RB Global Inc (RBA) 2012 Q2 法說會逐字稿

Good morning. My name is Sara, and I will be the conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers 2012 Q2 earnings conference call. (Operator Instructions).

I would like to now turn the call over to our host, Mr. Peter Blake, CEO of Ritchie Brothers. You may begin your conference.

Thanks, Sarah. Good morning, everyone. Thanks for joining us today on our 2012 Q2 investor conference call. I am joined today here in Vancouver by Steve Simpson, our Chief Sales Officer, Rob MaKay, our President, Bob Armstrong our Chief Strategic Development Officer, Rob McLeod, our CFO, and Jeremy Black our Vice Presdient of Business Development.

We are going to focus our prepared remarks today on a few key takeaways. So we have lots of times for questions. Before we start, I would like to make a Safe Harbor statement. The following discussion will include Forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact, including projections of future earnings, revenue, gross auction proceeds, and other items, such as our potential addressable market are considered Forward looking and involve risks and uncertainties.

These risks and uncertainties are detailed from time to time in our SEC and Canadian securities filings, including our management's discussion and analysis of financial condition and results of operations for period ended June 30,2012 and subsequent quarters which is available on the SEC, CDAR and Company website. Actual results may differ materially from those contemplated in the Forward-looking statements.

We do not undertake any obligation to update the information contained on this call which speaks only as of today's date. I would also like to note that during today's call, we will be talking about a number of non-GAAP measures, including gross auction proceeds, which represents the total proceeds from all items sold at our auctions, adjusted net earnings and EBITDA. A complete discussion of these measures and reconciliations are available in our MB&A for the quarter in the June 30, 2012.

Now on to business. I am happy to report that we achieved reported gross auction proceeds of over $2 billion and adjusted net earnings of growth of 25% for the first half of 2012. We remain on track to achieve our GAAP and earnings growth targets for the year, and although challenges remain in some of the regions in which we operate, we believe the used-equipment market is starting to become more balanced with supply and demand moving more inline which should benefit us in the near term. Steve, can you give us a quick key message about the used-equipment market?

Thanks, Pete, and good morning everyone. The used equipment market was generally strong in the early part of Q2, carrying on the momentum that we experienced in the first part of the quarter. We saw used-equipment prices at our auctions steadily increase in the early part of the second quarter before starting to level off in the latter part of the quarter. In the last few weeks of the quarter, we saw some softening of prices at our auctions.

The used-equipment market is becoming more balanced and well-maintained low-hour machines from good homes have generally been selling well over the last month or so, with auction results mostly inline with our expectations. OEM production is catching up with demand for many categories of equipment and lead times for new equipment are coming down to more reasonable timeframes.

We are still seeing lots of replacement demands from equipment owners looking to replace older fleets, but it is apparent that used-equipment supply and demand are becoming more balanced, which is having a moderating impact on our used equipment prices. Based on conversations with our customers we believe the used-equipment market is going to remain healthy, which should translate into stable used-equipment values at our auctions.

There is still a lot of uncertainty in Europe, but in the near term we see opportunities to continue to create liquidity for our customers in a challenging environment and ensure their equipment sells to the global marketplace. Rob Mackay, over to you to talk about the performance of at-risk in the first quarter.

Thanks, Steve, and good morning, everyone. My key message relates to the performance of our at-risk business in the second quarter, which was below our expectations and we are not satisfied with it. Recent used-equipment pricing dynamics creates some challenges for our at-risk business in the latter part of the second quarter.

Recall that we take usually 30-45 days from the time we sign an at-risk contract until we sell the equipment at auction. Although equip values do not normally move as rapidly or dramatically as stock or commodity prices changes in equipment prices at our auctions during this intervening period can impact the short-term results of our underwritten business, particularly when values level off after a period of steady growth. This is what we experienced in the latter part of Q2 and the outcome was weaker then expected performance of our at-risk business which eroded our auction revenue rate for the quarter.

Our sales and valuation teams recognized partway through the second quarter that prices were leveling off and in some cases, holding back slightly. We began to reflect this in our at-risk deals for the remainder of the quarter and into Q3. Fortunately, our business model allows use to work quickly through the potentially lower performing contracts and start with a clean slate.

We are updating our values and pricing deals everyday based upon actual Ritchie Brothers auction results in order to stay on top of the market dynamics, . If we exclude the 127 basis points net impact of our revised P-structure our second quarter auction revenue rate would have been 9.38%, which is lower than we have experienced over the past few years, but not out-of-line when compared to rates we achieved prior to the above trend performance that we experienced in 2009 and 2010.

We expect the volume of our at-. risk business will be in the 30% to 35% of GAAP range for the full year in 2012. And now Rob McLeod will provide you key messages about our second quarter financial results.

