RB Global Inc (RBA) 2012 Q4 法說會逐字稿

Good morning. My name is Candace, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers 2012 year-end earnings conference 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, you may begin your conference.

Thanks, Candace. Good morning, everyone. I'm Peter Blake, CEO with Ritchie Bros. Thanks for joining us today on our 2012 year-end investor conference call. With me in Vancouver are Rob Mackay, our President, Rob McLeod, our CFO, Bob Armstrong , our Chief Strategic Development Officer, and Steve Simpson, our Chief Sales Officer. Before we go on, I would like to make a Safe Harbor statement.

The following discussion will include forward-looking statements. Comments that are not statements of fact including projections of future earnings, revenue, gross auction proceeds, and other items are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our securities filings, including our management's discussion and analysis of financial condition and the results of operations for the period ended December 31, 2012, which is available on the SEC, SEDAR, 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 in this call, which speaks only as of today's date.

Also, during today's call, we will talk about gross auction proceeds, or GAP, which represents 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. GAP is not a measure of financial performance and is not presented in our financial statements . The most directly comparable measure in our statements is auction revenues which represent the revenues we earn from our auctions.

The focus of our call today will be to review the highlights of our 2012 performance and to set the stage for 2013. We will also give you some insight into what we see happening in the used equipment marketplace. While we did a lot of things right in 2012, including record GAP, opening new auction sites, and laying the groundwork for Ritchie Bros. EquipmentOne. Looking back on the year, we asked ourselves if there was anything that we could have done differently, what would they have been? For us, there are two answers. One was hire more territory managers, and two, was achieve better results on our at- risk business. Having a full complement of highly productive territory managers is critical for us to deliver growth in GAP and auction revenues, and we did not hire enough of them in 2012 with the result that we ended the year with 259 territory managers, which was short of our target.

Secondly, the underperformance of our at risk business negatively impacted our auction revenues. Together, we believe these two misses had a material impact on our bottom line. 2012 is a decent year for Ritchie Bros., but if we had performed better in these two areas, it would have been an excellent year. We still achieved record gross auction proceeds of $3.9 billion for the year. We set a record with $1 billion in volume in our Canadian auction sites, and we delivered pretax adjusted earnings growth of 17% when you exclude the incremental AssetNation acquisition costs. While we are generally satisfied with our 2012 results, we know that we can and will do better in 2013, and we have taken a number of corrective actions for '13 to make that happen.

To date, we've had a handful of mainly US auctions, including our big one in Orlando, and as always, the mix of what we sell is not consistent year-over-year and auction to auction. We are seeing strength in the prices of used equipment, and our auction -- or, our volumes are hitting our targets. Giving us confidence that our first quarter will meet and exceed our Q1 2012 GAP. Before Bob and Steve outline our plans for 2013, Rob Mackay will update you on the used equipment market.

Good morning, everyone. The 2012 GAP in our largest market, the United States, remained flat overall with the strength in the eastern and central US making up for weaknesses in the West. After years of negative economic news in the United States, we are noticing an increasing sense of optimism amongst our customers, and this has been reflected in the generally strong prices we have seen in the first auctions of the year. Europe remained challenging in 2012, particularly in the north, although we made some important inroads in the region with the opening of our auction site in the UK. While Southern Europe is still coping with their financial crisis, the need for our customers to create liquidity to move surplus assets has and will continue to generate good volumes for us. Our business model and our unique global presence enable us to match local supply with global demand, an extremely valuable proposition for equipment owners especially in countries where domestic demand has been shrinking.

In 2012, we saw price increases in most categories of equipment in Q1. That strong pricing trajectory continued into early Q2, then started to flatten later in the quarter. Q3 and Q4, the value of older equipment became choppy and tough to predict, but pricing for well-maintained, [low R] machines remained strong. Mining equipment pricing became somewhat volatile later in the year as demand in the mining industry diminished. Price volatility in the second half was driven in part by renewed US political uncertainty about the election and a fiscal cliff solution, an increased supply of equipment then available for sale, and a reduced equipment turnover for both new and used that caught dealers off-guard.

We are early in 2013 auction calendar with only a few auctions under our belt but have already seen changes in the pricing environment. Prices are up over Q4 levels for many categories, particularly backhoes and telehandlers. This is sending a positive message to the industry. This strong pricing and the anecdotal feedback from our customers has us believing that there is a renewed sense of optimism in the equipment world, primarily in the US where we have held most of our 2013 auctions to date. We believe this is pointing to a solid year for the construction industry and good volumes and pricings on our auctions. At the very least, 2013 is looking to be a year with more tailwinds than headwinds for Ritchie Bros. I'll now pass the call over to Bob who will comment on our strategic goals for the year.

Thanks, Rob. Good morning, everyone. As Pete mentioned at the top of the call, we were generally satisfied with our performance in 2012. To ensure a better 2013, we have identified a finite number of primary goals for the year and have labeled them the big three. If we achieve success in these three areas, we believe 2013 will be a great year for Ritchie Bros. And, that we will be well prepared to continue to deliver in the future.

Our first goal is to aggressively grow our core auction business with a focus on strengthening existing customer relationships and developing new ones. We will concentrate resources on high potential growth areas in new and existing markets, including holding our first auction in China and opening our newest auction site in Melbourne, Australia. If we can hit GAP of $1 billion in Canada, then we should have no difficulty visualizing how we can take the business from $4 billion to $10 billion to $20 billion and beyond. These are exciting times for our core unreserved auction business, and we will not let anything distract us from pursuing the tremendous growth potential we see in front of us. The two key focus areas with respect to our core business are the performance of our at risk business and the size of our sales force. Steve will address both of these in detail in a moment.

