RB Global Inc (RBA) 2012 Q1 法說會逐字稿

At this time I would like to welcome everyone to the Ritchie Brothers Auctioneers 2012 Q1 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)

Mr. Peter Blake, CEO, you may begin your conference.

Good morning, everybody. Thanks for joining us today on our 2012 Q1 investor conference call. I'm joined by Rob Mackay, our President, Bob Armstrong, our Chief Strategic Development Officer, Steve Simpson, our Chief Sales Officer, Rob McLeod our Chief Financial Officer, and Jeremy Black, our Vice President of Business Development and Corporate Secretary.

Before we start, I 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 facts, including projections of future earnings, revenue, gross auction proceeds, and other items such as our potential addressable market, are not 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 discussion and analysis of financial conditions and results of operations for the period ended March 31, 2012, and subsequent quarters, which is available on the SEC, SEDAR, and Company websites. Actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained in this call which speaks only as of today's date.

I'd also like to note that during the call today, we will be talking about gross auction proceeds, which represent the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. It's not a measure of financial performance, liquidity, or revenue and is not presented in our statement of operations. Finally, we will be discussing adjusted net earnings which is a non-GAAP measure. We define adjusted net earnings as financial statement net earnings excluding the after-tax effects of sales of excess properties and significant foreign exchange gains and losses resulting from nonrecurring financing activities. A reconciliation is available in our MD&A for the quarter.

Okay, now down to business. I'm very pleased to report that we've achieved adjusted net earnings of $0.17 per share for the first quarter, which represents growth of 32% compared to Q1 last year and was in line with our plans. First quarter auction revenues were more than $101 million from gross auction proceeds, or GAP, of over $865 million. GAP increased to 2% year over year, revenues increased 15%, in part because of our expanded administrative fee that came into effect on July 1, 2011, and also because we experienced a higher commission rate in Q1 this year. We saw record GAP numbers from various auction sites around the world in the first quarter, including our largest ever sale in our history in Orlando in February. We also just celebrated our largest ever Canadian auction at our permanent auction site in Edmonton. That $110 million auction was incredible, though some of that equipment might have been consigned to our earlier sale in Q1 if not for unseasonably warm weather in northern Alberta earlier in the year.

Many contractors kept working and delayed the sale of their gear until April because of the weather. Now, I don't want to use weather as an excuse, and we are certainly happy with our Q1 results, but it does demonstrate the challenges associated with comparing GAP on an auction over auction, month over month, or even quarter over quarter basis. Our April GAP, which we will be posting on our website today, came in at $370 million, which is up about 4% compared to April 2011s and in line with our expectations. We are presently looking at a full pipeline of consignments and lots of activity on the horizon. Our decision in 2011 to show 10-year historical auction data on our website was largely driven by our desire to provide more transparency. But another benefit is that you can see that we do not experience consistent monthly or quarterly growth on a year over year basis, even in our biggest growth years. This is the nature of our business, which is not only seasonal but also event driven.

We believe our business is best looked at on an annual or rolling 12-month basis, which helps take into account the inherent lumpiness and avoids the pitfalls associated with extrapolating our annual performance based on a single auction or even based on a single month. Perhaps the best way to demonstrate the lumpiness of our business is to use some live examples. Our business ebbs and flows depending upon market dynamics, competitive forces, seasonality, equipment supply, among other factors, driven in part by the particular circumstances of our individual customers. Here's two examples from our recent quarter that come to mind. Our Brisbane, Australia site recorded the largest single-day auction in our history, selling more than $54 million worth of equipment in one day. The comparative 2011 Q1 Brisbane auction was roughly $13 million in GAP. On the other extreme, at our Dubai auction in the first quarter of 2012, we sold about $18 million worth of equipment, which was a successful auction. Yet modest compared to our Dubai sale last year in the first quarter, which generated a record-breaking $57 million in GAP fueled by a large consignment out of India.

It's fair to say that individual auction results vary greatly from one sale to the next and year over year. Our business has always been lumpy. We do not anticipate that will change materially in the near future. Now I'll pass it to Steve for a market update.

Thanks Pete and good morning, everyone. The used equipment market was generally robust in Q1. Strong used equipment prices carried over from the fourth quarter of 2011 into Q1 and prices were generally up in most categories of equipment during the first half of Q1. Pricing increases leveled off somewhat in the latter part of the quarter, but we continue to experience generally strong pricing across all regions for well specked equipment with low hours, in good condition and from good homes. There was particularly strong demand at our auctions for this type of equipment while supply remained tight. It appears purchasers are focusing on these qualities rather than just the year of manufacture. Almost anything in good condition with less than 5,000 hours on the meter, regardless of age, is in demand right now. This is partly a reflection of the drop in new equipment production level starting in 2008.

Although competition remains strong for this type of equipment, our sales teams are continuing to work with our customers and winning the business. We are seeing a number of positive data points in the market that give us reason to be optimistic. Construction spending may be turning the corner after significant declines over the last few years. The equipment market continues to be driven by replacement demand as contractors replace equipment that they have aged more than normal over the last few years. And in 2012, we are experiencing stronger domestic demand in the US. This is related to improving optimism amongst US contractors, which is a key driver of equipment transaction and is important for there to be sustained growth in the used equipment market in the US.