Thanks, Rob, and good morning everyone. I hope you have all seen our press release this morning announcing our second quarter and first half results.

Our MD&A will be called shortly. One of the highlights from our first half of 2012 performance was our discipline on SG&A costs which performed well in the face of a challenging revenue environment. Our SG&A for the first half of 2012 increased 7% to $130.9 million, compared to first half of 2011.

SG&A for the first six months of 2012 included $4 million of operating and acquisition costs related to AssetNation as well as approximately $7.5 million of incremental spend for our strategic initiatives. Excluding these amounts as well as the $2.7 milliondecrease in our SG&A as a result of currency fluctuations our SG&A remained flat for the first half of 2012 compared to the first six months of 2011.

I would also like to highlight our depreciation expense for 2012, which has leveled off after a number of years of growth attributable to our accelerated CapEx program of previous years. We are now experiencing leverage on our depreciation expense line as revenue growth should outpace depreciation growth going forward.

Our rolling 12 month EBITDA margin came in at 38%, which is slightly below our 40% target for 2012 and reflects our lower than expected auction revenue rate. The impact of the AssetNation acquisition and their operations since closing are included in our results for the second quarter, and this did not have an material impact on our EBITDA margin or earnings growth for the quarter. Now over to Jeremy to update our guidance.

Thanks, Rob, and good morning. We are reiterating our guidance for 2012 and continue to expect that GAAP will be in the range of $3.7 billion to $4.1 billion for the year. Our auction revenue rateshould be in the range of 11% to 11.75% for the full year, including the impact of incremental revenue from our revised fee structure.

We are expecting our EBITDA margin to be roughly 40% for the year and adjusted earnings before tax growth to exceed 15% for 2012. All of these measures include the impact of our AssetNation acquisition and other strategic initiatives. Our capital expenditures for the first six months came in just under $35 million and are on track to be at the top end of our guidance range of $50 million to $60 million for 2012.

Our actual results and performance for future periods could be above or below the guidance range depending on the performance of our at-risk business and the continued uncertainly in the global market. So it is difficult to forecast with much more precision. Now over to Bob.

Thanks, Jeremy, and good morning everyone. Before Pete wraps up the call, let me update you on our AssetNation acquisition and the development of our new services for equipment owners whose needs and preferences may not be met by our unserved auctions. We are still keeping the specifics of our new services confidential for now, but I will tell you that the development effort is progressing well. I can also tell you the AssetNation team has performed well since we completing our acquisition and the integration effort has gone smoothly. Pete?

Okay, thanks, Bob. Before I leave you with concluding remarks, and open the call to questions, I would like to give you a quick take about our headcounts. Overall, we increased our headcount by 107 people during the quarter including 80 employees who joined our team as a result of the AssetNation acquisition.

Our team of sales representative increased by a net of two people in the second quarter, bringing this total to 292 at June 30, 2012. AssetNation sales people are not included in this number. We also grew our trainee territory manager ranks to 26 people from 19 at the start of the quarter.

While we have reversed the recent downward trend and the size of our sales force, we are not satisfied with our performance and still have work to do here. I can assure you that we are laser focused on growing and developing our sales team, and we will be upping the ante with our steal managers going forward to assure we achieve our targeted sales team growth. Now to wrap up, let me recap the five key messages that we have left you today here.

One, used equipment pricing leveled off in the second quarter. We are seeing supply and command become more balanced which should be positive for us going forward.

Two, our at-risk business performed below expectations for Q2, mainly as a result of the leveling of pricing between the time we signed our at risk contracts and when the equipment was sold at auctions 30-45 days later. Fortunately, we reset our pricing everyday which helps us to manage this exposure.

Three, we were successful in managing our costs in the first half of 2012, and we are still on track to achieve our earnings growth target despite the challenging revenue environment in Q2.

Four, we have reverse the contraction of our sales team, and we are acutely focused to ensure we grow it to help drive our sales growth.

And five, the development and launch of our new launch for the nonauction segment through the AssetNation acquisition are right on track.

With that, Sara, please open the call to questions.

(Operator Instructions). Your first question comes from Nate Brochmann of William Blair & Company. Your line is now open.

Good morning, everyone.

Good morning.

Wanted to talk a little bit more on the auction revenue rate. You kind of just alluded to that most of it was due to the leveling off of pricing towards the end of the quarter, which is obviously something historically has been a well understood variable. If we break that out between what the impact was at the leveling off of prices verses what the pressure is still on the new OEM kind of production equipment. Could you kind of help us through that in terms of what impacted what, and how we have some proof that, that pressure is kind of dwindling on the newer equipment?