The second of our big three goals is to launch and grow our new online marketplace, Ritchie Bros. EquipmentOne. We pride ourselves on being an innovative Company, and as our mission statement says, we are in the solutions business. We exist to help the world's builders exchange equipment. When we crafted our mission statement in 2010, we explicitly acknowledge that some of the world's builders have needs that are not met by our unreserved auctions. We also recognized the Ritchie Bros. was uniquely positioned with our brand, our reputation, our experience, and our expertise to create a solution to meet those needs. Ritchie Bros. EquipmentOne is complimentary to our flagship auction business and allows us to open up an entirely new segment of the equipment market.

With the launch of Ritchie Bros. EquipmentOne in January of 2013, we believe that we have doubled our addressable markets, created value for our shareholders, and created opportunities for our employees. The marketplace went live on January 2 and is currently in its initial launch phase. The focus of this phase is to migrate legacy AssetNation buyers and sellers on to EquipmentOne and to work with these customers to enhance the marketplace in preparation for the commercial launch in April. If you've not been to the website yet, I encourage you to take a look at it. It's changing and evolving rapidly in response to feedback from our buyers and sellers as we get ready for our commercial launch.

The third of our big three goals is to significantly enhance our sales team. All members of the Ritchie Bros. team are important, and in 2013, we will be placing extra emphasis on the development of our sales team. A key focus for 2013 is to hire, train, and develop the territory managers we need in order to achieve our growth objectives. We have also simplified the compensation structure for our sales leaders and territory managers and placed a renewed emphasis on arming our sales team with the right tools. If we intend to hit our sales targets in 2013 and beyond, and we do -- we need to focus on the growth and development of our sales team in 2013. Now, over to Steve who will tell you about the two areas that we have laser-focused on in 2013 with respect to our core business.

Thanks, Bob. Good morning, everyone. As Bob said, there are two main focus areas for us in 2013. We believe succeeding in these two areas is the key to delivering record revenues and achieving financial targets. The first is the performance of our at risk business and the second is the size of our sales force. Overall in 2012, 32% of our at risk business, which is within the range we communicated in previous conference calls. As anticipated, our at risk volume fell in Q4 to 29%, reflecting a more familiar competitive and pricing environment that we noted on our last call.

While we don't have a target level of at risk business, we look ahead to 2013. I expect our unwritten business will stay around the 30%-plus-or-minus level. The quantum of at risk business hasn't been our problem -- it has been the performance, particularly in early 2012. We gained more market intelligence through the third quarter and slightly tweaked our process for our risk proposals, which has resulted in better risk performance as demonstrated by our strong Q4 auction revenue rate of 11.7%. We also have restructured and simplified the incentive compensation program for RTMs to ensure that they are focused on signing not just GAP, but profitable GAP, growing our revenue. As we head into 2013, we are expecting better performance of our at risk business. So far, we are satisfied with the results of our at risk business in 2013.

With respect to our salesforce, we ended the year with 259 TMs, which was only marginally higher than earlier in the year. This is not good enough when our business is all about customer relationships. So, another key focus for 2013 is to hire, train, and develop the territory managers we need in order to achieve our growth objectives. We are looking to grow our salesforce by at least 10% in 2013. To move the needle in this area, we have beefed up our recruiting efforts, put all our field managers through interview training programs, and revised the incentive compensation structure for our sales managers so they can't earn a full bonus unless they have a full complement of highly productive TMs. So far, so good. Our TM count currently sits at 270, so we are starting to make good progress since the start of the year.

2013 is off to a good start. Our current yield flow is strong. Our at risk performance has been solid in Q1, and we are doing well on our TM hiring plans. This positions us well to hit our revenue targets in 2013. Now, I'll pass it over to Rob McLeod.

Thanks, Steve. Good morning, everyone. I would like to highlight some of the key items from our press release that we issued this morning, and our MD&A that is being filed as we speak. Our 2012 auction revenues were $438 million, including approximately $26 million of incremental revenue from changes to our fee structure that took effect on July 1, 2011. Our total auction revenue rate for 2012 increased to 11.21% from 10.66% in 2011, which is mainly due to the full effect of the changes in the fee structure. Our auction revenue rate in quarter four was 11.7% compared to 10.91% in quarter four of 2011. Our strong quarter four 2012 result was due to better at risk performance, which we attributed to steps taken to correct the slide we experienced in quarter two and quarter three as Steve had just discussed.

Selling, general and administrative expenses for 2012 included incremental acquisition and operating costs for AssetNation and $7.5 million in costs for our strategic initiatives, which were partially offset by positive foreign exchange effect of $3 million. As a result, comparable SG&A increased by 4.5%, or $9 million, 2012 versus 2011. This increase is primarily due to increases in personnel costs. Our quarter four SG&A increase reflects these same variables.

Our pretax adjusted earnings, after giving effect to incremental AssetNation acquisition costs, increased by 17% compared to 2011 in line with our guidance range of at least 15% growth. Finally, our working capital position is now in excess of $90 million, an increase of over 50% in the year. We will continue to monitor our excess cash position with the view of not holding excess cash on the balance sheet. Through this year, we will review our capital structure, evaluating alternatives for deploying and returning capital appropriately.

Now, on to our guidance. For 2013, we are guiding to GAP in the range of $4 billion to $4.4 billion, and our auction revenue rate guidance continues in the range of 11% to 11.75%. We have a renewed focus on revenue as evidenced by our new sales compensation structure, and we are guiding to auction revenue in the range of $460 million to $500 million. Specifically for EquipmentOne, we are forecasting a neutral impact on EBITDA with immaterial impacts on revenue and expense line items.

Our long-term financial objectives remain the same, and we believe that our 2013 pretax adjusted earnings will grow by at least 15% compared to 2012. For 2013, we believe our EBITDA margin will be just below our 40% target, and we are not forecasting to achieve our 15% target for return on invested capital in 2013, but have a clear path on reaching this target in the near-term. Our CapEx for 2012 was $62 million. Looking ahead to 2013, we expect our CapEx will be approximately $60 million, given projects currently in the pipeline. Now, back to Pete.

