess inventory before the end of year. I'm confident that we will achieve the top half of our GAAP guidance range for the year. Competition for late model equipment continued to be intense, mainly because of shortages of new and near new equipment. Dealers, brokers and other intermediaries are all very active in the market.

Although OEM production has ramped up and some leads times for new equipment have come down, most dealers are still getting only a small percentage of their orders filled in a timely manner. This means that they need to turn to the used market not only to satisfy their customer needs and build their rental fleets but also to generate some revenue selling used equipment in place of new sales. While many equipment owners hit the pause button over the summer of 2011, the used supply situation became particularly acute. This impacted our ability to secure consignments for our auctions.

There are steadied signs that new equipment is trickling into the market with recent rising OEM production levels. However, these production levels are rising off historic lows and this new equipment production is not yet satisfying end user and rental company demand. As more of this equipment makes its way into the dealer channel, which has been slow occur, equipment transaction velocity should increase. This combined about equipment owners continuing to get more comfortable with 2011 Tier-4 US and Stage III-B European engines, will help the market become more balanced which should alleviate the challenging market conditions and free up more used equipment.

Dealers will likely become less active in the used market as they refocus back on filling new orders, and used rental equipment will continue to flow into the market as they are able to replace aged inventory. Right now, rental equipment is partly filling the void created by shortages of late model used equipment so these participants are slow to sell aged inventory in the face of higher utilizations, especially given the challenges securing new equipment to satisfy rental demand.

After rising during the first half of this year, used pricing increases level off somewhat during the third quarter. However, prices for most categories of late model used equipment have remained very strong. New equipment delivery still vary from weeks to over a year, depending on the manufacturer and model being sourced, and these long lead times have contributed to robustness in the used market. We expect that the scarcity of supply of new and near new equipment will help sustain used values but are not expecting the same trajectory of increases that we saw the first half of year.

After several years of a very competitive bidding environment for construction contracts and margins being squeezed, we are having more discussions with contractors who are looking to take advantage of the robust used equipment market to sell their machines, particularly with the year end looming and fatigue with weak margins continuing. We have continued our aggressive pursuit of underwritten business in the face of intense competition for late model equipment. 35% of our business was at risk for the first nine months of the year, and I expect this ratio may stay at this level for the balance of the year given supply constraints and the competitive nature of the marketplace.

Although it is still at a higher level than we've seen in recent years, our approach to underwriting business reflects our current strategy rather than change in our model and we view it as one our key strengths. We will carry on using our balance sheet to be aggressive on deals on which we need to be on and continue to believe the percentage of our business that is at risk in a short term until supply and demand balances return to the marketplace will be above the range we've experienced over the last few years.

Looking ahead to 2012, we remain somewhat cautious about the used equipment market. Construction spending remains low in the US and Europe and is acting as a bit of an offset to replacement equipment demand, which has been the key driver of used equipment market to date in 2011. Provided economic activity moves forward in a positive direction and the OEMs continue growing new sales to fill the top of the equipment supply funnel, our activities levels should benefit. We continue to introduce our unreserved auctions to new customers around the world and this sets up well for continued success in 2012.

One other point I would like to mention before handling the call back to Pete is our plans in China. We've been in China for more than seven years now with a sales office in Beijing and a number of salespeople located around the country. Our efforts to date have been focused on understanding the key cultural difference of this market in determining how we need to adjust our model to be successful in this largely untapped market.

We've also been educating equipment owners and the government about the benefits of the unreserved auction model. The used equipment sector in China has continued to expand at a rapid rate and we believe there's good opportunity for Ritchie Brothers to be successful. As a result, we are currently taking steps to prepare to conduct auctions in China and expect our first auction in Beijing within the next 18 months. This is a big step for us and we're excited about the opportunity. Now back to Pete.

Okay. Thanks, Rob. In conclusion, on our last call in August, we highlighted the uncertainty we were seeing in the market and the difficulty in predicting how that would impact seller behavior. It became apparent over the summer that there was indeed an impact on seller behavior and this had an affect on our GAAP for quarter, as did internal auction scheduling changes that we noted earlier. That being said, we are confident that this was a temporary pause and equipment owners are now making selling decisions again. Pricing remains firm, demand for late model equipment is robust, and OEM production is increasing.