Sure, Nate. Maybe I will have a comment, and I will invite Rob and Steve to throw in as well because their feet are more in the market everyday than mine are. Just in general, we did see some softening of some equipment, mostly older model equipment in the latter part of the quarter. The good stuff that comes from a new home always is in good demand and it remains so. We have seen a fair bit of balancing in some of the dealer networks and many of the dealer networks on the OEM side with their availability and many of them are off allocation, not like maybe a year ago or so.

We are seeing what we call a bit more balance in the market of supply and demand, and that bodes well for us. Those are even environment that we traditionally operate in when things get tight or things go the other way. Traditionally it has been a more interesting environment for us to operate within, but for the most part the primary reason that we saw -- I will tell you.

We did a very, very deep dive on all of our at-risk business for the quarter trying to understand where the deals were that we under-performed in and why we under-performed. So we are addressing that internally in terms of our execution, but for the most part we are pretty good, on par with where we are headed on execution. I think we have reset alot of our expectations in terms of values going forward. Evenas much as early in the quarter going forward, we have seen some very much anticipated and on the mark pricing for auctions. Even as an example today in Chicago,

What we're seeing in the auction today and in last week in other parts of North America. So it is more traditional environment for us, and we are feeling pretty comfortable that we have a handle on it. But may Rob or Steve - -Rob?

Rob here. Follow on to Pete. We came out of Q1 with a fairly aggressive buying public out there. Some things were short in demand and the market was moving towards renewing fleet with younger used equipment or people looking for more used equipment to fulfill some jobs that they had picked up. Out of Q1, we had a pretty strong demand for stuff.

We had a very competitive market. Used equipment dealers, brokers, the whole equipment network was out looking for equipment for customers. So most of the deals that we were on we saw very strong competition from individuals all the way through to dealers, which of course creates a need to pick your points on where you want to be competitively and aggressively.

And then, of course all of that amounted to a leveling off of the demand and to some degree, a leveling off of the prices or decline in some situations, which is where we experienced some pressure in the auction revenue rate. It is more of let us call it a calmer market right now. Supply and demand has reached a somewhat more normalized level and the aggressiveness of people going after everything has leveled off somewhat, although there still is competition on the right deal out there because people are still look for the very good late model stuff.

Okay. And then kind of a follow-up to that the level off of the pricing and you talk about the balance and maybe things are just a little bit more unbalanced rather than the heated approach trying to get your hands on some of that kind of mid level equipment.

Just want to be clear that the pricing leveling off is not necessarily indicative of maybe some uncertainty creeping back into the market again, which would then relate to maybe people freezing again and not trading equipment? Just want to make sure that it is not related to that and it is really more of this balanced approach.

Rob here. The US market and the Canadian market to us is where we have reached a balance point. There are some markets around the world where the folks have pulled their horns in a little bit.

The strength of the Australian buyers and to some degree the Middle East buyers is not what it used to be early on in the year, and they are satisfied their appetite for equipment based on their needs or they have just pulled back on their future expectations of equipment that they want. There is a few pockets around the world where there has been an easing in demand for equipment and the price that people are willing to pay in certain areas. Steve, you want to comment on the both the confidence level of guides in the US? I think that is a pretty topical thing.

Nate, Generally speaking, the confidence in the US is as it is creeping along, it is getting more and more positive everyday, but having said that, it is moving very slowly, but it is trending upward. Some of the pricing we saw, it happens sometimes during the summer months, too, when you get into this time of year, a lot of guys are working, then the jobs and holidays and all the rest of it. In varying degrees in different years that we are selling this stuff, but it definitely had a little bit of a bump here in June and we have seen it before. It does not come at us every year to this degree maybe we saw, but it does occur and were we surprised to see it?

We are always a bit surprised. We do not enjoy it, but it happens. We have seen it before and It will probably happen again. As Pete said we are feeling good about the balance of the year. We are seeing some really nice results already going into Q3, and we have had a handful of sales already that have been very positive, and we are looking forward to the rest of the year.

It is Jeremy here, and I jump in and just clarify something, back to your question, Nate. We do not expect a freezing of selling behavior. So we do not expect our consigners to pack up and not sell.

Hopefully right between the lines. No, we are not anticipating -- it was interesting we heard some of the OEM comments. A lot of Guys are talking about 2008, this is 2008 again. This is not 2008 right now. For us is a more normalized operating environment, albeit, as Rob said there is some quieting and a little bit of stress on some of the other markets and Australia and quieting down a little bit relative to the demand that is coming out of China and Middle East filling their boots and also in the same type of boat.

That's great. Sounds really encouraging. Thanks.

Your next question comes from Nick Coppola of Thomson Research Group. Your line is now open.

Hi, guys.

Good morning.

I heard you guys talk about the lag between the point where you make a guarantee and when you make the sale, and how a modest change in pricing can have an impact. Is there also kind of a dynamic where the price, you have the guarantee is moving upward because of competition? Is it kind of both of those pieces, or is it more one than the other?