Okay. Thanks, Rob . We believe we're entering into a more familiar business environment within the equipment market and don't expect to face the same degree of headwinds that we have been dealing with in recent years. In 2013, we will focus on the big three of aggressively growing our core auction business, successfully launching Ritchie Bros. EquipmentOne, and performing with a larger, better managed, and better trained sales team. We are highlighting these areas because success in executing the big three will be the catalyst for us to have a great 2013.

Before we open the call to questions, I would just like to give you a bit of guidance that we would be looking for two questions each from analysts just to try to limit the number of questions, so that all of you can get a shot at asking. We've had some feedback during the intervening period that a lot of you tend to ask and ask and follow-up and follow-up, so please limit your questions to two including a follow-up. Candace, you can open up the call, please.

(Operator Instructions)

Yuri Lynk, Canaccord Genuity.

Good morning. Can you put a little bit more meat on the bone in terms of the plan to improve the at risk business in '13? And, I guess my second question would be, what are you assuming in your guidance in terms of headcount additions -- territory manager additions for the year?

So, Yuri, Rob Mackay here. I'll take the first part of that. Different levels of field management in our sales force have different responsibilities for the D on risk deals based upon the size and makeup of them. And, as we went through last year, we went back and evaluated after a certain period of the year how some of them were doing and assessed that we needed a little bit more focus from our valuation group. And, in some instances, higher than that on different parts of our team, which we instituted later in the year.

As a result of that in Q4, we saw that the groups of people within our team that had to do a little adjustment on how they viewed some of the things, they came back into line where they understood it and created better performance. So, it's an enhanced focus of different, higher levels of management on different-sized deals that we will continue to carry on through 2013, and should affect the right change and continued return that we're expecting from that business.

Yuri, it's Rob McLeod this time. You're asking about guidance on headcount additions in 2013. And, in our script, we were talking about at least 10% growth in our TMs. In 2012, there was about 4% growth. So, we're looking at ramping that up, and we put a number of things in place throughout the organization to help make that happen. So, at least 10% growth.

But, the GAP guidance of for $4 billion to $4.4 billion assumes you're adding -- you're going from 259 to about 285, right?

Yes. That's about 10% growth in headcount. And, there is always expectation of some productivity growth as well in tenured TMs.

Thanks. I'll get back in the queue.

Thanks, Yuri.

Jamie Sullivan, RBC.

Hi, good morning. The commentary on 1Q -- it sounds like you're pretty confident you're going to get some growth. So, it seems like you're setting up for a big march. Maybe you could just put a little bit more detail on what gives you the confidence in that going forward?

Jamie, it Rob McLeod. Our commentary was that where we're sitting right now -- and, I think we've had six auctions so far. So, we're only part-way through -- certainly part-way through the quarter. And, our commentary was that meeting and exceeding quarter one. And so, it's for GAAP. And, it's to some extent early days, but that confidence is based on, I guess, the volatility -- sorry, volume of transactions that we're looking at and that are coming across our desk and hitting our sales teams. As well, as commentary from customers, particularly in Orlando, of their confidence in the construction marketplace. And, that confidence, we believe, would end up in additional -- or incremental transactions.

I think I might also add -- Jamie, it's Bob. As you know, we go through on a regular basis, checking in with our field leaders to see what they are seeing. Visibility improves as you get closer and closer to the end. We're sitting here with one month to go, and the latest feedback from our field has us feeling pretty good about the quarter.

Okay, great. And then, my second question would just be on -- so, you've changed some of the incentives around the risk business. Sounds like you're focusing on that a little bit more. Maybe some conservatism discipline there. But, you'd also -- maybe you need to walk away from some deals as a result of that? Just wondering kind of how you're thinking about the year in terms of if -- would you be willing to have GAAP flat or even down to deliver a more stable ARR in that environment? How should we think about that?

Well, I think we can deal with this in two parts, Jamie. Rob here.

That's a trick question, Jamie, because you've got two parts in one question. So, that's two questions. (laughter)

We are doing our best. We're doing our best.

Maybe there's 1A coming up.

I'm making up for last quarter. (laughter)

I'll deal with the first part at the at risk and its effect on the volume of it. We still will remain very aggressive on the right deals to have, and the big deals, we've got more opportunity to have diversity in the package. And, as it adds to auctions and create auctions, we will be as aggressive as we ever are in those things. The smaller-type deals that could be very small-numbered, whether there are six of the same items of that sort of thing is where we're affording the more focus and where we want to affect change in the at risk rate that we're earning on that. So, from the point of view of the renewed focus on the at risk rate and the hindrance or effect of it on the overall GAAP, I think it's somewhat immaterial.

And Jamie, just -- it's Bob. The focus for sure is on GAAP. The focus is on auction revenue rate. But, at the end of the day, it's about revenue dollars. And so, as we're evaluating the deals as they come across, it's really about incremental revenue dollars and where we're sitting, so that that will go into the decision-making for aggressiveness, if you will, on deals.

And, Jamie, I just want to add something to that. It's Steve Simpson here. I'm thinking there's probably a lot of people on the phone that are requesting our at risk appetite. Make no mistake, as far as we're concerned when we're out there chasing the at-risk business every day, we're as aggressive as we ever were or more so on the great deals. The nice mix from nice owners with the good gear and the good reputation, we're all over that stuff and will continue to be.

And, our appetite on all the other deals is unchanged as well, we're just being a little bit smarter about what we're doing and how we're chasing it and how we're getting the deals done. But, there is no -- we've made some corrective actions on our at-risk business, and it's working nicely, as planned. And, we're going to continue doing that going forward, but we're not going to be able to get to our numbers for the year and get to $4 billion to $4.4 billion if we're not out there chasing the business like we do every day. And, that's what we're going to do.

Thanks very much.