These factors are conducive to selling used equipment, particularly as 2011 draws to a close and owners are increasingly able to start to obtain new and replacement equipment and to take advantage of the current market to book sales in 2011. It is a very competitive marketplace, but we achieved strong results in October, we're seeing strong deal flow for the remainder of the year. So given the uncertainty we have seen recently, today we took a somewhat unprecedented step of announcing our 2011 October GAAP of $280 million compared to October 2010 GAAP of $180 million, highlighting the consistently lumpy nature of our quarterly performance and in an effort to provide more transparency to help you understand why we remain so confidence going forward.

Once again, I will remind you that we believe month-over-month comparisons and isolation carry a certain risk in analyzing a business like ours, which is best suited to year-over-year comparisons, but we felt the increased transparency was warranted at this time. So let's take questions. Melissa, could you please open the call?

(Operator Instructions). Your first question comes from the line of Yuri Lynk from Canaccord Genuity. Your line is now open.

Good morning, guys.

Good morning.

Good morning.

Good morning.

Just want to drill down a little more on the timing issues you mentioned that impacted Q3 in terms of auctions. By my count, industrial auctions were unchanged versus last year, so are we talking about something on the ag side? And can you just repeat the impact? I believe some got pulled into Q2 and others were pushed ahead into this quarter.

Hi, Yuri. It's Rob McLeod. Yeah, when you look at the total number of auctions, it's -- you're pretty well consistent year-over-year, but really what it is is some of the auctions that are permanent sites, which are generally going to be larger auctions, those are the ones that got pushed into either quarter two or the majority of them that got pushed into quarter four in 2011 compared to 2010. And we do that because of the requirements of the customer and also frankly trying to fit all the auctions into the auction calendar, so some of them literally moved by four or five days or they turned from a three-day auction into a two-day auction so it ends up being a quarter three auction in 2011 versus -- sorry, quarter three auction in 2010 verses a quarter four auction in 2011.

And is it possible to quantify, you know, your GAAP is up nicely in October and how much of that is due to comparable GAAP improvements or some of the pull from the Q3.

Yeah, I don't -- it's Rob McLeod, Yuri. I don't have exact numbers on there, but if -- that increase was $100 million from October 2010 to October 2011 and maybe half, probably a little less than half was due to timing shift.

We also noticed marked decline in industrial auction bidders, buyers, and lots in the quarter. I know you mentioned the obvious macro impacts, but what do you feel changed in October on the macro front that would give clients the confidence to come back in such a way and are we sure that it's not really -- there's not some impact of the higher fees that some clients might be balking at?

It's Rob MacKay here, Yuri. From the macro side of it, the summer was quite a bit slower for us both in activity of number of appraisals that our guys did, the number of lots that we looked at. It was in the quiet period in August our activity in what we were looking at out there was down significantly. I guess fair question as to what gives us comfort now is September has come back with -- October's come back with quite a charge in growth, mainly due from activity that occurred in September. And our market activity with the number of appraisals, the salesman activity, the number of discussions we were having with customers that were talking about complete dispersals, the whole activity of our sales force picked up significant in September, which is what is driving signed business that comes into October, November, and parts of December. So there's a very marked contrast between the activities we saw with our sales force in the August, July/August period as we moved into the September/October period.

Okay. I'll get back in the queue. Thanks.

Thanks, Yuri.

Your next question comes from the name of Hamzah Mazari from Credit Suisse. Your line is now open.

Thank you. Good morning. I know you're not giving 2012 guidance, but maybe, if you could, just help investors think about your auction revenue rate going forward and the moving pieces in that your addressed business seems like it's going to continue at the level it is. That creates volatility, if you could comment there. In Q1, it was a benefit; Q2, it switched around. And then your new fee structure, how that impacts the auction revenue rate given that the revenue contribution seems like it was a bit shy of your initial expectation.

