RB Global Inc (RBA) 2013 Q1 法說會逐字稿

Good morning. My name is Lisa and I'll be your conference operator today. At this time I would like to welcome everyone to the Ritchie Brothers Auctioneers 2013 Q1 earnings call. Instructions). Mr. Peter Blake, you may begin your conference.

Thanks, Lisa. Good morning, everyone, thanks for joining us on our 2013 Q1 investor conference call. I'm joined today by Steve Simpson our Chief Sales Officer, Bob Armstrong, our Chief Strategic Development Officer, and Rob McLeod, our CFO.

Before we start I would like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined 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 adjustable market, are considered forward looking and involve risks and uncertainties.

The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our SEC and Canadian securities filings, including our management's discussion and analysis of financial condition and results of operations for the period ended March 31, 2013 and subsequent quarters, which is available on the SEC, SEDAR and Company websites. Our definition of Gross Auction Proceeds may differ from those used by other participants in our industry. It is not a measure of financial performance, liquidity, or revenue, and is not presented on our statement of operations.

And finally we'll be discussing adjusted net earnings which is a non-GAAP measure. We define adjusted net earnings as financial statement net earnings, excluding the after tax effects of sales on excess properties and significant foreign exchange gains or losses resulting from non-recurring financial activities. A reconciliation is available on our MD&A for the quarter.

On to first quarter results. We achieved a record auction revenue rate of 12.07% based on auction revenues of $102 million in gross auction proceeds, or GAP, of $845 million, which is down slightly compared to the first quarter of last year. The increase in our auction revenue rate is largely driven by the performance of our at-risk business while one significant factor contributing to our slight GAP decrease ties back to our territory managers. Steve will expand on both of these points in a moment.

That said, we remain confident we'll meet our forecasted top and bottom line growth targets for 2013. The reasons why we are confident about the balance of our year are a combination of specific internal strategies that we're executing and that are showing good signs of positive impact, and some external macro factors we believe are beginning to work in our favor. Because the market is so large and we have a small percentage of it, much of our future success relies on our own continued internal execution, although clearly we are not immune from economic shifts. And because of that, we remain conservatively cautious due to economic uncertainty in some of our major markets.

Construction spending has traditionally been a key driver of used equipment transaction. Because of that -- sorry, sorry. Because about half of our revenues is in the US, we tend to focus the majority of our internal economic analysis in that market. If US construction spend continues to improve as anticipated, this trend should be a net positive for us in 2013 and forward, and should support an increased flow of equipment through our auctions We have noted recent increased activity in the US housing market which is supported by recently published macro data, and we note that demand for equipment serving those industries is more robust than in prior periods.

In recent periods we have been feeling the effects of what we refer to as the demographics of the used equipment population. As previously notedthere's been a lack of supply of late model equipment, specifically good quality gear with low hours stemming primarily from the dramatic decrease in production by the OEMs in 2009 and 2010. Historically about half of our equipment sold at the auctions has been between two and seven years of age.

Given the shortage of three and four-year-old equipment in circulation, and therefore a shortage coming to market, there's a temporary void in the middle of our sweet spot. So even though we are continually selling more items at our auction, the recent mix shift has dampened -- has a dampening effect on GAP, and therefore our revenue growth. This negative bubble is working its way through the system but continues to impact the average age and therefore the average value of equipment coming to the auction.

It appears the main impact of this headwind should dissipate over the next couple of years but it could continue to affect our trajectory of growth in 2013. One factor we expect to be neutral in 2013 through the year is the used equipment pricing. Prices started off in 2013 with a small lift over Q4 levels in most categories and has remained relatively stable over the last few months.

Large mining gear is more broadly available and understandably that can impactpricing, but beyond that category, we see no reason to expect significant variations in prices going forward.

To summarize, we're facing a collection of positive, negative, and neutral market forces in 2013 and irrespective of all of these, we believe our results will largely be driven by our ability to execute on our strategies, and as I mentioned earlier we remain confident that we'll meet our forecasted top and bottom line growth targets of the year.