Thanks, Jamie.

Hamzah Mazari, Credit Suisse.

It's actually Andrew here speaking on behalf of Hamzah. Maybe you can just talk to us about your strategy to leverage AssetNation platform? And, how investors should think about your strategy to grow outside of the unreserved auction market?

Sure, Andrew. It's Bob. I think you know we bought AssetNation in May of last year. We launched Ritchie Bros. EquipmentOne on January of this year. It's in initial launch phase. We will be making a lot more noise and expanding it dramatically starting in April. And, the vision has been pretty solid throughout. Our goal in doing this is to try and double our addressable market to provide a solution for all the equipment owners whose needs are simply not met by the unreserved auctions.

We see ample growth with the unreserved auctions. In fact, our research tells us that at least 50% of the marketplace is ready, able, and willing to embrace the unreserved auction model. That's why Steve and his team are out there growing it and aggressively growing it. We see that thing growing from today's -- where we're guiding to $4 billion to $4.4 billion this year. We see that thing moving on to $10 billion, $20 billion and beyond.

But, there's another colossal piece of the marketplace that simply is not going to come to the auction market. These are the guys who are currently using Craigslist and eBay, and they park their truck on the side of the road and put a for-sale sign in the cab. And, for decades, Ritchie Bros. really hasn't been able to work with those folks. We see an opportunity to launch a second solution, and therefore give us a second growth engine, double our addressable market and move in to create value for an entirely different set of customers and different set of transactions.

So, that's the purpose here. It's very much a complementary solution. It's extremely early days. It has been out there for seven weeks. So, it's a bit early for me to start talking numbers and objectives and goals, and all that kind of stuff. But, I can tell you we would not even be starting down this path if we didn't think it could be really, really big. We don't need a small distraction. We're looking for a colossal second growth engine, so we believe we've got a huge opportunity here.

Great. Thank you. Just a follow-up. Are you continuing to see increased competition from brokers and dealers in the used equipment marketplace? Has it slowed relative to last quarter? What has to happen for competition to die down?

It's Steve Simpson here again. I don't really think we've seen any change in the competition from auctioneers or the brokers and the dealers. I think there's -- there certainly is a bit of a shortage of the real, nice, late model years with the right miles on it -- or right hours on it that is in demand right now. So, there's a bit more competition on that, but it's -- aside from that, I would say business as usual.

I think, Andrew, what we have been seeing is the broker-dealer guys, because the trajectory of pricing has changed, we don't have the necessarily the same sort of blue sky numbers that you tend to have to go and compete against when guys are thinking they're going to let the market bail them out of a bad deal. So, that sort of levels the playing field for us in respect of competitiveness on a deal. Sometimes, it's not always the number of guys on a deal, but it's usually the number on the deal. If it's a competitive package of equipment.

So, that creates a bit more familiarity for us, and we're pretty good at generating strong values because we've got such a global platform. We can rely on that to probably outsell and outperform almost every other channel, but when the pricing and the competitive environment within the pricing marketplace is more stable, that allows us to be a bit more predictable and gives us a bit more confidence in delivering on good at-risk rates.

Thank you.

Neil Forster, Scotiabank.

Morning. My first question is just I'm wondering if you can provide a little more color, in terms of the changes you've made on the incentive side? Both in terms of the sales reps pursuing GAAP on a more profitable basis, and also on the territory managers? You mentioned on that side to have a full slate of efficient sales reps. I'm wondering if you could just give us some more detail on that?

Sure, this is Steve Simpson here again. So, all of our territory managers now are all remunerated or bonused based on revenue rather than GAAP. So, the focus to that from there, as I've said to all the guys when we looked at changing this this year is, we've simplified the plan. We've made it crystal clear what they need to do to be successful. And, it's all about revenue. And, as I've said before to the guys, GAAP is wonderful, and you have to have it. And, growth in it is essential, but at the end of the day, revenue pays the bills.

So, therefore, that's our focus going forward, and our guys need to recognize that, because there's many opportunities. I think where we are able to address the revenues on any given deal that we're working on. And, I think we've got a bit slack in that, and with this new program, the guys are focused on it. It's going to pay dividends in the end.

Neil, it's Bob here. I'll just add one comment to Steve's. We've changed the focus of the incentive comp piece, but we haven't changed the size of it. That's really important. I think you used the word commission in there somewhere. Just to be clear for everybody, our standard sales guy probably has about 75% of his comp as base, and 25% is incentive, roughly. We haven't changed that. What we have changed, as Steve said, is the calculation of that incentive piece. It's now simple which it wasn't before. And, it's focused on revenue rather than a variety of different factors. But, it's still not a commission structure.

So, that's the TM side. On the manager side, what we've done is sort of basically divided the comp for a sales manager, his direct boss, the TM's direct boss, to be largely based on contribution, which is what they deliver, revenue minus their controllable costs. But, as there's a component of his bonus that's also based on the number of productive TMs that he has in his mix, and he's got a target for that. And, he has to make sure that he has TMs underneath him that he's coaching and growing that are hitting their targets. And, if they're not, then that will adversely affect his income, too. So, there's more a direct alignment between sort of the bottom line performance for the shareholders and the top line performance of these individual guys, as it goes.

That's helpful. And, then my second question is on SG&A. It came in a bit on the high side versus what I was expecting this quarter. Was there anything unusual in that number? And, what's a good level that we should expect moving forward?

Neil, it's Rob. Yes, it's actually, like I said in the comments, nothing necessarily unusual in quarter four -- or, I guess, unexpected from our point of view in quarter four. Definitely increased from last year as a result of a full three months of AssetNation costs in there that obviously wasn't there last year. And, they were building up through the purchase in May. And, always, there's a comp -- incentive comp component in quarter four when you're near the end of the year and you're finalizing your numbers. That may have a small tweak in there, as well, compared to prior quarters and quarter four being a big quarter.