Right now OEMs have recorded backlogs and lead times remain long for many categories of new equipment, as OEMs continue to ramp up production to meet demand. However, as this equipment flows into the market and gets delivered to the end-users, it will stimulate used equipment transactions that will ultimately benefit us. The log-jam shows signs of breaking, but there's still a ways to go. Some of our other markets are also experiencing strength, particularly Canada and Australia. Europe remains challenging, particularly in the North, but we are making some important moves in the region. Our very successful first sale at our new auction site in the UK is an exciting development that bodes well for our growth in that market. Southern Europe is still dealing with the fall-out from their financial crisis, but this is creating equipment transactions. Our unique global market place, that combines domestic supply with global demand, is extremely valuable for our customers in these countries such as Spain, Italy, and Greece, among others that have recently seen a domestic demand shrink. Now here is Rob Mackay to provide an operational update.

Thanks, Steve. Good morning, everyone. I would like to talk briefly about some innovative new ways we are using our network of auction sites to deliver enhanced services to our customers. The first is our recent Mexico national auction. This sale is truly successful event, not only from a record breaking GAP perspective, it was our largest sale ever in Mexico, but also from an operational point of view. We had equipment from multiple consignors located in four different RBA controlled sites around the country, and we hosted bidders at our permanent auction site in Mexico City and in Hermosillo in northern Mexico, as well as online. We sold the equipment in sequence in multiple locations and the use of our Virtual Ramp technology delivered an excellent customer experience. Everyone involved, employees and customers, clearly appreciated the innovative approach. And it was a very effective way to create scale in our Mexico auctions. With this template of successful, innovated customer solution, we are looking across our global network of auction sites for opportunities to host other auctions of this type, scale and experience.

Expect to see more of these events in Mexico and other locations in the future. As we look to leverage our auction site network and other infrastructure to deliver value to our customers. Another example of using our yards creatively is the recent sale we held for the United Rentals. They had equipment located in a number of their yards around the eastern US and we sold all of it in sequence using our Virtual Ramp technology to buyers participating online and to those who preferred to attend in person at our permanent auction site in North East Maryland. This is the second time we have done a sale like this for United Rentals, and they have been very pleased with the results. It's another example of using our infrastructure to serve our customers better. One final note, our sales and operations realignment took effective in January 1, and has been progressing well. Recall that we created new senior operational roles at our auction sites. This has allowed us to free up our sales leaders to focus exclusively on sales and our sales teams. And while it has been a big change for us, I'm proud of our team for implementing the realignment successfully and seamlessly to our customers. Now over to Bob Armstrong for a strategy update.

Thanks, Rob. Good morning everyone. We are making good progress on our initiative to introduce complimentary solutions to help those equipment owners whose needs and preferences may not be satisfied by our unreserved auctions. We've talked to a lot of companies over the last six months both in the equipment world and in other industries as we explore alternative models for exchanging assets. I hope to be able to provide you with a more fulsome update in the near future. One thing I will say is that in spite of these investigations by a small group of our people, we remain dedicated to our core unreserved auction business and will not let anything distract us from pursuing the tremendous growth potential we see in front of us.

Our core business is a very large addressable market. Although we are looking at solutions that will help us go after new segments in the equipment industry and expand our addressable market, we have many, many years of growth ahead of us for our core business as we pursue the GAP of $10 billion and then $20 billion and beyond. We are not deviating from our core unreserved auction model. However, not all equipment owners want to buy and sell their equipment at auction. We intend to create compelling business solutions for those equipment owners as well. To be very clear, we are not planning to introduce reserved auctions as part of any new solution that we develop for new segments of the market. Rob McLeod, do you want to give us a financial overview of the quarter.

Thanks, Bob. Good morning, everyone. I hope you have all seen our press release this morning announcing our first quarter results. Our MD&A is being filed as we speak. So, I won't go into too many details now. I would, however, like to talk briefly about some of the highlights of quarter one. Our auction revenue rate increased to 11.71% in the first quarter of 2012, from 10.39% in quarter one of 2011. Mainly as a result of a revised administrative fee introduced on July 1, 2011. The incremental revenue from the new fee structure during the first quarter of 2012 was approximately $10.8 million, which on GAP of $865 million, equates to 125 basis point net impact. Excluding this incremental fee revenue, our auction revenue rate was 10.46%, slightly ahead of our rate in quarter one last year.

Our at-risk business represented approximately 29% of our gross auction proceeds in the first quarter of 2012 compared to 32% for the first quarter of 2011 and 36% for all of 2011. Competition remains intense for equipment consignments for our auctions, which is driving the above trends at-risk volumes. We believe our at-risk business will probably remain at this elevated level for the balance of 2012. Our selling general and admin expenses in quarter one increased by $3.1 million compared to quarter one last year. This increase was primarily due to increased headcount and related costs associated with our strategic initiatives. One of the key strategic initiatives that added to our full-time employee headcount was a detail equipment information program, which necessitated hiring a number of new people at our yards. Our sales and operations realignment also contributed to some increased non-sales headcount.