It's Rob McLeod. The auction revenue rate, I guess the easiest way to talk about it, is initially pre-new fee and our range that we have there is 10.25% to 10.35% and in quarter 3, we hit 10.5%, so we're right in the smack middle of that range. We haven't changed that range, even given the volume of our at-risk business. And the expectation for the incremental effect of the new fee, a rule of thumb that we're using it incremental effect of about 1.4% and that's -- obviously, we've only had three months worth of experience. And what drives that rate is buyer behavior, are they buying on the internet or not, because we've replaced the internet fee with this expanded admin fee, and also the mix of lots that we're selling. So if we're selling higher value lots, the cap on that fee will kick in. So the mix and the proportion of lots has an effect, as well, so that 1.4% is our current rule of thumb. And obviously as we gain more experience and go through auctions here in quarter four and then into 2012, we'll have more and more refined estimates.

That's helpful. And then maybe if you could just comment, I know you did in your prepared remarks, but how quickly are your customers adjusting their buying patterns to hard lines in the market? It seems like it's a lot quicker than historically you guys have seen. Is that fair? And then do you expect continued competition from brokers and dealers into the balance of 2012, because it seems like lead times -- production from OEMs is not going to get fully ramped up until probably second half of 2012, so is this a new normal for you guys?

It's Rob MacKay here. From a buyer point-of-view, the economic headlines that we're seeing I don't think today is having a significant impact on the buyers. There's enough demand out there for equipment, particularly the late model stuff, that the ebb and flow in an economic news is not really affecting the buyers side of it. There's enough areas in the world today where the economic climate is actually somewhat decent -- in Asia, the Middle East, Australia, Latin America where we're still seeing strong buyer participation. So the economic activity is not really having any significant impact on the buyer's side of it.

Our prices are reflecting that in that we're still getting good prices. As we mentioned, there was a leveling of prices in Q3 but the late model stuff was still very strong. As we look forward to 2012 and the competitive nature of the marketplace, as we experienced in Q2 and as we've experienced in other economic changes, when the economy picks up and pricing starts to increase, lots of competitors that were sort of somewhat dormant when the economy went down returned to market activity. And as prices continuing to up, people get more aggressive in chasing deals. And that occurs until you see a leveling again of pricing, and then the same phenomenon occurs with the smaller dealer broker so that he levels off his aggressiveness.

So it ebbs and flows as you come up and down and through economic cycles. We're getting more supply dumped into the top the funnel now, which is starting to create a better churn on the used side of it. There will still be the competitive nature in the marketplace out there. But as pricing leveled off, there's somewhat a self-fulfilling limitation that occurs in the marketplace as people back off their aggressiveness when they see pricing flatten out.

Great. I appreciate it. Thank you.

Your next question comes from the line of Stephen Volkmann from Jefferies. Your line is now open.

Hi. Just a quick detail. How should we think about the tax rate going forward?

Hey, it's Rob McLeod again. Probably no change from our prior comments if it's a tax rate somewhere between 30%, 32%.

Great. Thanks. And Peter, sorry to press you on this, but I'm just curious about how confident you are that the new fee structure isn't partially to blame for the weaker quarter. And I know you have some visibility going forward, but it's still is sort of striking here at least on our side and I guess I'm just trying to figure out what kind of warning signs you would be looking for if that was partially the issue.

Yeah, sure. Stephen, I don't mind and you're not pressing us at all. I think it's a great question, and it's one that should be on the minds of all the guys out there. If you come in at a quarter, you've introduced new fees and your sales drop-off, immediate reaction might be "Oh, it must be the fee." And, quite frankly, we don't believe that is the case. In fact, all of our senior guys, including myself, were on the front line in July. I attended three major auctions and just talked to customers to find out what was going on.

So from the fee perspective, we linked in a whole pile of brand new services in exchange for this fee that they can choose to pay. It's not like it's a bag fee like on the airlines so you either -- you check your bad, you've got to pay the fee. The customers are still allowed to bid whatever they choose to bid. And what we found is that increasing number of people eye-balling the auctions and our web traffic is -- here's an example why I remain extremely confident about what we're doing and why it's right thing. We saw our unique visitor traffic in our website increase in the quarter 23%. So last year we were sitting a Q2 around 2.4 million unique visitors. These are individual, unique addresses that we mark and visit the site and we saw that number spike up to almost 3 million in the third quarter. So we're seeing great penetration, great traffic.