In addition, actually in quarter four, there was a bit of a foreign exchange negative impact. Not quite about $1 million that increased SG& A Quarter Four this year versus last year. So, it had kind of the opposite offset effect in Quarter Four versus the whole year.

So, should we expect some moderation from the Q4 number? Looking into next year?

Usually -- our G&A isn't -- normally is not flat quarter to quarter to quarter. Through the year, Quarter One is usually a little bit -- if you look back, usually a little bit higher just due to Social Security costs, other sales. Like our sales meetings happen in the beginning of the year, so that hits in Quarter One. So, Quarter One is usually a little bit higher than the other quarters, particularly in relation to the volume of business because GAAP in quarter one is a little bit lower.

And so, taking that Quarter Four and just pushing it all the way through each quarter is -- isn't necessarily going to get you there. But, if you look at where we ended up in the latter half of 2012 because that will include all of your AssetNation costs. It will include all of our costs associated with our strategic initiatives that we initiated in 2012, and so that would be probably your best bet for looking at 2013.

That's helpful. Thank you.

Thanks, Neil.

Nate Brochmann, William Blair and Company.

Good morning.

Morning.

Wanted to talk a little bit more on the territory manager hiring front. And, I clearly understand that you changed some of the programs to make sure that you are encouraged to reach the numbers. But, looking back on it, like over the last year and a half or so, in terms of maybe why you didn't quite get to the level you wanted, what do you think was the biggest impediment there in terms of why that territory manager hiring was lower?

Nate, it's Rob again. Just my take on it is all about management focus. We are a sales-driven organization, customer service-driven organization, and so sometimes that opportunity to interview somebody or pursue a candidate doesn't necessarily take a priority. So, what we need to do is ensure that it is a priority for all of our sales leaders and all of our senior executives within the organization. And, that focus has been renewed and cemented, latter part of 2012 here and for sure into 2013. And, you see that by the addition of TMs here in early 2013. There were 270 so far.

And, I also, just in line with that, I also note, too, that you went through a culling period, too. Some of the TMs that maybe didn't quite meet the new criteria of a more challenging environment or terms of their skill set. Do you feel that you have in place now the right profile going forward? As you are hiring on these more TMs, that they really truly fit what you need in today's organization?

Nate, Steve Simpson here again. I think we've definitely had some changes in our sales force, and as you mentioned, it was the market has been challenging the last couple, three years. And so, some of those people weeded themselves out, if you will, but are we happy with how we're placed today with the additions we've made? Absolutely. And, we've had a bunch of really, really great new hires recently that we are running through our training program as we speak.

And, the future looks very bright. So, we are pleased, and we're going to stay focused on it. As Mr. McLeod said, the guys are -- all the managers now are focused on those hiring those quality sales guys as if it was a $15 million deal. And, as you know, none of our guys walk away from $15 million deals too quickly, and it's a focus in their life. The awareness level is at an all-time high. Our expectations for the people we're hiring are at new higher levels, and it's all about quality, quality, quality. And, that's what we're looking for with guys that can go out and turn over rocks and get deals done.

I should also point out, Nate, that the TTM program we started a few years back, and now it's really come into its own. TTM stands for trainee territory manager. Good, young guys that we pick off, and we bring them into the organization that they might not have as much experience as others. So, we train them first, and they usually go about a year until they graduate to TM status. Right now, there's about 21 of those TTMs that are in the mix that are not included in any of our numbers.

And, that's just kind of like a trainee program to dip them in orange and get them focused. Steve talks about quality, and we can find really high, high quality people that might not be exactly in line, or dipped in the equipment experience that they need. And, we can give them out. So, it's a program that we started that's being expanded in terms of its support and the format by which we bring these people in and how we train them up.

So, we beefed up our HR side on the front end to find them. And, the recruiting site, we're way more actively and aggressively engaged. It was a bit more of a passive effort in past years to see who lands. And, typically, territory manager, you are going to get 200 or 300 resumes, and you've got to weed through those. Sometimes, the passive log of resumes in becomes almost a clog in the system.

So, we're out there actively looking for the right kind of people. Either experienced, or even if they're not, then there is a TTM program we slide them into. So, we're pretty optimistic were on the right track, and it's just about -- Rob said it earlier, it's about management focus, and it's about execution. And, we know we can do this. We're doing it right now, and that causes us to have a fair bit of optimism of where we're headed here.

Sounds good, thanks for the extra color.

Thanks.

Scott Stember, Sidoti & Company.

Could you talk about -- I know you said it was a little early to comment on expectations from EquipmentOne. But, in the first seven weeks, what has anecdotal commentary about any reaction from the new customer base that you're going after?

Yes, Scott. It's Bob. The reason it's early is because we really haven't marketed or promoted it yet. So, the volume -- the transaction volume is quite low. So, it's tough to predict, much as I'd like to. What we have seen is migration of the existing or legacy AssetNation customers from several of their marketplaces. We've moved them over to EquipmentOne, and that is who is busy transacting on there right now. And then, we're getting good feedback from them. Things they like. Things they don't like. Things that could be better. Things they don't want to see any more. And, that's what we're enjoying, if you like, during the initial launch phase is the ability to make changes based on feedback from people who are actively using the site. So, it has been very successful in that sense.

What is definitely too soon to talk about is trends of transactions or prices or anything. It's just the volume of transactions is low on purpose. We're in an initial launch phase, so that we can get ourselves ready for commercial launch. It's working. It's great. The transactions are there. Things are selling. People are happy. But, it's so small compared to where we think it's going to be that I'm not even internally making predictions based on this.

Got you. Last question. Can you talk about what the costs have been -- or relatively speaking -- for EquipmentOne and what will be continuing into 2013?

The cost of EquipmentOne? Is that what you're -- ?

Yes, the cost to get it up and running?