Before I turn the call over to Steve, let me share with you quickly, on April 18th, I attended our first sale in China which was a huge success. Large crowds in attendance and active participation from both online and on-site bidders. Our goal was not only to hold our first unreserved auction in China, but also to gauge customer responses and see how our operations held up during the pre- and post-sale process. And we were very pleased.

We have an opportunity to grow our core auction business in one of the largest, untapped and underserved markets for the exchange of used equipment, but we will be very deliberate and very methodical leading with our founding principles of treating customers fairly, adhering to all rules and regulations, and maintaining the highest standards of business ethics. We are encouraged by our customer responses and the responses and feedback from the Chinese authorities to our initial auction and have all ready begun building for our next sale in China. Now over to Steve for a sales update.

Thanks, Pete. Good morning, everyone. On our last call, we told youthat two key focus areas for us in 2013 would the performance of our at-risk business and our ability to grow our sales force. We underperformed in these areas in 2012 and we told you that we needed to improve both of these in order to deliver on our plan for 2013.

Our at-risk performance in Q1 was excellent as reflected in our well above average auction revenue rate. For the quarter, our at-risk business volume represented 20% of our total, lower than it has been in recent periods and reflecting a sense of confidence from our equipment owners on the stability of the used equipment values in the current marketplace. I do not expect our at-risk volume to remain at this level for the year and won't be surprised to see a trend upward, but unlikely to the levels we've seen in recent years.

The quantum of at-risk business is interesting, but its performance is what's important and we are extremely pleased with our performance in Q1. Our TMs have been focused on signing profitable GAP in order to grow the revenue line. To be clear, they've been aggressive on all risk business that we have pursued during the quarter, but as always there were some tight deals in which we decided to walk away. We're not chasing GAP, we're chasing profitable GAP and our Q1 results reflected that.

The second focus area we drew your attention to was the growth of our sales force. During the first three months of 2013 we increased the number of territory managers by a net of 14, for a total of 273 TMs in our sales force and a 13% increase year-over-year. Hiring new territory managers in itself does not lead directly to GAP in the quarter, but it does prime the pump for the remainder of the year and even more so for the next year and years after that. We have the sales tools and the training in place to ensure TMs are well-coached and trained to sell auction services and to enhance the productivity of our existing sales force.

We added more TMs in Q1 than we did in all of 2012, reflecting the results of our forecasted effort and a lower sales force turnover. We are presently on top to achieve our full-year hiring target during the first half of the year. Now over to Bob Armstrong.

Thanks, Steve, and good morning everyone. On our last call, we were in the midst of our initial launch phase for Ritchie Bros. EquipmentOne. At that time we were migrating legacy AssetNation buyers and sellers on to the EquipmentOne platform and working with these customers to enhance the marketplace.

We successfully navigated through the initial launch, made modifications and tweaks along the way to enhance the buying and selling experience, and on April 8th we went live with the commercial launch. This marks a key step in fulfilling our vision to deliver an innovative solution to meet the needs of equipment owners, whose needs aren't met by our unreserved auctions, but who are nonetheless looking for a way to exchange equipment with ease and confidence. EquipmentOne makes private sales easy, fair and secure.

The commercial launch was an important step and we're now in the growth and nurturing phase, attracting supply and demand to this new marketplace. $18 million in transactions moved through the EquipmentOne and AssetNation marketplaces in the first quarter, even before our commercial launch and we're looking to grow from that point on the back of our marketing programs and new features and functionality that were released this month such as intuitive self-serve listing tool, price reference tools, mobile device functionality, and the EquipmentOne Total Buyer Protection Program.

We've accomplished a lot over the nearly 12 months since we acquired AssetNation and we're very pleased with this newest solution which we believe gives us a second growth engine and an opportunity to double our addressable market. We still expect the EquipmentOne and AssetNation marketplaces will not have a material impact on our overall financial positions or results of operation for 2013. Now that we're officially launched, I look forward to updating you on future conference calls. Now over to Rob McLeod who will provide a financial overview for the quarter.

Thanks, Bob, and good morning, everyone. I hope you've all seen our press release this morning announcing our first quarter results. Our MD&A is currently being filed. We achieved gross auction proceeds of $845 million and auction revenues of $102 million for the first quarter of 2013, a decrease of 2% and an increase of 1% respectively compared to the same period in 2012.