The acceptability when we talk to customers at the website, nobody likes to pay more fee but they understand what they're doing and why they're doing it and a cap at $950 per item when they're buying a $100,000 item or $50,000 item, it's not quite frankly not affecting the incremental bid for the individuals. And they understand the value that we're providing them in terms of these extra services that we're using the fee to fund has been a net positive for them. It allows them to expand their ability to look at equipment in a much more robust manner. Instead of having five or six photos, they've got 50 photos and high resolution photos of very intricate parts and a bit more detailed description so they can decide whether they want to dive in and attend the auction or bid over-line and try to get some more comfort on inspection through other means.

So I'm extremely confident that what we're doing is the right service, it's the right ability for us to take the business model and expand it to allow more eyeballs and to allow deeper penetration of this big, big marketplace that we still play in. We talk about the $100 billion marketplace incessantly and if you're three or four or $5 billion, even, boy, that's still so much more that we need to dive into and we need to continue to make it easy and allow confidence in the bidders to understand what they're bidding on and they're screaming for that service that we provided that in spades and we've had some rave reviews from people that have been using the things.

So I'm extremely confident that what we're doing is the right service, it's the right ability for us to take the business model and expand it to allow more eyeballs and to allow deeper penetration of this big, big marketplace that we still play in. And we talk about the $100 billion marketplace incessantly, and if you're $3 billion, $4 billion, or $5 billion even, boy, there's still so much more that we need to dive into and we need to continue to make it easy and allow confidence in the bidders to understand what they're bidding on and they're screaming for that service.

So we've provided that in spades and we've had some rave reviews from people that have been using it saying "this is fabulous, this is exactly what we needed." They want to get access to it for free and if they decide that they're going to bid on something, they know exactly what they're going to want to bid, it becomes more competitive, and the pricing environment has firmed up or even gotten better just even looking at the number of unique visitors who we're penetrating on the web has been for us very, very solid, a solid end result that we think we're doing all the right things. Bob's chiming in; he wants to speak, so I'll let him jump in here.

Yeah, Steve, I'll just add to Pete's comments. So in terms of Q3, the issue was nothing to do with the buy side; it's to do with the supply side, and the supply side is not affected by the fee side. So when Pete says we're confident we're doing the right thing, we're also confident that the change to our fee structure had zero impact on GAAP or anything else in the third quarter. The surveys we've done, the work we've done on the field anecdotally and directly show that you our customers are not concerned about this. I agree with Pete, nobody likes paying fees, but this one has had no impact or seller or buyer behavior based on all the research we've done.

Okay, great. Appreciate it. That's helpful. Thanks.

Your next comes from the line of Bert Powell from BMO Capital Markets. Your line is now open.

Thanks. Rob McLeod, I just want to make sure on G&A, that I've got this right. Incrementally, you've spent $3.5 million and there's $10 million to go, so would that sort of indicate that $57 million would be the right way to think about G&A on a run rate basis?

Sorry, Bert. The $3.5 million --

Yeah, this is related to the fees, Rob. I just want to make sure I got your comments correct. I think you said $3.5 million was incremental spend for this year so far related to fees and expect $10 million for the year? Does that mean another $6 million or $7 million to go?

I think -- I just want to rephrase the question so we understand because we're all looking to try to decipher what you're asking. In our call comments, $3.5 million was the incremental G&A spend on strategic initiatives that we've incurred for the nine months ended.

No, in quarter three.

Oh, that's in quarter three.

That's in quarter three -- $6 million year-to-date.

Okay.

$10 million expected for the year.

Oh, okay. So that would indicate -- so then that would put the G&A on a run rate basis somewhere around $55 million.

I will -- I'll trust your math on that.

There was no reversal of accruals or anything for incentive comp in the quarter?

No. Nothing significant.

Okay. And then I just wanted to ask a question in terms of begin the competitive market, have you guys been more selective in terms of the deals that you're targeting, in other words walking away from stuff where you're racing for lower margin?

Bert, Rob here. I don't know that we're more selective. We're obviously -- we look at each risk deal as it stands on its own merits and what it brings to the party. So some risk deals are far more important to have because of the spin-off effect it will create for a particular auction or particular region, and we may be more aggressive on that vis-à-vis another deal that may not have any extra-curricular sort benefit to us. But every deal that we're out there, we've got our eyeballs on it, and the ones that -- we're aggressive on all of them; have no fear, but there are certain ones that have a greater benefit for us than others.