Thank you. So, when we bought AssetNation, it was a profitable Company. What we've simply done is reinvest their EBITDA, if you like, into the development. So, our guidance through the end of 2012 and it continues through 2013 is immaterial revenues and expenses and neutral impact on EBITDA, because we're simply reinvesting what the business generates into the business. And, that was our guidance from last year, and we're maintaining that now.

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

Thanks, Scott.

Bert Powell, BMO Capital.

Thanks. Steve, I'm wondering if you could just give us some commentary in terms of the equipment that is showing up at auction these days? Or, what you're bidding on? What's the average age look? And, hours? Because when you talk about pricing, the pricing is always relative to the same store sales. But, if the average age is going up, you would expect that the average price is going down? Can you help me with that a little bit?

Yes. The age of the assets we're selling, I would say to you is coming up somewhat. Given the lot of manufacturing new stuff and the consumption by the buyers in '09 and 2010 -- that that makes sense as far as with those items coming in with more hours than they typically would and guys holding on to them longer. But, generally speaking, we're starting to see more flow of later -- the really, really late stuff with lower hours than some of the new stuff, which is creeping its way into some of our auction sales. We're seeing nice results on those. But, the mix, I think, will continue to evolve and get back to sort of more normalized levels over the next couple of years.

The age -- the pricing -- interesting enough though, the stuff with some hours on it of very good quality from a very good home with good history is still bringing good money, and in some cases coming up. It's the more questionable stuff that has fallen off, and we saw some of it in this past week that didn't have a lot of history attached to it, and the price was affected.

Okay. And then, just second question, Bob. Just in terms of EquipmentOne, in that the commercial launch happening later on. Is the fee structure that's in place today, is that what's contemplated at commercial launch? Or, is that going to evolve as well?

So, the fee structure that's in place today -- I'll take the risk of going into bit of detail here. There's two types of fee structures, if you like. There is a buy side and a sell side. On the buy side, the fee structure is a 10% buyer's premium, and there is no intention to change that. And then, on the sell side, there's fees and stuff, depending on the nature of services we're providing. Right now, we're working with corporate accounts, and there is a fee of some sort they pay. It's very different than the fee that an individual like Bert's Landscaping would pay. So, in April, you will be able to come on and list your backhoe. And, there will be a fee structure for you that's quite different than a large corporate account, because you'll be doing a fully self-service-type model.

The 10% fee for the seller is capped though, correct? Under the current structure? Like there's a cap at $2,500?

There are two 10%s. So, let's be really clear. There is a 10% buyer's premium, and there's no cap on that. And, that's the vast majority of the revenue that EquipmentOne is and will generate. And then, you're right. On the individual seller, if Bert's Landscaping lists your backhoe, the current structure is a $50 listing fee plus 10% on the first $2,500. So, there's your cap. So, in other words, grand total of $50 plus $250 equals $300. That's the most you would pay under that fee structure.

But, the buyer pays 10%?

The buyer pays 10% all the way.

All the way. Okay, thanks.

Steve Volkmann, Jefferies & Co.

Thanks. It's [Shirak Patel] stepping in for Steve for the moment here. Just one quick question on EquipmentOne as we go forward, and even in the fourth quarter -- was there any revenues recognized from AssetNation in 4Q?

Yes, it's Bob here. Yes, in 2012 in Q4, all of the revenues of AssetNation, pre-launch of EquipmentOne, were included in our auction revenues, but they were immaterial.

Okay. That's definitely going to have an impact of some sort on your auction revenue rate as we go forward. What -- there isn't going to be anything on the GAAP side of things, so it would just be revenue straight into that line? How is that going to impact your current guidance for the 11.0% to 11.75%? I would have assumed that it would add a significant amount to that percentage as you're going forward? Just by $5 million would probably give you another 30 bps to 40 bps per quarter?

No, not quite. Because while there isn't GAAP, there is something that we call GTV, gross transaction value. So, the value of everything sold on EquipmentOne and other AssetNation marketplaces is called -- internally, we call it GTV. Right now, it's being included in GAAP because it's immaterial. Perhaps down the road, we will break it out and disclose it separately. But, the addition of the AssetNation businesses and EquipmentOne has a positive impact on GAAP, a positive impact on revenues, and I guess, it's called a negative impact effect on expenses. (laughter) An incremental effect on expenses. So, all of the line items are impacted, and we're not expecting any material change to what is now called an auction revenue rate.

Perfect. In that case, I just had one quick question on the additional headcount. What's the additional cost associated with that as well? In 2013?

Yes. Well, for sure there's incremental cost. Because when you hire a new sales person there, you're paying them a salary. You're providing a motor vehicle. Obviously, depending on when you hire them in the year, they have a prorated affect. But, that's all -- obviously, it's all anticipated.

We have a very rigorous program of determining how many territory managers we hire, where we hire them, and some sense, when we hire them, as well. Obviously, if we find a great candidate, we will hire them, and we will create a position for them. Maybe a few months earlier than we might have originally intended. For sure, there's incremental costs to that, but the revenue generated from them more than compensates for that

It's all integrated into our guidance numbers, too.

Yes.

I appreciate that. Thank you.

Okay.

Gary Prestopino, Barrington Research.

Good morning, everyone. Could you give us some idea embedded in your guidance what you think the US market will do this year in terms of the percentage change? You said it was basically flat this year, and I'm talking about GAAP. What are you looking at from the US market this year for growth in terms of GAAP? Can you give us that?

Gary it's Rob. No, generally we don't give that that much (laughter) -- thanks for asking, though -- that much detailed guidance. But, for sure, the US -- it is our biggest market. It's 50% of our Business, more or less, and we're seeing, I guess, a little bit more constructive or realistic, positive signs in the marketplace than we have in the last couple of years. So, we're expecting growth in the US, and we're expecting increased used equipment transactions in the marketplace.