Included in the GAP and auction revenue numbers are $18 million in gross transaction value and $3 million in the revenue for our EquipmentOne and AssetNation marketplace. Our auction revenue rate increased to 12.07% in the first quarter of 2013, from 11.71% in quarter one of 2012 and 11.21% for the full year of 2012, mainly due to better performance of our at-risk business.

Our at-risk business represented approximately 20% of our gross auction proceeds in the first quarter compared to 29% for the first quarter of 2012. While we do not have a target level for our at-risk business, we expect our 2013 volume to be lower than the 2012 levels. Our selling, general, and administrative expenses in quarter one increased to $71.1 million compared to quarter one last year totaling $63.3 million.

This increase was driven by the $4.6 million of operating expenses from the EquipmentOne and AssetNation marketplaces and as planned, a $2.5 million increase in our sales team expenses, reflecting a 4% increase in our core business G&A.

Our rolling 12-month EBITDA margin came in at 35% compared to our rolling 12-month EBITDA margin of 38% at March 31, 2012. The EBITDA margin was affected by the EquipmentOne and AssetNation marketplace offering expenses, but we still expect our EBITDA margin for the full year to be just below our 40% financial target.

As for CapEx, we are on plan to spend in the range of $60 million in 2013, and we do not expect to exceed that in each of the next few years. We are mindful of our excess cash position, maintaining the view of not holding excess cash on our balance sheet. At the beginning of this year, we're in a positive free cash flow position and we have opportunities for deploying and returning capital appropriately, which would include debt repayment and/or returning cash to shareholders.

We're reiterating our full-year guidance for GAP in the range of $4 billion to $4.4 billion, though based on the results to date we now believe it'll be at the lower end of this range. We maintain our guidance for auction revenue rate in the range of 11% to 11.75% for the full year. Auction revenue guidance continues to be in the range of $460 million to $500 million.

We continue to believe adjusted net earnings before tax for 2013 will be at least 15% higher than last year's earnings before tax. As mentioned in our prior call, we will not achieve our 15% target for return on invested capital for 2013, but we fully expect to reach this target in the near term. As Bob mentioned, for our EquipmentOne and AssetNation marketplace, we're forecasting neutral impacts on EBITDA for 2013. Now over to Pete for final comments.

Thanks, Rob. In the quarter we grew our core auction solutions with our first auction in China, and we added a new business solution with the launch of (inaudible -- background noise) EquipmentOne. Both of these initiatives have potentially become very significant parts of our business in the years to come and while it's still early and we have lots of work to do on both, we're encouraged by the customer and regulatory authority responses to both of our initiatives.

With all we have on, we remain confident we are on track to deliver and execute to achieve our 2013 guidance targets as planned. From our last call, we did receive a lot of positive feedback from most of you regarding our Q&A format and would like to continue it for this call, so please limit yourself to two questions, including any follow-up questions. Lisa, can you open the call to questions, please?

(Operator Instructions). And your first question comes from the line of Cherilyn Radbourne from TD securities. Your line is open.

Thanks very much and good morning. You had a pretty big drop in the percentage of at-risk business as a proportion of GAP. I'd just be interested in your comments as to how much of that you think is a reflection of increased control on the bids vs. increase in confidence on the part of the customers.

Hi, it's Steve Simpson here. I think the level of the at-risk businesses is such that I think as you commented, the confidence generally speaking of the consigners is much better than in previous years given the confidence in the marketplace and the pricing, so we're not being requested to provide guarantees or buys as much as we were last year at that time, so if that's going to trend going forward through the rest of the year, time will tell. Certainly even at this point in the second quarter we're seeing similar levels of risks, so it seems to be a trend at the moment.

Okay. And then just an observation about your business. You've always got to strike the right balance between adding enough sales people to support growth and not hiring so many that training them becomes too much of a distraction for your existing sales people. Just curious whether you felt like you struck the right balance year-to-date or have you perhaps hired a bit too many too soon?