Our rolling 12-month EBITDA margin came in at 38% compared to our rolling 12-month EBITDA margin of 37% at March 31, 2011, which is slightly below our 40% target for 2012. We did a good job in the first quarter of sticking to our back to basics program of growing first before increasing spending, and our margin performance and earnings growth demonstrate this execution. Before I pass the call to Jeremy to update our guidance, I'd like to update you on our spending for strategic initiatives. In the February, call we anticipated total G&A related to strategic initiatives in 2012 of $18 million and we remain on track. Now over to Jeremy.

Thanks, Rob, and good morning. We are reiterating gross auction proceeds guidance for 2012. We expect GAP will be in the range of $3.7 billion to $4.1 billion for the year. There's been a good start so far in 2012 and we are pleased with the on plan results. We remain comfortable with our guidance, which reflects the best available information we have right now, including recent sales results, discussions with our sales leaders and customers, as well as the external factors we see developing in the market. We continue to expect or auction revenue rate to be in the range of 11% to 11.75% for the year. We were within this range in the first quarter. This range includes the impact of incremental administrative fee revenues associated with our recent fee changes. Which are expected to contribute around $50 million to auction revenues for 2012. 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.

Our long-term targets remain annual adjusted EPS growth of at least 15%, while working towards and then maintaining an average return on invested capital of at least 15% over the long-term, and a minimum EBITDA margin of 40%. We continue to believe adjusted earnings-before-tax for 2012 will be at least 15% higher than last year's earnings-before-tax. Actual results could be above or below this range and in the near term there remain some uncertainty in the markets. So it is difficult to forecast with much more precision. Now back to Pete.

Thanks, Jeremy. Before I leave you with some concluding remarks and open the call to questions, I'd like to comment briefly on our sales headcounts. Our sales force contracted slightly during the quarter from 294 at the start down to 290 at the end of the quarter. While some individuals left voluntarily to pursue other opportunities, others departures were as a result of our ongoing process to ensure we have the right people in the right place to perform. Sales force productivity is one of our primary focus areas in 2012, and we are taking steps to improve our ability to attract, develop, and retain key people. As a result, we've already added seven new sales reps to the Ritchie Brothers team in April. Please also note that we have changed the definition of our sales team to reflect recent changes to our organizational structure. We eliminated a divisional manager position effective January 1, 2012. And this position was previously included in our sales force numbers. Now it's made up solely of territory managers and regional sales managers. We've adjusted our December numbers mentioned a minute ago to reflect this change.

Another very important point to mention is that our trainee territory managers increased to 19 people during the quarter, from 16 at the start of the quarter, and 11 at the end of Q1 of last year. This is an important metric because our strategy has evolved to place greater emphasis on hiring trainees, since the results of this program have been very positive. Although they are not reflected on an our overall sales force numbers, these people will be meaningful contributors to our success in the future. We believe the fundamentals in the global equipment market have improved in recent months and we are pleased with our results to date. Revenue growth of nearly 15% and earnings-before-tax growth of more than 44% are both demonstration of our success in the quarter. We remain optimistic and believe we are well positioned to capitalize on the strengthening of the used equipment market and to meet the demands of our customers, the builders of the world, and help them easily and confidently exchange equipment. We are confident in our ability to deliver on our plans for 2012. Can you please open the call to questions?

Certainly.

(Operator Instructions)

Your first question comes from Ben Cherniavsky, Raymond James.

Good morning, guys. Unless I missed it, Rob, you didn't mention your CapEx plans for the year?

Sorry, Ben. Yes, the CapEx plans are unchanged from our previous guidance of $55 million to $60 million. If you look at our financials, you'll notice that a lot of that CapEx was front-end loaded, which was not a surprise. That is the plan. It is about $24 million here in the first quarter.

So as you scale back the CapEx and forecast your EBITDA to be up, what are your intentions for the cash you want to generate?

Consistent with our previous conversations. The intention is to grow -- have steady growth in our dividends and that dividend growth would probably at least match our growth in earnings.

Okay. And -- okay. The other thing, just on -- you mentioned the business you did with United. Just more broadly speaking, I'm curious about how the rental business is evolving for you? Because they -- United Rentals has recorded a great first-quarter. We are hearing a lot about the rental channel being the go to place for the market right now.

How is that -- how do you think that affects your business in terms of --? Because, I don't think historically you've done a ton of business with the rental companies, right? It's mostly end-users that you service? So do you see any impact that that's having on auction flow?

Hey, Ben, it's Pete here. Steve is remote down in Phoenix right now, and I wouldn't mind him chiming into this. But, I'll layer off a comment and then hand it over to Steve. Our relationship with United and lots of the rental companies around -- those are the big guys. There's lots and lots and lots of little guys around too, that are -- little being multi-million dollar companies that are operating in more regional districts. But we've had a decent and growing relationship with United.

I think with their pending, and now I think official merger with RSC coming up, that creates some scale for us to be able to serve them probably more effectively, so we are working on expanding relationships with them for sure. They've got a great business, and it's being very, very well run. They are serving a market need right now. Of course, anytime equipment goes into the market and starts being used, that's good for us, whether it is through the rental channel or whether it's not. But ultimately, you have to be sold out the back end.

And somebody has to help in that process to make sure they're maximizing the value. We think we can do that most effectively for United and for Ashtead and for a bunch of the guys that are throughout the US, Canada, and the European channel. Steve, you want to chime in there?