It's fair to say, we've seen elevating demand in the United States for product relative to elsewhere in the world. So, when we look at equipment, especially in Orlando, equipment that's bought and where it goes to -- increasing demand in the United States, which has been a bit of a reverse of what we've seen in prior years where we've seen rather low, lower US dollar and lots of international demand, Canada, Australia, Europe, wherever it may be. South America.

So, interesting to watch that, and it's supportive of some of the broader macro factors that you can see US construction spending going up to the $885 million range, $1 billion annualized and housing starts up. All the metrics are sort of moving in the right direction, and we're just saying anecdotally what we hear from our people that we talk to on the street and are digging post holes and putting up schools for a living, they're walking with a bit of a spring in their step relative to prior years.

And then, just there was a lot of questions swirling around what you're doing with the at-risk business? You said you're more focused on the valuation group, I guess, with your salespeople? Was the prior model where possibly the sales person had more leeway in structuring a deal, and you may have taken that away from them now? Or, just having both entities work closely together? Or, am I totally off-base?

It's Rob here. It is not necessarily the salesman. Each management level in the Company from the regional level up to Steve and myself have eyes and ears on deals and are involved in specific levels of deals based on the size of it. So, we've just done some adjustment to that, and it resulted in some positive effects in Q4, and we're just going to hold the line on it as we go into 2013.

And, Gary, it's Rob McLeod. I guess, be aware that the market is changing all the time, and as we're going through our business, we and the rest of the marketplace are chasing prices upward. Chasing prices down. And, at some of those inflection points, we may get cost on a few deals just because our ability to strictly anticipate when that inflection point happens. And so, having the intelligence in regards to what's happening in the marketplace and in pricing and in demand for particular types of equipment, that's really, probably the biggest impact on our at-risk. And so, I didn't want to leave -- have you leave with the impression that we can pull tools out of the toolbox and make every at risk deal fly through the roof.

Okay, thank you.

Thanks, Gary.

Scott Schneeberger, Oppenheimer.

Hello. Thank you. Could we spend just a minute on the Orlando auction? The GAAP was a good bit lower than what it was in a record year last year. Could you just kind of compare and contrast the two years on items -- the number of items sold? Perhaps mix? Any color you care to share about auction revenue rates between the two years? Just any incremental color on the comparison? Thanks so much.

Steve Simpson here. So, the assets, or the GAAP, if you will from the two sales. So, this year, the lot count was down, I think, 500. I really -- I think some of the stuff that I think occurred as it relates to that -- we've seen some increased activity in the market, generally speaking in the Southeast. Just has localized into Florida -- we were there all week, there is a lot of stuff going on in Florida. They're building houses again and apartments and roadwork is going on. A lot of the assets we get from -- for that sale do come from the local area albeit it's not on a regular basis, you're getting stuff from all the Southeast and sometimes further afar. But, with the increased activity in the US market, I think some of that tightened up a little bit.

Generally speaking, we get a lot of assets in there from the rental companies, which this year that was down a little bit, as well. The rental guys are -- their level of assets that are engaged and were actively working in the field, they are at all-time highs. So, the quantity of some of those assets were down for sure. And then, some of the quantity of the higher-priced, late model, low-houred stuff was also done a little bit. That had some effect in it. But, generally speaking, though, the swings in that Orlando sale, we were actually looking at the numbers yesterday for the last five years, and that thing has peaks and valleys just like Ritchie Bros. does. It's so hard so often to nail any quarter or any given sale from any year, and this year was a perfect example of that.

We don't see any particular trend in Orlando up or down. It's sometimes a bit choppy, and really it's we're selling what's for sale. So, as Steve said, the product that was available for sale primarily from the Southeast marketplace in the US. It's active down there right now, and I don't know if you have had a chance to get down to that marketplace and take a bit of a holiday, but you're driving around road projects and delays in construction because of lots of stuff happening down there.

That is characteristic of little bit of our comments around what's going on in the United States today. It's a little bit more active. More things going on. There's a little more -- particularly in the housing market -- a little more activity. We saw prices of things like telehandlers and backhoes which are items that are used -- easily used in the housing construction market as being up. So, those are all good signs, and I'd like to say it gives us cause for optimism about where the US is coming out of its past low ebb.

Thanks. I guess you mentioned on a previous question you've seen more US purchasers as opposed to international. Could you put any quantification on that? This year versus prior years? And then, along that same ilk to keep it to a second question -- two parts -- what is in guidance with regards to -- ?

That's a trick. (laughter)

I figured I'd pull a fast one here at the end. The China entry, how much is that in -- how much should we model in out-years for that to ramp? Thanks. This is more of a contextual question.

It's Steve Simpson here. I'll take the first part of the question when you're talking about the US buyers. So, I have been at most of the sales out of the gate here in the US, and the US activity from US buyers is definitely coming up. The confidence from those guys is noticeably different and better. And, the activity that we saw in Orlando and Phoenix and Houston and Las Vegas and Tipton, it was very positive and the confidence in the buyer is talking everybody at all of the sales. Again, noticeably different, and it sure feels like those guys are focused on going forward. There's more work out there. The pricing levels for some of the jobs is coming up. There's a lot more activity. So, it's a positive as I have seen it for 3-plus years, for sure. And, it feels like -- we've said this before -- last year it kind of felt this way. It feels like this thing is going to get some legs in it, and it's going to flow through the year.

Scott, it's Rob, and I'll take your third question, and if -- .

2A -- part 2A.

If Ben isn't able to get his question in, he knows who to call, Buddy. Going into the China market is just like every other new jurisdiction that we going into. We go into that marketplace with a brand-new product, an unreserved auction, a truly unreserved auction, a Ritchie Bros. auction. Where we are training the marketplace -- both the buyers and the sellers what that means and how it works. And, providing that level of transparency in the marketplace.