I can take that, Cherilyn. It's Pete here. Part of our goal is to make sure we filled up our coffer of TMs. I think we did a less-than-acceptable job at that last year, in fact, fairly flat through the year. It's a bit of a make up to add net 13 in the quarter. It doesn't stress us out too, too much, but at the same time it does make sure that our guys are focused on recruiting and findingthose people, and getting them on board, treating them as if they're a deal in themselves because those are the ones that can leave or go forward. It takes time and energy for sure, but in the long run it's the right thing to do.

Okay, I think that's two. Thank you.

And your next question comes from the line of Hamzah Mazari from Credit Suisse. Your line is open.

Good morning, thank you. The first question is just on negative mix that you highlighted with some of the older value equipment. Could you talk about how investors should think about this flushing through your system? Is this going to last through 2014? Do you need OEM production to ramp up significantly for this to clear out? How should we think about this headwind going forward?

Sure, Hamzah, it's Pete here. If you look at the OEM production in general, you can look at almost any of them and they're all very similar. You see a dip in mid to late 2008, really down in 2009, and 2010, compared to prior periods of 2007, 2008. So we see that reflected in the population of equipment being sold and we're seeing it even this 2012 year when we sold new and 1 year-old equipment, which is, by definition in 2012 would be 2011 and 2012 model year stuff. We saw an increase in the percentage of that stuff relative to the rest of our population to GAP, and we saw a decrease in the three and four year-old equipment. As we watch this in phenomena work through the system, it's probably going to have as we said in our call, a lessening effect on our trajectory of growth.

It won't inhibit our growth, but it'll have a lessening effect as we work through. I suspect in 2013 what we'll see lesser four and five-year-old equipment in our mix and you'll see an increase in the other stuff. I guess the best way to look at it is, in our marketplace we sell what's for sale and we see -- we have in the last couple of years seen a decline in the late model, low hour stuff because there was less made, and whether you look at Kumatsu or Hitachi or Packard or Cat, whomever, it doesn't matter, Deer; they're all the same that had that same void of production in those two model years and we see a relatively contracted population of that equipment and that's what we're experiencing in the last year or so.

That's helpful. Just last question. On the auction revenue rate, how much of that is entirely better execution on your part versus maybe some easing of competition from brokers and dealers? Is that rate sustainable?

Hi, it's Rob, the only Rob on today's call in fact. Again, what you mentioned before is the confidence in the owners and the pricing environment, and the -- that is, we believe that will continue going forward, but it's a challenging market.

And also it is a fine balance between being aggressive on those deals and walking away from them, and as Steve said, we're continuing to be aggressive on deals, but we will walk away when we don't feel that the numbers are there, and so a 12.07% auction revenue rate probably isn't sustainable. If it was, we probably would have changed our guidance range of the revenue rate. That's historically a very -- well, in fact a record high for a quarterly revenue rate. And so the -- our performance on our at-risk business is to a large extent within our control and that how we approach deals and how strategic those deals are, and how strategic we are in making our decision to pursue them and when to potentially walk away.

Okay, thank you.

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

Good morning. A follow-up on the risk business question. It sounds like there is the combination of walking away from deals. I guess maybe what's your outlook on how long competitors can continue to go after these deals at the thinner margins that don't necessarily meet your hurdles?

Jamie, Steve Simpson here. The appetite for people to take risks on deals and competitors and other auction companies and dealers, from our prospective, I don't think that will ever go away. It's been here forever and it's here to stay, and it's just depending on how people feel when they're looking at the stuff and which they think the market is verses what we do, and I don't anticipate any change in it. It's very competitive out there right now. Very rarely are we looking at deals where customers are looking for some comfort, if you will, be it a buyer or a guarantee, that we don't have competition. It happens all day everyday and we fully expect that will continue.

Okay. So then I guess with 1Q coming in a little bit lighter than your expectations, you took down the GAP for the year a touch. Should we read that as all of the change in mix in the market and this dynamic with the at-risk business didn't have any impact on it?

No, I don't think so. You know, as we commented, we certainly walked by some deals this quarter, a bunch of them watching themselves. We were pleased we did. Was there a couple that in hindsight maybe we should have taken them?