Rob here. For sure it is both. The market is on the boil or bubbling and it is in the upward growth stage, you have got lots of people chasing equipment.

You have got the belief from everybody that is chasing it that the equipment prices are strong or even growing, and half the people have - - each competitive person on the deal has a different view of how strong those prices are. You run into situations on deals where a competitor may have a very stronger view than you do on pricing and his offer for the package might be above yours, and in order to be competitive and have the deal or a group of deals to build an auction sale, you have got to push the envelope.

So why has there been any more confidence in straight commission deals?

I do not understand. Nick, the part you mean confidence in straight commissions?

Is a percentage of commissionchanged, or are folks being more confident in a straight commission deal than rather getting a guarantee?

We have not seen any meaningful movement. It is very early in the quarter for us. We have had a few sales in July, September will be a bigger month, but we have not seen any big material demand for I want my iron guaranteed or I am not bringing it to market. It is a very typical discussion. It usually centers more on the risk profile of the individual owner and where your appetite sits. So as Rob saysif there if there is less competition on the deal in general, dealers are traditionally backing their business and doing what they do normally.

There is still competition on every deal you have. The other things you have to be mindful of is the expectation of the owners. Now that the items are selling in a more predictable price range than the expectation of the owners is set at that level as well. So you are also not competing with owners increasing expectations and then trying to predict a higher market pushing you on your number to try to land a deal at the auction. This is a more traditional and more balanced environment for us to be operating in. So we are feeling pretty confident that there is a few things that we can write internally in terms of execution, but overall apart from the revenue rate on the quarter which we understand and we are dealing with I thought our execution in all aspects of our business was darn good, SG&A-wise great.

We got our gear in order in terms of where we are headed, strategically where we are moving, AssetNation acquisition and onboard with that and where it is moving. I am feeling very confident that we are in the right place in the market to continue to serve our customers and drive sales.

Good. That is helpful. Thank you.

Your next question comes from Cherilyn Radbourne of TD Securities. Your line is now open.

Thanks very much and good morning.

Good morning.

If I replay the questions - - the comments that you made on used-equipment pricing in Q1, they very much mirrored what you just said in the quarter sort of started with a head of steam and you saw some leveling off towards the end of the quarter. I guess my first question is do you think there is anything happening seasonally where by your quarters are starting with more momentum and leveling off at the end? If you were to characterize used-equipment pricing as we sit today relative to beginning of the year and year-over-year, where would that put us?

Rob here. I do not think there is any trend that we are starting with strong - - any different trend then what we have seen historically in the Company where you start out the Q fairly strong and you have a leveling off or a lowering at the end of the Q.

Typically at the beginning of the year and our February sales year-over-year, time-over-time, we have seen a strong jump out of the gate with our Orlando sale. It typically happens most years, and what happens from there on in is depending upon the economy. We saw a strong Q1, a little bit of a leveling off. It would have to.

When it comes out of the gate in gross compared to Q4, typically it would have to level off at the end of the quarter or you are into a economic growth period where it keeps growing during the year, but that usually does not typically happen. This phenomenon at the end of Q2 is a little bit stronger in its levelling or those areas that dipped then we anticipated for the quarter. I do not think there is anything different there then we have seen historically in past years.

The other part of the question was how does pricing today compare with the beginning of the year and 12 months ago? Can you handle that?

Well, compared to the beginning of the year, I would say there are areas or pockets of equipment that are down somewhat, a little bit, not a lot. The good, strong equipment is still there, still in demand and the prices that are being achieved are in line with what we experienced at the beginning of the year.

The affect that is causing our auction revenue to go down is the competitive nature of the market that pushed us on some deals to get beyond where the pricing was at the beginning of the year or in this quarter that has put some pressure on the auction revenue rate. Year-over-year, at this point last time, I would say we are probably the same or maybe overall up a bit in pricing.

And to the extent that we are entering into a more balanced supply and demand environment, can your at-risk business directionally come down?

When you stay come down, are you talking with the quantum of the at-risk business?

Yes, as a percentage of gross auction proceeds.

Yes, for sure. We gave guidance around the 30% to 35% for the full year in terms of our at-risk component of GAAP, but we do not see that trending materially outside that range, and we thought that was a pretty good range to give you guidance on going forward. It is back to if it is a traditional or balanced environment, then you are dealing with less frothing or bubbling as Rob put it within the marketplace, and you are dealing in a more rational marketplace in some respects. And you are dealing primarily with the individual risk profiles of the owners and whether they care to take a guaranteed deal which is typically priced higher from a risk point of view because it is a risk/reward paradigm rather than a straight commission deal.