Sure, Ben, we've been doing a lot of business with the rental companies, generally. A lot of those guys, during the downturn, they weren't acquiring a lot of new assets. Of course, they have been filling up their yards with a lot of new product and pushing out some of the older stuff that's getting some hours and some miles on it. We've had this first quarter, our national account guys that look after the rental guys, we've seen some nice business from those folks as we did last year. It's been good business for us, actually.

I'm just a bit puzzled that -- I appreciate, as well as anyone, that your business is lumpy month-to-month, quarter-to-quarter, et cetera. But I'm just a bit puzzled that you wouldn't be seeing more robust growth in your GAP if prices are high, your business with the rental companies is strong. We've heard a lot about replacement demand. Frankly, we've heard about it for about two years now. And, I just am puzzled why that wouldn't be spilling into your results by now?

If someone's replacing old, they're buying new to replace old, they've got to get off their old and they've got to send it somewhere in the market. Can you maybe just speak to that a little more broadly, like what is it -- you know, April is up single digits? Why would you say your GAP is not growing more robustly right now?

Yes, Ben, it's Pete here. You know, a large reason why the GAP is -- I think it's growing at a nice pace in the single digits, is on low-end of where we want to go for sure, but at the same time it's very competitive out there. The availability of equipment is not as most people would think. The OEMs are -- that contraction of production -- cutting production probably in half for most of these guys back in mid '08 through the rest of '08 and into '09, and perhaps the full year of '09.

There is an echo effect that's still rippling through the market. Even people that are ordering product today, a lot of the dealers are still on allocations, so the OEMs are working hard to get production at or above previous levels and start to fill the backlog. But there's still this echo effect of the reduced production in the marketplace. As Steve mentioned in his comments, that low hour machinery that's out there, even if it's an older year model, people are buying on hours because it's just hard to get their hands on new equipment.

As the, sort of the optimism in the US, particularly, we've noted in the quarter has improved. And the construction seems to be rolling along and getting more movement towards it on the forward end, those are things that will continue to be positive affects for Ritchie Brothers on the way through to the next many, many months.

When would you expect this -- the metaphorical dam to break? If there is a bunch of this stuff built up, OEMs have been putting capacity back in the market for sometime now. At what point would you be scratching your head and saying if you didn't see a wall of equipment coming your way say there's something else going on?

Yes, I don't know if you can put a pin on the calendar and say ah-ha it's May 12 or pick a time frame. The reality is it's just an evolution of flow of equipment that comes in and out of the marketplace. I think what we're seeing from a trending perspective is certainly positive indicators for us that things are moving in the right direction.

OEM production is up, utilization for rental companies is up, the construction spending is now starting to -- it had bottomed out and it's come up. I think it came [out] relatively flat month over month in the most recent -- US construction spending, in the recent results. Those are all positive things that were just seeing in the marketplace moving forward. I wouldn't characterize it as a big pent-up flow like you're waiting for the dam to burst and all this stuff floods into the market.

I think people are a lot smarter than that and they are utilizing equipment in an effective way. People remain reluctant to let go of equipment if they can't replace it. Right now that replacement cycle is still on. I think you'll -- if you hear some comments from some of the other OEMs and rental companies and what not, you'll find that replacement cycle is still on right now. And that the people are not going to sell older equipment until they can replace it with new equipment. And if they can't get their hands on it, they're not going to let it go.

That will ease overtime as production levels increase back to more normal. If you look at any of the big OEMs, you'll note their recent results are in fact above the peaks of '07 and '08 in terms of their revenues. So, they're pushing stuff into the dealer channel and that goes through the rest of the channel. All that stuff continues to be positive for Ritchie Brothers. We are optimistic that we're well-placed to be able to serve that as it grows.

Okay. Fair enough. Thank you very much.

Nate Brochmann, William Blair.

Good morning, everyone. Wanted to talk a little bit -- I know it's hard to dissect this but obviously you guys have had a lot of different initiatives over the last couple years and have added some new service categories and new ways to sell. Do you think that's showing up in definitely new business wins, or are the recent results just more of a function of market unfreezing as you just alluded to Pete?

You want to take that, Bob? We're just looking at -- Who wants to answer that one?

What are you referring to Nate? Are you referring to our launching the financing and warranty?

A little bit of that, but also just in some of the new virtual type auctions in terms of the new enhanced pictures. You know, just some of those new value-added type things.

Sure, I will take a crack at that. I don't think we can point to any significant turning of the corner or tipping point or anything like that, but we are definitely seeing steadily increasing numbers of participants both on the buy side and the sell side, we're seeing steadily increasing numbers of new people coming to us. We're seeing more and more people take advantage of our online tools to participate in the auctions.

Our view would be that the various different things we've done to make it easier to participate have been very positive. We're just seeing steady, steady growth of numbers, dollars, lots, people, all the different metrics we think are important, are watching our sales force productivity improve. We are seeing pretty good traction on the various different metrics that we think are important.

And because, as you noted, we've had so many different initiatives underway. It's not really possible to say well that's the one that caused this. Overall, we are very pleased and we think we are getting good feedback from our customers as well to say that we're moving in the right direction. It's an interesting question, because we've had so many things going on, it's tough to, exactly as you said, tough to dissect.

Okay.