Maybe we should have, what would have been a skinny deal but in the end it might have been the right thing to do. It's challenging to find the perfect sweet spot to take risks and not take risks. We've made some adjustments and continue to make them everyday, we're watching the market closely everyday and watching the pricing everyday, so we're continuously affecting our level of how much we're willing to take, and did it affect the overall GAP? Maybe the small amount, but it wasn't significant.

Thank you.

Thanks, Jim.

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

Good morning, everyone.

(Multiple speakers) Good morning.

I want to talk a little bit back to the new TM hiring and what the normal ramp looks like for the average TM, and whether relative to history, I know every period is a little bit different, but relative to history, whether we're in a phase whether that ramp period is somewhat normal or given some of the market dynamics particularly with some of the lack of the newer equipment out there, whether that ramp gets a little bit extended?

Steve Simpson again. The new TMs and the ramming up of their ability to sign GAP for us, we typically look at a new TM that comes into the fold that in the first year they're going to produce, depending on the TM and how young they are and what location they're in, that could be anywhere from $2 million to $5 million of expected GAP from those TMs and that's within the first year, and then gradually ramping up from there. It's definitely a process.

As you commented on the marketplace and being competitive, again, as I commented to one of the other fellows on the call, the market is competitive every year and the forces that we're facing today in some cases there may be some uniqueness to it, but generally it's the same year in and year out, and it's not an easy task to get these sales guys trained up. I'm here to tell you when you're selling the unreserved auction business, it's not a walk in the park. You have to spend time with these folks and get them to understand what it takes to do it. It takes time. It's two to three years before you get those guys up to speed.

Nate, a comment to expand slightly on what Steve said. A big influence on that ramp up is the actual territory that that territory manager is going into. If it's a territory manager that's replacing a sales person that left Ritchie Bros., they're going into a territory that is already functioning and is active, and has a customer base. If it's a new territory manager going into a new territory, we broke one off, or changed the makeup of the territory, then it probably is a little bit longer of ramp up time because you're truly building the territory and the customer base.

Okay, that's great. Thanks for the added color there, Rob. And then just wanted to talk a little bit like when we start evaluating from the end markets and I know it's hard for you guys to say exactly what market your equipment goes into because there's so much overlap, but one of the things, Pete, that you highlighted at the start of the call is starting to see the housing ramp a little bit domestically, and obviously, that's great for business.

When you look across like some of the other end markets, relative to commercial construction or obviously mining has been down, how are you seeing those markets play out in terms of balancing or offsetting some of the positive factors on the housing market, and particularly within mining, whether you're seeing some of the normal things that you would see when an end market is down, whether you're seeing that extra flow of equipment come through the volume, even though pricing might be down, or whether there's anything unusual going on? Thank you.

Steve Simpson again. I'll first touch on the mining part of the market. We've been seeing a nice supply of those assets through our auctions, typically when that market is really hot, the availability of those items is not readily there, so when you start to see those things at an auction, that's an indication that that market has had a correction or softened up somewhat. We have some more of that stuff coming up here in this quarter. The pricing levels are definitely, are somewhat reduced from where they were, but as everybody that plays in that game knows, the market for that gear right now is not in demand and there's an over-supply and the prices reflect that.

As far as the general construction,the Canadian market continues to bubble along nicely. The US market we're seeing really nice signs of positive work out there for our customers, which is very encouraging. European market is holding steady.

I was just over in Bauma which is the word's largest construction show, it's on every three years in Germany, and I was there two weeks ago or a week ago, and a lot of positive stuff coming out of that area. The show was packed. They had the highest amount of attendees ever. Some generally positive signs out of the people there, although it's not right in front of them, but they can feel it and it's within the next 12-24 months things will come good there. As Pete said he commented on what was going on in China there and the Australian market and Middle East is going along at a composed pace, if you will. I would say to you generally things are in the world economy as we see it is chugging along just nicely. It's nothing exuberant, but it's going okay.

Right, thanks.