So, it is a slow training process. Exactly the same as when we went into Alberta or into Texas or into Holland. We're not -- don't build a huge GAAP profile for China auctions in 2013, 2014. Because by our history, it takes a while for us to train the marketplace and to build and cement those relationships with the customers to participate.

Okay. Thanks.

Craig Kennison, Robert W. Baird.

Good morning. Thanks for taking my questions, as well.

We were waiting for you, Craig.

Thank you. On the 75%-25% salary commission structure that you mentioned earlier? I know that's been part of your model for a while. Did you contemplate changing that mix as you changed some of the metrics that inform that compensation?

It's Steve Simpson, here again. We definitely contemplated it. There was lots of discussion about it. We had a -- we put together a committee of -- I think there was probably 80% sales guys and then a couple of guys from HR and some of the accounting guys in the room. We bashed it around for days, deciding what made the most sense and just to keep our guys focused as one team. In the end, we decided it was not the right thing to do to change the balance.

And, if we took it too far the other way where the guys were more focused on the bonus than they were their salary, we thought we'd lose some of the one-team effect. And, so often, our Business is very spread out, and a lot of our customers have been going on all over the country or all over the world. And, it takes multiple guys and multiple people, if you will, to get the deals done and do the things that we do.

So, we think the mix is right. It's worked well for 50-some-odd years, and all we did was made some appropriate changes to focus in on revenue rather than GAAP. And, I think it's going to work out well. It has been well received by the guys. They are excited about it. They're excited about the clarity, and I think it's going to be a great year for everybody.

With respect to EquipmentOne, it seems like you view it as an entirely separate platform? But, to what extent do you see the sales force cross-selling those services to the same customers? Thanks.

Sure, Craig. We've actually given very clear instructions to our sales force that they not be actively selling this product. With one exception, we have a group we call the strategic accounts group, which is a sales force that calls on the Fortune 500-type of companies that really require a full asset disposition management-type program. So, we have a sales force that calls on those people. But, the vast majority of EquipmentOne users are expected to be self-serve, not being called on by any salespeople at all, and that means that the Ritchie Bros. sales force will be selling the auctions.

They are currently and should be calling on people whose needs are met by unreserved auctions. If they happen to stumble across a guy who is not in that category, and they've had four meeting and they still can't solve the problem, they can give the guy a brochure. But, we do not expect or want our sales guys to be selling this. It's not the model. It is a very different model.

Thank you.

Operator, it's probably time for last question, if there is one?

Ben Cherniavsky, Raymond James.

I can't believe I just slipped in there. (laughter)

Way to go, Ben.

Maybe -- so my two questions. On EquipmentOne, I can appreciate that you are seeing it as sort of earnings-neutral this year. But obviously, you didn't buy the business for it to be earnings-neutral. So, what can you tell us? Or, when can you start telling us how you think this financially impacts your Business as we think longer term?

So, Ben, it's Bob. I suspect that when we give guidance for next year, that will be an appropriate time for us to tell you what we expect in terms of 2014, which my absolute expectation, if I'm still employed by Ritchie Bros. is positive earnings contribution. It's too soon to give any guidance. So, this time next year, you'll probably hear from us on that.

But, what about like -- obviously, when you bought the Business and did some valuation on it, you had some idea what this thing might be able to do? Can you tell us what the opportunity is? The size -- what the long-term potential is?

Yes. I like your question. We would not have gone into this if we didn't think it could be huge, and it has the potential to be a $1 billion-plus market place. But, we don't know how fast it gets there, or at what speed. But, it has the potential to be there. If it didn't have the potential to do that, we wouldn't be here.

Okay. That's helpful. You think it could one day add as much as $1 billion?

Sure. Absolutely.

That's GAAP, not revenue.

Okay, thanks. And, if that counts as one question -- .

Nice.

My second one is that I think Rob made some comments about the G&A in the fourth quarter, and some of it being impacted by AssetNation. And, I'm just a little confused because I remember very vividly when you bought that business, and there were quite a few questions about whether or not it was going to be a drag on your numbers. You felt very strongly it would be immaterial, both to revenue and costs, and that it wouldn't be another one of these G&A items that we would have to sort of extract and manipulate and all the other sorts of things. So, what's changed there? Why did that end up being something that now you feel you need to pull out?

It was the one-time acquisition costs, which just like GAAP -- generally accepted accounting principles GAAP -- end up in G& A. We're just identifying that that's not a recurring item.

The IFRS rules are really applying here now, right? Bob is not the CFO any more, so he forgot about that stuff. Under IFRS, all the transaction costs have to be expensed at the time the deal is done, Ben, so we did one big whack in G&A. But, your question more is to Q4, I think, so Bob -- Because Rob said it was one of the reasons why G&A was up in Q4? Right, but also, it's EBITDA-neutral because we have revenue, as well. But, when you isolate those individual line items, they've had some impact. It is not a huge impact, but it has some impact for sure. But, on the bottom line, it is neutral. That's what we were guiding to.

No. The question was very clearly about whether or not it was going to be another one of these G&A items that was going to start showing up, because clearly a lot of people have been focused on G&A. I think rightfully so. It needs to be -- you need to get some operating leverage here. I remember very clearly the discussion that -- the concern that when you bought this was going to be another one of these things we have to pull out. And, at the time, the message was it wasn't. But, we can take the discussion off-line, if you want.

I think, it's more highlighted I think in the filing that we did today, Ben, where there's a lift in Q4 '11 versus Q4 '12. And, one of the change items in that is, of course, a line item impact of the G&A from AssetNation. There's like 80-odd employees in that group, so you've got costs in 2012 Q4 that didn't occur in 2011 Q4, and I think that's what Rob's comment is, relative to the prior period.

And, revenue as well.

And, revenue as well. Yes.

Okay, thanks.

Okay, thanks, Candace, and appreciate everybody's attendance on the call today. We'll look forward to talking to you in Q1. Thanks.

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