I might add to that. I think there is. Some of the initiatives we did, for example, with United Rentals and similar activity we're doing in Europe, between our Spain and Portugal sites, is adding business to our channels that may not have otherwise come. Not providing the ability for, say in the example of United, to structure a sale where all the equipment remained at their stores. We very well would have got some of that business but may not have got it all. Some of these initiatives that we're taking is to reach out to try to satisfy customer needs that otherwise we weren't doing in the past. It would be a bit of both.

Okay. And then talking about that productivity a little bit in terms of looking at some incremental margins and a little bit of enhancement there, and I think that we're all happy to kind of hear the focus on that. What really has driven the opportunity at this point to really be able to drive that and focus that?

Hey, it's Rob McLeod. That focus on sales force productivity, part of that I would say is our -- that realignment of our sales and operations teams effective January 1 this year. It's still early days for sure. But freeing up our sales management team to focus strictly on their team of salespeople as well as our customers is a driver of that productivity. And I say it's early days yet, but it is a, as Rob has commented, well-implemented and so far seamlessly. We anticipate that will be, for sure, a driver of productivity of the sales team.

The other thing, Nate, that's going to be, I think, supportive of that productivity level is a more acute focus by us so we can do a better job and will do a better job on filling vacant sales positions and hiring. Our guys out there, and you've been to the auctions before, you've seen them. They are very customer-focused guys. They love going on the deals and creating relationships are important to them.

Our sales leaders have to have that same key acute focus on open sales positions and treat them as if it's a $5 million or a $10 million deal, because that's really what a new salesman can go out there and produce. If he can fill a void in a marketplace that's not -- part of a territory that's not being properly served. Those guys have to maintain that focus, so we are going to ramp that up in a big way. All of our senior leaders are on that right now. That will, I think, be added fuel to the productivity levels that we should be able to carry on and improve.

Great. Thank you very much.

Cherilyn Radbourne, TD.

Thanks very much. Good morning. I wondered if you could talk about the performance of your at-risk business in the quarter? It feels like in recent periods any time at-risk was elevated, that was somewhat negative for the auction revenue rate. Just looking at your results this quarter, it feels like maybe the at-risk did a bit better than it has in recent periods?

Hey, Cherilyn, it's Rob McLeod. The performance of our at-risk business is really what is behind the fluctuation in the -- sorry on the auction revenue rate. It's not necessarily the volume of it. It's really the competitive nature of the environment that we're in right now. And in fact, perhaps if it was quarter four last year where it was just more intensely competitive, perhaps because it's a year-end both for our customers and our competitors out there, versus quarter one.

And so it is the performance of that at-risk business. I wouldn't say that it is particularly the volume of it. Also, we don't, as you know and as we've said before, we don't target a particular level of at-risk business. So if we're going into an auction and we have a number of at-risk contracts already in place, and it looks like that'll probably add up to about 20% of the volume of that auction, we don't put the brakes on further deals.

Conversely, as you get into an auction and you're two weeks out from the auction date, probably we're not going to be pursuing very many at-risk contracts just because of the limited time for promotion and advertising on that package of equipment. So we don't target at-risk volume sale-by-sale or quarter-to-quarter per se.

Okay. But on average it has been 20% to 25% of your business?

Historically.

Yes. But I would be right to think that the at-risk business did better sequentially in Q1 versus Q4?

Yes, it probably was a little bit better.

Okay. I also wondered if you could just elaborate a bit on any mix impacts in the quarter? It does look like gross auction proceeds per auction were relatively flat year-over-year, but GAP on a per consignment or per lot basis was down somewhat. Anything of note there?

Yes, on the mix, that's a tough one. Just because every day, every quarter, every year it's a different mix. Every auction is a different mix. Your analysis is, I would say, as good as any analysis in terms of the results of quarter one. The mix being -- we probably saw a few more low value lots, if you will, showing up in quarter one, for example, in Orlando we saw that. So there's a few more smaller lots within quarter one.

Although, on the other hand, you had Peter's example of the auction in Brisbane. It was a one-day auction of $54 million, so you had a beautiful mix, if you will, in Australia. Overall, probably the mix was similar to last year with a few more smaller lots.

Okay. And last one for me. I guess there've been periods over the last couple years where you guys have felt some improvement in customer optimism, and then it waxed and waned at times. What do you feel is the sustainability of the improvement of -- in sentiment this time?

Steve, maybe you guys can jump in on that.

Sure. It feels bumpy for sure. You go through periods where the guys like how last year finished off and then we came out of the first quarter and there was lots and lots of optimism out there and guys feeling good about some of the workflow they have in front of them. And then it almost feels like we sort of plateaued or flattened out a bit here coming through the end of the first quarter.

Some of the things that is a positive influences that the guys felt, where some of that stuff sort of evaporate and disappeared for different reasons, so it's hard to nail right now. You just feel like you're getting some traction and then it just backs up a little bit on you. It's very, very difficult to nail that right now. I don't know if it's going to change for much of the rest of the year. Of course, we've got an election coming up in the US, which is always cause of some pause for some of the people. It's challenging for sure.

Okay. Well, that's good color. Thank you. That's all for me.

Yuri Lynk, Canaccord Genuity.