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

Good morning, guys. A quick one on the SG&A. Rob, you sort of broke out some of the increases there for us. I guess I'm curious how much of those we should expect to continue throughout the year and how much may fade as you get some of these growth initiatives up and running?

Probably the run rate, if you will, for AssetNation, EquipmentOne is probably within that range $4.6 million, $4.7 millionto $5 million. Probably that would be the run rate for the quarter going forward. As the projects, as the development projects winds down the marketing program and the launch ramps up, that will be more or less be maintained throughout the year.

For our -- the other comment I made with the uptick in our expenses related to our sales teams and our expectation is we will be for sure maintaining those sales people in that capacity that we've created, and we'll through the year be adding a few more sales people as well, so that's probably a pretty steady run rate. Also, remember in quarter one, there's always some unique expenses that show up in quarter one that dissipate through the year, one of them being employee benefits costs, society security costs in particular that ramp down through the year and also our sales meetings that occur in quarter one, so you see that spike, it only happens once a year. If you look back in history, Q1, there's usually a little bit of a bump, then a fall other than growth in our in our team.

Okay, good, that's helpful. Then maybe this one's for Bob. You're talking about your babies there being somewhat neutral from a financial perspective. Does that mean that they can generate enough profit to offset this increase in SG&A?

Yes, Steve, that's exactly the general plan. We're thinking that revenue and expenses are going to be fairly similar this year.

Great. Maybe then a quick one on China. Is the auction in China -- (Multiple Speakers) but I'm late in the game here. (Laughter)Is the auction in China mostly do you think to redistribute equipment out of China or going forward, do you think the Chinese have an appetite for this type of thing and how should we think about the cadence of future actions over there?

Steve, it's Pete. There is a void of a used equipment marketplace period in China that we're trying to establish, much like we did in Spain when we moved into Spain around Olympic time. There was a bit of a hodgepodge of --There was trading going on, but it was very unorganized and whatnot. I think there's an appetite, for sure, but we're going about it in a very measured way. We don't want to get too far ahead of ourselves.

We're encouraged by the authorities and their exuberance in the response to we were able to do, follow the rules, regulations, paper work, all of the things happening, those are good things. We're going about it in our very customarily controlled matter and try not to get too far ahead of ourselves. The quality of equipment has measurably increased over the years and I think that you see some of the OEM, the Chinese OEM, what they're doing in other markets around the world and that should give you some measure of understanding about what you can expect to see in the years coming from them, but they're not without their own challenges. They have a lot of over-built stuff there right now. There's a fair bit of new product that's been sitting for a while, and you can read other OEM reports and understand what's happening with that aspect.

It's just another marketplace for us, albeit it's the largest in the world and we want to be there, and we're the only ones really that are there with the kind of offering that we have. We're encouraged by all that but it's the early days. We'll keep plugging away. We'll update you again after the next sale.

Thank you.

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

Good morning.

(Multiple Speakers) Good morning.

I want you to share a little bit more about EquipmentOne and how it's going relative to your expectations. Is there any specific feedback that you heard from early users about what's working for them and maybe what needs to be improved?

Fair question. First quarter was essentially right where we expected it to be which was nice, but it was also expected to be a small period as we had just had the initial launch -- the commercial launch was about three weeks ago so we're very much, right now in the reacting to that phase. We received lots of feedback from buyers and from sellers. Some things they liked, some things they don't like, and anybody who's been in the marketplace on a regular basis has seen fairly rapid evolution and change as we respond to some of the negative feedback and capitalize on some of the positive feedback. Right now we're in the mode of driving both supply and demand. We've got the marketplace there fully functioning, working very well.

We just need to push volume through it and that's a challenge with any brand new business. This is very much a start-up within Ritchie Bros. so the focus right now is working with all of the customers, both new and experienced ones, to optimize the marketplace and then drive volume through it. I wish we had more to tell you. It's such early days. We're three weeks into the launch, so it's too soon to declare anything specific. It's probably doing exactly what you expect with any start-up.

Okay, that's helpful. My follow-up is on the at-risk business, the decline to 20% at-risk as a percentage of GAP. I just wanted to clarify, I guess we talk about two drivers being the potentially walking way from some deals and being more careful underwriting business as well as maybe consigners becoming more confident in straight commission. That latter piece -- why would consigners -- can you help me think through why consigners would be more interested in straight commission as pricing has levelled out relative to the increases we were seeing previously?