Last one and I will pass it off. Just wondering what you are seeing in terms of an early recovery in the US housing market, and how that is influencing your thinking?

As Steven commented earlier It is probably positive trending but it is very gradual. We have not seen any big material movement in the US housing market albeit lumber has gone up a little bit. Some local lumber companies and they are selling in the US are experiencing some nice lift.

A little bit of housing projects here and there. There is still a long way to go. The most recent housing starts were positive, but those are all multifamily units. They will dig out it. It will come in time. You guys are in that numbers game more deeply than we, but we are seeing in general, we are seeing some mildly positive stuff coming out of the general smell of the contractors that we talked to in the US, very different than what you read on the Wall Street Journal again.

These guys are more in the foundations of the economy out there and seeing some encouraging things. Albeit, it is not -- not looking for a huge spike up in anything. It is just going to be a natural, very methodical trend out of the whole hole that they dug themselves in. The construction numbers came out today and they were adjusted up and it is around $830 billion or $840 billion which is positive, andyear-over-year, that is a nice 7%, 8% lift on that. So those are all good positive signs for the economy. Steve, you want to add more antidotal stuff? You are walking around there more often then I am.

As I commented before generally speaking, there is some positive sentiment out there with our customers generally. The housing market, sure, there are signs that the housing thing is getting better for sure, but having said that, there is still a lot of inventory that a lot of the finance companies still have not flushed out and there is still a lot of developments that are sitting there that there are pads ready to go for houses on them. Before you get a big rush of opportunities for the guys to go push dirt and make new developments, there is still alot of product there that needs to get houses built on it that already to go. So the signs are positive, but I think it will be slow and steady, and gradual to come out of the hole.

Okay. That is helpful color. Thank you.

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

Good morning. Thank you. The first question is maybe if you folks could touch on just the mobility of used equipment globally and how that impacts you? How much equipment are you seeing move out of the US, assumed that has slowed down? Do you have any expectations of equipment coming back to the US from overseas, and how that impacts your business?

Rob. I will answer that. Used equipment mobility is very good. Equipment ebs and flows around the world and has done so for many years based on economic situations.

When Asia collapsed in 1996-1997, virtually hundreds of millions of dollars of equipment moved out of Asia into North America Europe, Dubai. We have seen a slowing in the export of used equipment out of the US this year vis-à-vis last year and the year prior to that. When the US first went into the recessionary period, a lot more equipment was exported to the Middle East to South and Central America. And out of the gate Q1 and Q2 this year that has dropped from what has happened in the past.

As far as equipment going back into the US, we see trickles of it today, but given EPA requirements on engines and other restrictions that allow the free movement of equipment around the world, it is a different market today than it was back in the late 90s when Asia collapsed. Used equipment today, unless it has the right engine in it, it is somewhat restricted in its ability to freely move around from country to country.

With the decline in the European market and the exchange rate between the Euro and the dollar, there is a few opportunities bubbling up where people may be looking at the US market vis-à-vis selling it over there. We have auction sites strategically located around the world now and it is our position that you can bring the equipment to our local market and the global market will find its way to that equipment and take it where it is needed.

That is helpful. On the at-risk business, do you guys have an estimate of how much that impacted the auction revenue rate? Then also, does the at-risk business becoming or having been a bigger part of your mixed change the way you think about compensation of your salesforce? In general, where are you in terms of rethinking the compensation structure of your sales force, given the new environment that we are in?

It is Rob McLeod this time. Yes, the impact of our at-risk business on our auction revenue rate historically that is what has driven the variability of our auction revenue rate. So you look at the graph that we published where you see our revenue rate, especially quarter-to-quarter, year-over-year with fluctuations, that is due to the performance of the at-risk business right there.

And your second question was more on the sales force and their incentive to go after at-risk business or not go after at-risk business. They are incentive is to go after business. If they are working on a package of equipment, we will proposal to that owner different scenarios, including a straight commission proposal or a guarantee, for example, and that salesperson is generally indifferent to the proposal on a contract that is finally setup because we want to make sure that our sales force is doing what is right for our customer and perhaps for that customer, a straight commission contract is the best to go or perhaps it is providing a guarantee.

Steve Simpson here. Just on the sales compensation. We actually have the last few months been reviewing all of the compensation for our salesteam, and looking at other auctions that we are going to be rolling out here in late Q3, early in Q4. So we are restructuring the way it is going to look for the guys and the goal would be for a lot of our folks to be focused on the commission dollars rather than the gap. So that is something that is in play, and it is just about ready to be rolled out. We are on it, and I do not really want to say a bunch more about it today because we have not rolled it to our teams, but it is well underway, and you will hear about it soon.

Great, thank you.

Your next question comes from Steve Volkmann of Jeffries. Your line is now open.