Good morning, guys. Looking for a little more color on the strategic efforts underway to accommodate the needs of customers that aren't being served by unreserved auctions. Is this mostly going to be an Internet effort, or will there be some physical aspects to it as well? And in case I missed it, what type of investment are we looking at? Is it going to be more -- and are you looking more an organic approach or via acquisition?

Yuri it's Bob. Fair question. Fair because we really haven't provided much information on that and I'm going to stick to that until we have something substantive to say, I think we will stay pretty quiet on it. The goal here is to increase the addressable market for Ritchie Brothers, we are looking at the market we play in today. We see significant growth for our or core unreserved auction model, but we also see a large market out there that probably we won't be able to reach.

We have to be realistic. If there is a $100 billion or $150 billion in transactions, we don't think that the core market -- our core service is going to reach all of it. So, we're exploring the ways to create value for the people who aren't going to use auctions. Beyond that, I don't think we're committed to too much. It would be a mistake to lay out a game plan for you. But as soon as we have something to announce, for sure we'll be doing so.

All right. That's fair. Second one for me. Wondering if you've seen any dramatic change in the competitive environment. I'm specifically thinking about other auction dealers like Cat Auction Services. We've heard is out trying to recruit new Cat dealers to join as partners. Have you seen any change there?

Yuri, it's Pete. You know, I think the Cat guys took a run at some dealers. We watch everyone, not just Cat, but there's other players in the industry. Cat's particularly interesting because they've got the name behind it. It really is a group of dealers that work their ways.

You can go to their page and see what their activity level is. That's probably best way to judge what's going on with them relative to what's going on with us. I would invite you to do that. That may give you a sense of what's happening competitively for them. Steve or Rob, you want to throw in anything?

Yes sure, I will, Pete. The competition and the levels of it out there I don't think have changed really at all. There is some of the big guys that are getting at some of the business and then lots of little smaller market individual players. The level of that compared to last year I would say generally is unchanged. It's out there. We're facing it every day, and we're dealing with it as best we can. I'm happy to say we're getting our fair share of it. I can't say there's been any change.

Okay. Fair enough. I will get back in the queue. Thanks, guys.

Nick Coppola, Thompson Research.

Hey, guys. So a lot of my questions have already been answered, but if I could just follow up on the last question on the underwritten business. Looking at the sequential decline from 38.7% to 29% underwritten, was there -- I appreciate what you said earlier that you don't target for underwritten percentage, but was there any GAP that was turned away, you didn't want, that would have had to be underwritten, or was there? I guess I will leave it there. Do you have any comments around that?

You guys want me to answer that?

I will chime in first there, Steve, then you can jump in. Just before Steve says it, it's highly unlikely that we turn away GAP. That's like swearing around Ritchie Brothers. But on the other hand, for sure, when we -- when there's a package of equipment and we are pursuing it, at some point if our competitors on that package of equipment push our upper limits of what we believe makes an economic, or makes good economics for that package of equipment, we will walk away.

As Steve said, the competition is -- continues to be very intense. We don't walk away that often, but for sure we do sometimes. Again, reiterating that we don't target the volume of at-risk business. It is deal by deal, because every deal will be different. And the characteristics of that deal, and also the characteristics of that auction or event, will also be different. That will have an impact on our decision to pursue that -- how far to pursue that package of equipment.

Okay. And then I guess there's just a point of clarification. Did I hear that Q4 was -- the competitive environment was a little more difficult as a function of being the end of the year relative to where we are today?

Sorry, that was my comment. No. I was saying, for example, perhaps our customers who had different motivations because it was the end of the year, but we don't necessarily get into that conversation with every customer on every deal. I was just alluding to the fact that perhaps that was part of their motivation.

Okay. And have you seen any notable change in the type of buyers at auction? I guess you could look at that a few different ways if it's more -- if you are seeing more rental customers versus contractors, what types of contractors, and then maybe even region specific?

Nothing comes to mind, Nick. I think we've seen a fair bit of buying out of Australia with the commodity demanding down there, although we've -- it's probably fair to say it tailed off a little bit near the end of the quarter, with primarily things like coal, and the coal markets and where they are going. Overall, I think we are still seeing some very strong international demand in the north part of South America, very strong out of our Florida auctions, in the southern part of the US.

Europe, even though we're having sales in Europe, the demand internally within Europe is still very strong. You have economics, challenging in markets like Spain and Portugal, Italy. People still have to do stuff. There's still work to be done, and roads to be fixed and pipes that break and they have to be repaired. People tend to go to that used market first.

So we're seeing some fairly interesting, and very predictable results for us, results economically around what happens in some of those markets that are more challenged than others. Steve, you go to as many auctions or more, Steve and Rob both, so you guys want to throw in there?

Yes, I haven't seen really any change in the mix of buyers at all, as Pete pointed out. We're getting a full cross-section of folks in every industry from every walk, so it's really just business as usual.

One thing I -- just thinking out loud here, one thing, we just finished our farmer run in April in Saskatchewan and Alberta. And the farming community -- I would say very robust right now. We're attracting more interest from the agricultural side of life. These are end-user farmers that are coming.

And we're working and building -- with the reputation of the Company layered over into the agriculture industry, people are starting to get more comfortable. And the level of trust takes a long time, sometimes, to build in many markets, and I think we're seeing some nice traffic into our agricultural sales. And that, I think, will continue.