Okay. And just lastly, in terms of the fees, anything in for the insurance, warranty, shipping, financing in the quarter?

There's a little bit of revenue and some costs in there but it's really small dollars right at this moment.

Okay. Great. Thanks.

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

Thanks for taking my question. I just wanted to follow you on the commentary about the market in the third quarter and the confidence and just trying to balance some of the information out of the OEMs and rental companies that kind of saw a consistent improvement throughout the year. What do you think is specific to your portion of the market that caused confidence to be disruptive in the third quarter versus what they were saying?

Hey, Jamie, it's Pete. It's a great question because we look at results from other OEMs in the rental sector. And the rental guys have performed nicely relative to prior periods where they were not so nicely performing. We haven't experienced the dip that some of the OEMs and rental guys have, the severe dip, so they're kind of digging out of a bit of a trough. But nonetheless, we've seen the demand for equipment is strong and people can't find it, the replacement iron still hasn't back channeled and dealers are still on -- very much in some respect on allocation. We've seen some dealers ordering 100 units and getting 25, so that's the kind of nature of what some of these guys are facing out there.

So naturally when people need equipment, they just try to look anywhere they can and they're getting it from the rental sector, which is great for the rental guys. But from our perspective, what we did see markedly in the summertime, as Rob mentioned, was a bit of an "Oh, what's happening here?" when late July and early August and the market starts to fall off. I think part of it is it's becoming the new norm for people to appreciate and live with the volatility of the markets. They had a nice run in the first half of the year.

Our results for the first half of the year were great, $2 billion in GAAP for the first half, which was a nice mark for us to hit, and then in Q3 we saw a bit of a tempering of people worried about where the economy is headed in general and guys saying "I'm just going to take a little bit of a pause here. I've got stuff I need to sell, but I just want to wait to make sure the pricing environment is not going to fall off", the same way it did in 2008 and 2009 when the Lehman started the whole roll here.

So we've seen since then, of course, we've produced results that are very strong, good numbers, very strong demand for equipment, markets like in Australia, Canada, Middle East, Asia, still going very strong. The US seems to get mired in a bit of negative economic news and the more you read, the more you believe sometimes. So you sort of battle through that and you battle through that with the proof in your results and we show the guys the results for the sales that we're having and then they get more comfortable and they say "Okay, the world isn't coming to an end, you guys were able to deliver to me, and let's talk, I want to move some product," and now our guys are very busy, we're seeing increased volumes, our October numbers are well up over last year.

And we're cautious for sure in terms of the macro things that are happening in the world, but we're pretty confident that we're able to go out and execute and basically you've got to deliver value and value from our perspective for the consignors is achieving the highest dollar amount that you can in the market. And I think we're able to prove that and we provide those stats to our customers and give them that confidence and then away we go to sign the iron. So we're well ahead not only in results for October, but even the GAAP that we've signed to date, which we track and say what's a committed GAAP for future auctions in a Q4 period relative to the same period last year and we're expressing good confidence in Q4 that we're going to be able to deliver on our targets. I'm not sure -- Rob, do you want to add anything?

Do you have another question?

Yeah, just a follow-up on that. You typically have this six weeks of visibility in the fourth quarter every year at this point because December ends earlier. The last couple years visibility was a little bit more challenging. What gives you a little bit more confidence this year that that's going to come through in the way that you've seen? Is it something in the signed number of at-risk deals is higher and so you have more confidence in that? Or just curious why the visibility is higher that year versus others.

Fair question, Jamie. Rob here. I guess our confidence this year is based upon the activity that we're seeing out there. As I mentioned earlier in the call, the amount of deals and appraisals that our sales guys are on since sort of summer ended and we got into the September season, the deals fall into Q4 sales, we are looking at far more stuff, there's way more activity, we're on the phones constantly with guys on deals where there's a fair amount of business out there today of customers that are looking to have complete dispersals before the year's over. They've been challenged by the margins they've been earning on some their contracts and some of them have said enough.