Let's use the US market as an example. All of a sudden -- it's not all of a sudden, but in the last while, you've had increasing confidence with our client base and they're given the amount of work that they see in front of them and the opportunities to go out and get work. When you have confidence with the people you're dealing with and they're watching the sales and they're seeing the results, why would they rather take a risk position with us and pay us more commission? From their prospective, they're watching the pricing, they know what we do, they know what we're achieving, we're getting the numbers, so if they go straight commission, they're paying us less and they're keeping more in their pocket, which is pretty damn good business in my world. From their prospective, not necessarily ours.

Okay, thank you.

Your next question comes from the line of Scott Stember from Sidoti company. Your line is open.

Good morning.

(Multiple speakers) Good morning.

Going back to the SG&A, just remind us what the total increase in TMs will be for the full year? I think you mentioned that by midyear you would be done with the ramp up for the most part?

Yes, our expectation is that we would increase our TMs by at least 10% and our track rate that we're on right now, yes, we potentially would be filling the positions that we had in our plan for TMs by the middle of the year.

And follow-up question. What the total incremental spend would be for these people this year, assuming it takes them a little while to ramp up.

Scott, we don't usually get into that granular detail on the G&A. Also every TM is going to be different, depending on the geography and the experience, if you will, of the TM.

Okay, fair enough. That's all I have. Thank you.

Thanks, Scott.

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

Good morning, guys.

(Multiple Speakers) Good morning, Ben.

I'm going to apologize if you've run through this even circuitously today, but the target I think you said for earnings growth this year about 15%. Did I hear that right? How do you get there when you're down in the first quarter, your EBITDA margin is down, you're talking about GAP looks kind of flat, your G&A's up? I don't understand how you're going to get to 15% earnings growth unless some of these variables change quickly.

Hey, Ben, it's Rob. Our guidance was the GAP and lower half of our guidance, but also one of the main factors in there is the auction revenue rate. Last year's revenue rate was quite impacted by the at-risk performance, and so the expectation would be that our revenue rate in 2013 would be better.

Yes, but that happened, you saw that in the first quarter and your earnings were still down because your SG&A was up.

Right. Q1 being a relatively -- well quite small, the smallest quarter in fact for the whole year, and that revenue rate has such leverage on a bigger quarter or value volume of GAP.

Okay. Second question, maybe more of a comment, perhaps a little bit of a tirade. I'm looking at the last five years. Your stock's done nothing, your EPS has been flat, your GAP's grown about 2% a year, I know it's been a tough market, but you guys are supposed to be out there driving more market share. You're not supposed to be so market dependent as you said yourselves, it's largely a result of your own internal initiatives.

You're still spending, your CapEx has been high, it's down, but you're still spending three to four times your maintenance CapEx levels, hiring more people, SG&A keeps going up, you spent $60 million on acquisitions last year. Sooner or later, the rubber has got to hit the road and all of these things should be translating into EPS growth and higher returns on capital. I don't sense -- I don't get a sense of urgency amongst you guys that this has to be -- that people are waiting around a long time for this. When are you going to stick your necks out and say come hell or high water, we're going to start getting the returns that investors expect for a company that has a stock trading the multiple that you have.

Ben, it sounds like you've been in our board room for the last couple of meetings. I can assure you beyond any level, that the level of urgency within the Company is acute to go out and perform. We took our earnings down in 2010 and I think we talked mid-year about the fact about whether we saw 2010 as being an aberrant year, and we have to do dramatic shift in our cost structure or whether we saw it as a temporary phenomenon. So 2011, again we saw a lift in earnings. Again in 2012, albeit for my money in 2012 it was a okay year but not a great year.