Okay. Thank you. Appreciate it.

Neil Forster, Scotiabank.

High, guys. Good morning. Just want to drill down on the competitive situation a little bit more. You mentioned that competition remains intense, so there's no real change there. Perhaps there was a timing impact Q4 to Q1. We've seen the error higher. And a big drop in at-risk business, 29% this year versus 39% in Q4.

Have you seen competitors, at all, becoming less aggressive on at-risk deal, or at least in some cases? Or maybe are customers gaining confidence and taking straight commission deals? Maybe if you could flesh that out a little bit more? That would be great.

Steve, you want to throw in there?

Yes, sure. The competition's appetite for at-risk business I don't think has changed. The level of -- in particular, any of the really nice packages of equipment from great owners that we're looking at that have competitors on, it is very intense for sure. As you commented, the level of comfort from some of the consignor's right now, for sure, has got a lot better. They've been watching the prices come up.

From their perspective, to go the route without a guarantee or some sort of insurance, if you will, and get a cheaper commission rate from us to do that, there's definitely been some change in market just knowing that the pricing is better. I would say that probably answers the question as why the risk business has changed a little bit, but that gets bumpy too. We could go into our next quarter coming up here, and it could be significantly higher than it was last year.

Okay. So you mentioned that you expect the percentage of at-risk business to remain above trends for the remainder of the year, but would you expect it to go up sequentially from the 29% that we've seen in Q1?

Sorry.

Sorry. It's Rob. I wouldn't -- when we say that its -- would kind of remain at those above trend levels, what I'm talking about is the -- our 2011 rate of 36%. I wouldn't extrapolate quarter one to the balance of the year. I would look at the performance of all of 2011. We'll probably be somewhere in that range. I would suggest probably we wouldn't be higher than the volume in 2011, but still elevated level.

That's helpful. Thanks. Just wondering if you could comment on the expected cadence of GAP growth as the year unfolds here? Would you expect acceleration, or should we continue to expect low- to mid-single-digit year-over-year growth for the remainder of 2012?

Hey, Neil, it's Rob. Yes, it's probably going to be somewhere in single digits, but I would -- I guess, obviously, your comp from last year makes a difference. Quarter three last year was a particularly challenging quarter, partly due to just shifting of auctions and shifting of packages of equipment last year in quarter three, so it makes a relatively modest comp to perform against in 2012. In quarter three, you'd probably see more than single-digit growth.

Okay. That's helpful. And then just finally, given that markets are still weak in Europe, although you mentioned that you are seeing some demand there for equipment. Are you seeing at all equipment being shipped overseas for sale in North American markets where pricing might be a little stronger? Or is it truly a global market place and pricing would be consistent across the board?

We have some consignors that want to be a bit aggressive in terms of putting stuff on a boat and taking it from market one to market two. That's not abnormal. We don't necessarily do that. We believe that the market will come to where the equipment is. We've seen that time and time again. We're not going to, certainly dissuade you guys from doing that. And generally, you've seen some stuff moving into Australia, as an example. The market that's particularly hot with the big mining gear and the demand for the ancillary and related things.

But our experience has been that the crowd and the buyers will come from everywhere, no matter where the equipment is and they'll factor that in. It's a bit of a mug's game to try to do that. Although, people will. In particular, we don't see people sitting in North America going, I'm going to ship that stuff over to X to make sure that I can access the Spanish market or the Italian market or the Australia market. Not tend -- you don't tend to see a ton of that, but it does happen from time to time.

That's helpful. That's it for me. Thanks.

Jamie Sullivan, RBC Capital Markets.

High, good morning. Question just to follow-up on the growth. It seems as if last year we had a lot of the same dynamics you're talking about today. Except last year the shortages were a bit more acute, OEM production, pricing were lower. It even sounds like maybe the risk business is feeling a little bit of relief because of the improved performance in ARR this year. I just want to get your thoughts relative to the pressures in 2011. What's changed into 2012 that's holding back GAP growth?

Jamie, it's Pete here. I don't know that anything has materially changed in 2012. You know, the OEM production is up for sure, which is helpful for us. And that will create some movement of equipment off. But that, again, is a -- when does that happen? It happens over time and eases. Any time things changes, typically, that's good for us, typically.

So when you see OEM production levels, and if you look at any of the charts on the OEMs, you see some decent numbers coming, that just peels into the dealer channel. You've got dealer iron that's being rented out as well, so as they hour up and as the pricing and the comfort in pricing increases, I suspect that, as we saw, that some of the consignor's being more comfortable with going straight commission rather than at-risk rates that we tend to charge higher. Because if we're going to bear the risk, we'll charge more for that.

Those are all, I think, interesting signs to me that people are starting to return to a more balanced state of mind. You see that in the finance companies. And in past, our business with finance companies has been probably higher than it is right now because they just don't have a lot of equipment in their chain right now. They've dealt with all of their issues and they are out now asset-based lending to make sure that they can cover off their risk positions and that stuff starts to roll.

That whole market, upside down stuff that happened in mid '08 all the way through is starting to ease its way back to normal. You want to liken it to throwing a big rock in a pond. Of course, there's lots of ripples that start all the way and then it starts to sort of calm down now. And there's cooler heads are prevailing, I think, through the market. And more predictable, more balanced behavior's returning, which is nice. But it does take time.