Market pricing is surprisingly higher than they anticipated, and they're choosing now to look at the option of getting out of business. We're dealing with lots of other guys that are in this replacement stage of their fleets, and they've got equipment on order and they want to move their used stuff and the biggest hindrance to them to move it right now is deliveries from manufacturers. So we've got a number of significant deals out there where we're getting the flow of equipment from specific big contractors but it's ebbing and flowing depend upon the manufacturer's delivery date. So there's a lot more activity out there than we're seeing at this point of year than we did a year ago, and a lot more deals that we're looking at and significantly a bigger buzz from our sales force than we've seen.

One more thing, Jamie, I'll share with you that Bob dragged off the net this morning, which is interesting, is the Equipment Leasing Finance Associations data that they published this morning. They're talking about credit availability and credit placement. They're seeing volumes up 25% year-over-year for new business in the equipment leasing financing sector. So things are starting to kind of return to what I call more balanced state. OEM production is returning; the rental guys are getting more active. We are a going to start to see more deal flow. And our business, we only sell what's for sale. So when it's for sale, it's game on and when it's not for sale, it's stir in the bushes and see what you can come up. Our guys have been out there working very, very hard. I think in terms of the number of appraisals that we've conducted nine months to September 30 versus last year, we're up about 30% in the number of appraisals that we've been conducting throughout the year.

So there's lots of activity. Guys are wondering what stuff is worth and when they want to bring it to market is the next question and what we faced in that sort of pause that we saw in Q3 was people saying, "Oh, I just want to wait and see what happens here. I don't want to bring my stuff to market. I know it's going to get sold in three, four, five weeks, and I sure would hate to be selling into a down cycle, so I'm just going to wait and see how the market reacts," and that we've seen the market react in our pricing that we achieved for sure September at the sales and the guys are back in to say, "Okay, let's talk and get this rolling off our balance sheet by the end of the year." And they're like, as Rob says, there's lots of activity that we're seeing, so it gives us a firm level of confidence that we're on track here.

Thank you.

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

Good morning.

Good morning.

Direct cost as percentage of GAAP was up in the quarter, is this just strictly a function of the lower GAAP and lost leverage. Was there anything else in there?

Oh, yeah, I think you hit it right there. When you have slightly lower GAAP and there's almost, if you will, a minimum amount of direct expense that you need to run an auction, and so that drive up your DE rate a little bit more.

Okay. Can you talk of sales force productivity, I know that over the last year, you guys have taken a more measured approach to adding salesmen with more of a focus on getting more out of what you have. Can you maybe quantify how the salesman let's say over the last year have been picking up the pace?

Sorry, we missed the last part of your question there, Scott.

Just trying to get a gauge of productivity of the salesman that you've added over the last year. Now that you've kind of slowed that growth down a little bit, what kind of productivity gains have you seen in the last year?

Yeah, I guess the best -- I can't give you some exact numbers because I don't have any charts in front of me, but the best way to describe it is you're right, we've taken a more measured approach in terms of adding our sales guys. Our system has capacity to produce what we believe to be $4 billion and above, and so we've put our hands around the throat of our costs to make sure that we're not letting those sort of trickle up and we're making sure that out guys, that we get the right guys on the bus and the guys are on the bus are out there producing and actively performing, so giving them the help and the assistance they need on the way through.

I think you've obviously by math you'll see if our GAAP is up year-over-year and our sales count is at or a little bit below last year's, you're going to see the math. Productivity, that measure of productivity is simply GAAP divided by the number of sales guys, so it's a little bit of a simplistic form of review of how efficient our guys are out there in the field. But if you've got a typical territory manager out there who's knocking on doors and walking around trying to arrange for future consignments, a large part of that is the people's willingness to want to sell within the marketplace in.

And what we're seeing now is a strong willingness for people who want to move their product into the market, the pricing environment is strong and like Rob said, some of these guys are just tired of this low margin and very highly competitive business in the end user and contractor game. You get the replacement fleets that are going to start coming on stream with OEM production moving, so as Rob characterized it, stuff that gets put into the top of the funnel or the tributaries that flow into the river, we play at the mouth of the river, as one of our Board of Directors aptly put, "If you're playing at the mouth of the river, the stream flows faster or slower depending upon what comes in from the tributaries." So as that velocity of transactions starts to increase, our productivity for sure increases, as well, as our bottom lines.

All right. And just last question just to clarify. The at-risk business, talking about rates going forward, are we talking 30% or 35%? I got a little confused there?