Hello. I was just wondering and maybe you might have just started to answer this, but I was just trying to get a sense of the at-risk business has always driven some volatility in the rate here, and I am wondering if there is anything you think you can do about it or if that is just part of business here, and we will all have to kind of get used to it?

I guess there are things to do about it. Surely our plan is not to sit here and be quiet about it. We are disappointed in our at-risk rate for the quarter and our overall rate, and we are back tightening down the hatches in a few areas, and applying additional scrutiny as we go through a bit of a volatile period, and maybe it is just been a short period at the end of Q2. We do not know yet until we get more results in Q3.

Our auction at-risk rates, when the market is going up, we tend to over-perform at our at-risk rate, and the past, like back when Bob was the CFO, before you, Rob. We over-achieved on our at-risk rate because we were chasing the market up. Everybody thought we had a new business model and a new at-risk rate, and we cautioned the market that this was not a new way to do it, that our rate will even flow as the market goes up and the market goes down.

Fortunately, unfortunately in our business we chase the market up and we chase it down, and on the way of chasing it down, our job is to manage the risk on the way down. On the way up it is way more fun because you are usually you are over-achieving. Every time we go into one of these down periods as we did early on in the recession, we managed our risks quite well, we felt on the way down. Maybe given past performances years back in the Company, but this little experience in Q2 was probably a little bit more abrupt than we anticipated, and were taking steps to minimize it or to manage our risks better going forward in this quarter and beyond.

It is fair to say, this is Pete here, Steve. Fair to say that there is always going to be volume in the revenue rate. That is our business. I still remember marching around the IPO in 1998 sayingour business is lumpy. That is the way it is.

Although, the lumpiness within the volatility can be controlled by levers that we pull internally on execution, and Rob refers to that. We are disappointed with our Q2 results, albeit that when we deep dive and look at it, lots of it was market movement, but some of it was execution. So we will fix that and move forward. We are always learning and always improving as we go. So we will make sure that we adjust on the way through.

Do not read that we are going to be perfectly straight line in terms of our performance. We are going to over-perform and under-perform on the way through. The reality is overall we think we are in a good position in the market to drive continued growth in the organization.

Okay, great, that is helpful. I wonder if you can say anything about what AssetNation, how that is going to fit into your view of the world and work within your system?

Steve, it is Rob. I am not sure how to answer the question. Can you repeat that to make sure I get it right?

I want to understand how the acquisition is going to interface with the rest of your business? You had talked I think at one point about some different types of business models that might use the backbone of this business, and I guess I am just curious if you have made any progress in that directions?

The AssetNation group has an existing core business. It is currently operating and it will carry on to the extent it is non competitive with Ritchie Brothers, for example, where they sell surplus assets. It is great complimentary business, and that is carry on now. It is doing well. What you are referring to is the main purposes behind the acquisition.

We are looking to work with the team at AssetNation to build a brand new marketplace solution for the equipment users out there who are not going to be customers of Richie Brothers current auction model, and that is what we have been developing. We are kind of keeping it a little bit quiet until we are ready to launch it, but as Pete mentioned in his comments, it is on track. We are progressing well. Hopefully in the next few months, we will have something more to say about that.

Okay, great. Thanks.

Your next question comes from Neil Forster from Scotiabank. Your line is now open.

Morning, guys. Wondering if you can talk about the level of competition or the aggressiveness, the change from Q1 to Q2? Did it get better or worse? Then just overall, are you seeing new entrance in the market or is it kind of the same, usual suspects just being more aggressive than they have in the past? Are there particular groups being more aggressive, whether it is individuals, dealerships, or competing auctioneers? If maybe you could talk about that a bit.

Sure, Steve Simpson here. I will take that one. Competition from our prospective has remained constant. The usual suspects that we are battling everyday have been out there chasing a lot or most of the deals that we are on, and then typically as always you always have a fairly large supply of the broker-dealer network that are out there chasing some of the deals as well.

It is not uncommon for auctioneers and other guys to show up that you are not used to seeing, which we get surprised at and that happens fairly regularly. Generally speaking the environment has not changed. Albeit, a year ago out chasing the deals as Rob McLeod mentioned, sometimes there is quite a fine line between success and failure. And we had a few things that went South on us that we were surprised by, but again, as Pete said to you guys, our business is lumpy, and we have seen this result before. And we need to remain aggressive going up, getting this business to grow our business, and we will do that.

We need to be smarter about it and every now and then, a little lesson can be healthy and we just got one. So we are ready to move forward, and I am sure all of the competitors that we saw in the first half of the year, we will see them in the second half and it will be business as usual.

You guys were more aggressive in Q2 versus Q1, or kind the same?

I think it has been similar. The amount of competition, I cannot really say it is either spiked or gone down. It is pretty constant. It is steady and there is a lot of it out there, which is fine.