I think that's probably the biggest, I think the biggest -- if you want to call it, change. To me it's just the natural way that markets will return to a more balanced way. Albeit that Steve's comments are exactly right. There's rather skittish behavior out there. People are still not quite comfortable that everything is on the rails.

The housing market is a good example in the US and looking at that and trying to see where that's going to shake out. And as it rolls through and people get used to maybe the new reality of what's going on out there. Those are all just factors in the market that we play in. That's just the United States. You layer that over the whole world and there's ups and downs.

We were up in Fort McMurray a few weeks ago and looking at the things that were going on out there. And it would blow your mind to see that activity in the North. And the way that energy markets are moving and the requirement for energy for the world, going forward, is very significant. And you've got to be there in play. Those things are going to continue going on.

So there is so many things happening in the world. Every time we wake up in the morning and you jump online and you read the news, virtually everything that happens out there affects our business. It makes it interesting for sure. Any comments from you guys here? No?

That's helpful. And then you mentioned Australia a few times, some really strong auctions there so far this year. It was a little striking to see some nice volume of unused Cat gear at a few of the auctions in the first half and even some international locations and even some 2012 models. Just wondering if you can comment on what's driving that?

I think it's just supply and demand. People have it and they want to sell it. We are happy to sell it for them and they think they can make money. That's the market forces at work and it's exactly -- you know we represent the marketplace. (multiple speakers)

Nothing unique about an unused 2012 model being sold say in first quarter? It was just striking. I just didn't know if there was anything else there? Of like a --

You are always going to have the odd group of units. It's not a big -- we are not running around trying to replace the Cat dealership network, because they do a great job on their own. And they've got great customer service and parts and service and warranty and all the things they do. They rent iron and they do a terrific job serving their customer base. There is always some guys that have something that they want to sell. If we're a network and a channel that they can maximize the value on that, then we're there for them to use.

Right. Okay. Fair enough. Just one quick one on D&A. It looks like that's come down the last couple quarters. Just wondering what's driving that, how we should think about it going forward?

Sorry, Jamie, you said G&A?

No, depreciation and amortization.

Yes, that's just a reflection of the CapEx -- the peak CapEx that hit in 2010 and the flow-through of those projects into the system. As we haven't added as much CapEx, it hasn't -- you don't see those big bump ups in depreciation that we've seen in the last few years.

Okay. So that should continue to trail -- to dwindle as we go forward?

Yes, for sure, the linkage between the volume of CapEx and the growth in your depreciation, absolutely.

Just to be clear, don't expect it to dwindle.

Oh sorry, not dwindle. The rate of growth will dwindle. (laugher)

Okay. So you do expect it to go up from the levels in the first quarter.

Yes. Obviously, as we add CapEx and your adding infrastructure, and that infrastructure is both buildings that are depreciated or IT systems and IT development, they also get depreciated. And so, as you are adding that, for sure, your CapEx will -- sorry, your depreciation will grow because the CapEx that we put on two years ago is still being depreciated. It hasn't fallen off the plate.

It's just at a lower pace.

Yes, at a slower pace.

Okay.

We probably have time for one more question and then we will wrap up here.

Anna Kaminskaya, Bank of America.

Good morning guys. Most of my questions have been answered. But I just want to follow up quickly on G&A. How much of incremental costs related to your growth initiative was added in the first quarter? And how much more should we expect in the second quarter on a sequential basis?

Hey, Anna, it's Rob McLeod. As we've said in the comments, the annual amount for 2012 is going to be approximately $18 million. You probably saw about $4 million in the first quarter, and it would be relatively evenly spread out, because most of it is headcount that was in place either at January 1 or being put in place during -- here in the first quarter.

Okay. So the step up would not be as dramatic as the fourth quarter to the first quarter into the remainder of the year? Is this how I should be thinking about it or --? Just trying --

Yes.

Just a quick follow-up on your used pricing comment. You said it leveled off into the second part of the first quarter. What were you seeing in April? Did it continue to level off or was it steady? Or did you see any sort of improvement given some of the market volatility?

Steve, you want take -- or Rob, you want to take that?

I'll comment before Steve. Leveling off is, I think as Steve mentioned earlier, we came into Q1 early in the year in January and our sales, I guess onto Orlando, and we still saw very strong pricing. Higher than, in some instances, than what we were experiencing in Q4 and for sure somewhat higher than we did year over year in Q1. As we went through Q1, we felt that intenseness of pricing leveled off.

The low hour, late model stuff that everybody's still chasing, and it's very competitive, still remains quite strong. But some of the equipment that would have been more hours on it, is the stuff that we probably saw some leveling off of toward the end of the quarter.

Leveling off in absolute prices or just the rate of growth year-over-year? Just to make it clear.

Sorry, I missed that.

Was it just leveling off on the absolute prices on the equipment or just the rate of growth year-over-year?

Leveling off from rate of growth, but leveling off from what the same machine was bringing earlier in the quarter.

And did it continue into April or --?

We're seeing similar activity in April, early April, yes.

Okay. Thank you very much.

Okay, great. Thanks. Thanks everyone else for joining us on the call. We appreciate your time and we'll get back at it here and look forward to shouting to you next quarter. Okay?

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