It's Rob here. The percentage of at-risk business for the year is at 35%; for the quarter it was at 30%. So we envision that the full year should probably be in the range of the 35%. I suspect Q4 will be as competitive as the others and that the quantum of at-risk will average out to about the same.

That would be for the fourth quarter?

Yes.

That's all I have. Thanks.

Thanks.

Your next question comes from the line of Nate Brochmann from William Blair & Co. Your line is now open.

Good morning, everyone.

Good morning, Nate.

I wanted to expand a little bit at a higher level on those previous comments, Peter and Rob MacKay, in terms of we're seeing that increased activity level all of a sudden and a lot of that, as you mentioned, is the OEM equipment coming in at the top of the funnel. Could you talk a little bit about a little bit of a different angle in terms of just the activity levels you're seeing more in the middle and the bottom end of the funnel in terms of whether we're just seeing this kind of, you know, as the stronger companies replace and upgrade their fleets with OEM product and then have to sell the old, or is there really a lot more buying and selling going on in the middle and the bottom end of the funnel in terms of activity levels?

Good question. It's Rob here. I think there's a combination of both. For sure, as you indicated, the larger, stronger companies have held on to their equipment for a period of time longer than they typically do and they all still have some quantum of work going on out there, so they're in exchange mode or replacement mode. And as mentioned earlier, we're doing business with quite of few them as they take delivery of new. They're now moving out the old.

The same I think is occur to some degree in the smaller mid-sized companies, but that would be more affected by areas of economic activity. So, for instance, the oil patch in Alberta, the energy shale activity that we're seeing up through the Dakotas and Wyoming and some of it over on the East Coast is pushing guys to trade up from old to new. So there's a fair bit of activity in that mid range. The smaller guy, he's probably still sitting on some gear that he's working as opposed to trading up to new just because the quantum of work that he's got out there and probably the margins that he is earning are now allowing him to do so. But from the mid range up to the big guys is where we're starting to see the replacement and of course into the rental world.

Okay. And then could we talk just a little bit about the international environment, too, in terms of what percentage we're seeing, leaving the US and going overseas and some of the emerging markets are growing a little bit faster, whether you're seeing those intraregional markets performing better or is it equipment, you know, moving from the US, if you could just comment a little bit on that.

Well, during -- it's Rob here again. During this part of the year, we've seen significant participation in the North American auctions and some of our other ones by the southeast Asian market and particularly Australia. Obviously, the commodity activity that's going on in Australia and the strength of their currency is driving a lot of people to other areas around the world to buy equipment -- mining equipment, auxiliary equipment that is used in and around the mining, motor scrapers, articulated rock trucks, they're fairly big at sourcing that stuff in North America, but also in the Middle East. We sold some large CAT rock trucks in Dubai that found their way back to Australia. We're seeing a lot of activity coming out of the Asian market into North America as buyers, which we haven't seen in years, somewhat selective in what they want because it's heading its way into the Chinese market or other parts of Asia, and predominantly looking for Japanese manufactured excavators and wheel loaders. So good activity there.

There's still pockets of strength going on in Latin America from our buying population down there. And the Middle East surprisingly is quite strong in their purchasing of assets out of the US and some of our Canadian auctions. So up into Europe, as they're emerging through their financial situation there, obviously, particularly in Spain and places like that, we're seeing a large decline in the domestic buyer because there's nothing going on there. And so there's a significant increase in the purchasing by foreigners in the Spanish and European markets, and a fair amount of that is finding its way back down into northern Africa and the Middle East. As life calms down in the Middle East, in Iraq and Afghanistan, you're going to start to see a lot of rebuilding. Libya probably a bit early right now, but there will be a significant demand for equipment in that part of the world as life returns to somewhat more calm and they start to rebuild their infrastructure.

Thanks for that, very helpful.

Your next question comes from the line of Neil Forster from Scotia Capital. Your line is open.

Good morning, guys.

Good morning.

Just wondering what the normal seasonal pattern is for the Q4 months, does the pace of sales usually increase or decrease throughout the quarter? Does weather have an impact? Any slow-down ahead of the holiday season? If you could just share that, that would be great.

Sure, Neil. Typically, we have a real run of sales in December; that's usually the biggest month of the quarter by far.

First two weeks of December.