We are up for it. We are well-positioned to be in a competitive market and just sometimes you get some surprises and it allows you to be a bit sharper and reposition yourself to get better moving forward, which is exactly what we are about to do.

This is Rob here. I just will add that every other competitor that we play with would have had a similar experience at the end of Q2, in deals that they were successful in getting away from us, they have either have sold them or will be selling them early in Q3, and would have experienced the same downturn and quite likely the same couple of bumps in the road that we did, or those competitors that do not sell right away as we do within the 30-45 day window, may be holding some inventory for a lot longer than they envisioned.

That is helpful. Typical cycles in the past, when pricing had been peeking. Do owners tend to become more conservative given an uncertain pricing outlook, or do you they tend to bring more equipment to the market to try to sell at the peak? What would your expectations be this time around?

It is Pete here, Neal. My view is that when things become more stable, you get more predictable behavior. It is kind of like the housing market.

When the housing market is frothing, everybody wants to sell at peak, and only one guy in the whole world will sell at the peak of the market. When things are more predictable, the value proposition that we can lay out for owners is more compelling and you line up what you can get with option A, B, or C, and if got some less emotional and more analysis put to a more stable marketplace, that generally works in our favor. I am looking forward to moving forward with some balance in supply and demand going forward, and allowing us not to have the froth or not have the boil, but at the same time on the way up it is always fun because it seems like lots of people are making money on the way up.

On the way down, you can get stung. We have to be careful. As Rob said early earlier, in 2009 or 2010, our at-risk was over-performing and we managed our risk quite well. We saw this little turn at the latter part of Q2 here that we are reacting to and we are seeing stabilizing environments right now in terms of supply and demand, and pricing. So that net effect of all of that stuff is actually quite good for us.

Finally, on AssetNation, just wonder if all those sales show up in GAAP becauseI know some of what is sold there is non-auction. I am just wondering if any of this is showing up in the auction revenue rate.

Good question, Neal. All of the things they sell, they call it gross merchandise value. It is in material to (inaudible)So we left it in with GAAP. It is sort of total sales if you like. All of their revenues are in fact included in auction revenues, immaterial and all of their expenses are included in our G&A, So it has all been folded into the line item that is most comparable. As Rob MaKay said in his presentation, the net impact on EBITDA and bottom line has been immaterial through the 45 days that we owned it during the second quarter.

Okay, great, thanks, guy.

Question comes from Scott Schneeberger of Oppenheimer. Your line is now open.

Thanks, good morning. Guys, curious on the auction revenue rate guidance, you are now toward the low end of the range on the year and the second quarter was below it. I am curious, how should we think about modeling the third quarter and the fourth quarter? Was there an inflection point in the second quarter that you are now are through that turbulent time and things smooth out. So we will see a pop up in third quarter, or is it going to be a gradual build? It looks like you need to do a 10/9 in the second half to achieve the low end.

Hey, Scott, this is Jeremy here. Why don't I just tell you what we are expecting.

That would be great.

We kind of gave a guidance range. So that is our expected range for the full year. So I will leave it to you to fill in the blanks by quarter. We are still comfortable with that range.

Okay, thanks. I guess shifting gears then. Could you speak to, Peter, tier 4 dynamic and what time of impact is that having with regard to particularly late model activity?

That is a good question, Scott. The tier 4 issue is not an issue. It is a tier 4 environment. Not only tier 4 in the US, but 3D in Europe, and other markets are moving forward like Canada, Japan and others are moving into that. Overall there has been a net shift up that we experienced over the last maybe 24 months of people getting used to the new tier 4 pricing, then adjusting the value of used equipment on the way through. That effect has - - the line share or the majority of that effect has happened.

We have not sold a whole pile of tier 4 stuff in our auctions, but for what we have sold, it sold fairly well and there is a fair demand for it. The number of markets that you can sell into that are compliant with whatever the local regulations are, and they are slightly different in each of the jurisdictions, but not materially enough to warrant a change. It is interesting. some of the OEMs are including in their manufacturer production process, the ability to convert a tier 4 back into a tier 3 equivalent engine so that it can run on that higher sulfur fuel. So that will be interesting to see from my prospective what impact that has on the resale value, whether that will have an upward or neutral effect.

The OEMs that are doing it are OC tauting the fact that their product will be able to be sold in more jurisdictions simply more than the ones that are tier 4 compliant restrictiive or 2 or 3B in Europe. The dynamic - - we have not yet seen what's to come of it. I do not know that will happen probably for the next few years until you start to see some of the tier 4 equipment that is being sold today go through its natural cycle of use, then come to auction maybe a three or four-year-old tier 4 piece. It will be interesting to see how it sells and to whom it sells. We will be watching that very closely. For now, I don't think there has been much of a dramatic change other than a general lift in pricing to take into account that fact that if an owner wants to go and buy a piece of used equipment, tier 3 might be more suitable for him in terms of use and fuel and operating costs and all that aside.