First two weeks of December, in fact. I think it's through December 20 is our last auction for this year, so there will be a slew of activity that will be coming at us in Q4. Q4 and Q2 interestingly have been our larger quarters by a long stretch, and Q1 and Q3 have always traditionally been our smaller quarters. In Q3 alone, you've got both July and August in there and especially in the European theater, a lot of people take all of August off and many of the guys taking time off in other parts of the world. There's always a bit of a quieting period in Q1, of course, with January in there, absent Australians and some of the other markets that people tend to be still in winter mode and not come out until early February. It's very seasonal. It goes up and down and it doesn't stress us much. It's just the way it is and we ebb and flow with the marketplace and we sell, you know, in our various sites in accordance with that buying and selling pattern that we've traditionally done for years.

Just to clarify. In Q4 specifically, Pete said December is strong, so October tends to be a fairly big month, November tends to be a lull, in part probably due to American Thanksgiving as much as anything else. And then it picks up again in December. So the three months don't tent to be static. It's like up, down, up probably on average. But as you've seen from following us as long as you have, it's lumpy quarter by quarter and month by month, so it's be dangerous to predict it that closely.

The reason I asked is because if I take that $280 million that you sold in October and multiply that by three, it implies kind of GAAP at the low end of your guidance for 2012.

Oh, relax. Neil, relax with that. Like Pete would say. (inaudible)

No, I appreciate that and thanks for pointing it out. I would hate someone to walk away from the call and say, "Oh, it looks like your fourth quarter is going to be at the low end of what the expectation is." What we hopefully have come across with the call today is listen, we understand Q3 was lower than expectations. We appreciate the fact that you guys have to live in quarters and you've got to go in and explain what the heck is going on with Ritchie Brothers, and we appreciate you taking the time today to hopefully dive in and understand that. We remain very confident.

We're on track for a full year and the guidance that we've provided for you guys for the first year is pretty solid for us and we're trying to share with you what we see in the market, what we see in Q4, here's what we've actually signed in October. We're looking at a run rate with the rest of our stuff for the balance of the year being very robust and we're going to carry on and execute. Melissa, we probably have time for one more question here. I'm mindful of the time. It's about 9 AM and typically we try to keep the call to about an hour. So we'll take one more question and if you guys have any follow-up question, we're here to take calls and happy to chat with you. But if there's one more question in the queue, we'll take now.

Your last question comes from the line of Scott Schneeberger from Oppenheimer. Your line is now open.

Thanks for squeezing me in, guys. I have two questions. I'll ask them both up front so you can take it from there. The first one is just any elaboration you can provide on pricing on older equipment, five years old or more or wherever you want to draw the cut-off, versus late model. And the second question is, and it's similar to all these past seasonality questions, what was -- of what fell between three 3Q actually to 4Q this year? I just want to get a feel for kind of the differential between 2Q and 3Q this year over last year. Thanks again for taking the questions.

Hey, Scott. It's Rob here. I'll speak to your pricing on older equipment. As we experienced in Q4 last year, we started to see the uptick in our pricing. Through Q1 and Q2, we saw strong increases across all different product lines and aging of equipment. And as I mentioned earlier, that levels off somewhat in Q3, particularly the mid to older equipment is what we saw leveling off with very good demand and good pricing in Q3 still for the late model stuff. Our expectations as we go through the balance of the year is that that will remain with the middle of the road older stuff sort of flat in its pricing from Q3 and what it achieved in Q1 and Q2 and the late model stuff will ebb and flow and it will be very strong.

The second part of the question, Rob?

Scott, your question is about the shifting sales from quarter to quarter of last year compared to this year, and really the story is quarter three to quarter four shifting. There wasn't that much of a shift in 2011 of auctions that previously occurred in quarter three that then occurred in quarter two. It's really a quarter three to quarter four story.

Great.

Does that give you the gist?

Yeah, that hits the heart of it. Thanks so much.

Thanks, Scott.

Okay, guy, thank you very much. We've appreciate your attendance on the call. We're here to take more questions if you need to. Otherwise, we'll carry on and we'll look forward to talking to you -- I think our next scheduled release for you guys will be somewhere in late December when we'll share with you our full-year GAAP and look forward to sharing that information with you then. Okay. Thanks everybody.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.