The other thing you have to keep in mind, I think a lot of these construction projects, the private construction right in the US is probably up over the public and as the public construction returns and it will likely return to more normal with more infrastructure spending. You will probably see an increased demand for that tier4 product because most of the publicly-funded construction projects require a certain amount of the fleet to be compliant within the emission regulations. So that will also be an interesting component to watch. I think a lot often bigger OEMs are encouraged by the fact that they are making sure that those projects are requiring that tier 4 product to be -- it is good for the environment, but also good for the people making those engines.

Thanks. If I could sneak one more in on the expense side. With the increase of having of the inflection point on your decision here to start increasing headcount on the sales front and across the board, how should we think about this as it hits the financials?

Are we going to see a significant ramp in the operating expenses? We know the guidance. So we know what to work with, but thoughts on that and in that turn. Thanks.

Hey, Scott, it is Jeremy here. We aren't expecting any significant ramp up in our SG&A.

Okay. Thanks, guys.

Sarah, we probably have final for one more question, then we will get back to business here.

Last question is from Bert Powell from BMO Capital Markets. Your line is now open.

Thanks, Pete I just want to go back to pricing. 2008 and 2009, major collapse in the market, we have a bit of an inventory restocking and the OEMs have been behind and that has pushed price. Now that we are in balance, I am wondering if we are at risk here of seeing that the prices actually start to give a little bit of that back? I know you talked about the price leveling, quicker than you thought, but I am wondering if we have got a bit of give back coming on the pricing? And how you are thinking about that in your bidding on underwritten business today?

Sure, it is a good question, Bert. I personally do not see a looming pricing decline. I think the impact of tier 4 pricing has been positive.

You look at the rental guys, their rental pricing is up as well. So they have been seeing some positive impact there, which again, it is just map, but it supports the net value of used on the way through. There is still lots of work out there. That 2008-2009 reduction in the OEM production levels has created a little bit of a vacuum of equipment of that vintage. So that helps to support the value on the way through. There has been this pause that the world economy has been through in 2008 and 2009, we characterize it within the US as people are starting to get more positive and moving forward, and I think that generally positive momentum in places like other markets that are really going well like Canada as a good example. We haven't even talked about Canada in our comments today, but Canada is very strong.

We have seen some very nice results. The ag market is very strong right now and lots of positive results coming out of that in the last little while. I do not see much of a risk in the pricing decline.

I think that return of supply-demand, that balanced state of the market is like a net positive for us only because it becomes a bit more predictable and also sets the expectation level within the owners of equipment. This is about the rice right price that things should be selling at. Rob, Steve, you have any comments?

Yes, Bert, Rob here. I agree with Pete. I do not think it is indicative --

You have to for Rob.

Really. I do not think it is indicative. I think there is a pause in the leveling here. I think there is enough demand, particularly in the North American market, that pricing should stay normalized or stay level as it is now.

Obviously, there is some drama going on in Europe that still got to work its way through the system, and if that equipment will either find its way to other markets, Africa, the Middle East, or as I mentioned earlier, there is the odd package that is poking its head up that might find its way over here being that the market thinks it is a stronger here than what is going on over there. Globally I think there is enough going on that we are not going see a decline going forward.

Okay. So this was a transition quarter as far as you are concerned?

Yes. I would say for sure, Bert.

Okay. Just lastly on the overall auction revenue rate. Outside of the underwritten business, how has it been in terms of the commissions you have been able to generate on just the straight commission business? How the competition is affected that and I guess directed to Steve a little bit? Your ability to get your sales guys to start moving that out.

Can you pick up -- I missed what you said on the straight commission part.

Outside of the underwritten business, just when you go and you ink a deal, the average rate that you are able to get, are you able to move that up or is competition holding that down as well?

I think we are holding that very steady. Actually, I think that has not really been a problem. Our guys have been doing a very good job to hold that, in some cases getting it up somewhat. Our straight commission part of life is business as usual. No profound change there at all.

Okay. Thank you.

Okay. Everyone, thanks and thank you, Sara. We will close the call now, but just to reiterate, we are reiterating our guidance for the balance of the year. We are very comfortable moving in the right direction here. There are a few things we will be pulling levers on internally, but overall we are executing well. We have a good group of people out there, and we are looking forward to the latter half of the year. We will be back with you with Q3 results sometime in late September, early October. I guess it would be.

No, late October, early November.

Okay, everyone, thanks for joining us today. Appreciate it.

This does conclude today's conference call. You may now disconnect.