I think we were up 12% earnings year-over-year but on a low number. So we recognize that we put this network of sites and people, and capacity in place to handle a market that contracted on us, so we looked at, okay, why did it contract and is there something internally we could and should be doing, and at the same time we were contracting on our ability to go and spend money because we were mindful of that. We took our CapEx from 175 range down to 60, and I think Rob comments today were we expect to see -- have that in the foreseeable future and not to exceed. So our MOwas to make sure we're mindful of costs and I think we've done a very good job of controlling our costs going forward, but part of that was contracting our ability to -- contracting our plan to expand our sales team. I think we paid a little bit for that in 2012 with a less than robust GAP growth and our business is about relationships.

Those are very important and you form them by people and having the right people in place, so we've invested in 2013, the plan going forward was for us to address two things, one was at-risk rate and our performance on that business, and I think we've done a good job in Q4 and Q1. The other is on the TM side, and we've got to get on the horse and make sure that we're paying attention and getting these good people on board, supporting them with good TMX, our TM excellence training, our RM, our regional sales managers, providing them with the proper coaching and training as well. You're quite right when you say, okay, guys, enough is enough, let's go out and deliver on shareholder value and shareholder value is primarily measured by earnings, although there's lots of things that they look at, the market position and dominance and whatnot.

When we look at the market, the first question we ask is where are all of the other transactions going? One of our strategies was to make sure that we were addressing half the market that had decided for whatever reason that the unreserved auction does not meet their needs, therein lies the EquipmentOne solution and it's early days for us. I think we're doing the responsible and smart thing for a company that has a dominant position in the market going forward and we have to go out and execute on the core business, we have to go and execute on EquipmentOne. We thought we got some terrific people in the EquipmentOne team, and they're very seasoned people in the online world, and I think they're were in good shape there.

Now we have to go out and prove it so that's out job, to go out there and deliver. Like I say, when I started my comments, I can guarantee you there's an acute sense of delivering all within the organization, throughout the organization, all the way up to the board level.

Is there a timeline on that, Pete? I mean (Multiple speakers)

You can't say never, never. The reality is for us, for us, we realize our stock price has been flat over the last many periods. Lots of other companies in industrial space have been. It doesn't excuse us from not going out there and doing what we can do.

Ideally, you go out there and execute your strategy and everything comes together. External market forces affect us for sure and sometimes dramatically with 2008, 2009, what happened there, so we have to be able to adjust and nimble within the system that we have to go out and deliver on the bottom line, and if we don't, then there are consequences, and consequences in part are locked stock price, the other consequences are you have for get good people, make sure they're in the right place and go forward. So we've made some internal changes, internal structural changes about making sure we've got sales guys focused on sales, and operations guys in the excellence focused in that.

I think we've done a good job at making sure you're positioned in the right markets to go and deliver when that equipment is available for sale, and that's one thing we don't control. Largely, our successful line in the execution of our own strategy, the market is big, we're relatively small relative to the whole market size. Now we have a second solution in play to address some of that market that might not decide they want to go an unreserved auction, and for us it's about going out there and making it happen. Is there a timeline? Sure. I mean internally we've got -- I won't go into a bunch of detail with you guys, but internally we have go out there and execute and we know that we need to deliver on our bottom line and if we don't, there's consequences at all levels within the organization for that, and we're dealing with those right now.

Thanks, that's helpful, Peter.

Ben, I will say it's a great question, it's a big question, a big elephant, and we recognize that and understand. There's almost tongue and cheek saying were you in the board room because I'm sure the board members on the call are saying, "Hey, Ben, that's a great question."

You've heard it from me before and you know I support what you guys are doing, but it's become a frustrating experience in a lot of ways.

I share your sense of acute desire to see improving bottom line results and that's what we're committed to do.

Okay, thanks very much.

Okay.

Your next question comes from the line of Bert Powell from BMO capital. Your line is open.

Thanks. Pete, I want to go back to your commentary at the beginning of the call where you talked about a temporary void in the middle of your sweet spot, the dearth of equipment that's got that age on it that you like. If I think about what's happened on the refleet in North America in the last few years it, would seem to me that there's a lot of equipment that's gone into rental houses, that have gone into OEM rental fleets, that have gone into dealer rental with purchase options, and it seems fairly significant this time in this cycle. I'm just wondering, how addressable is that market to you going forward, and does that represent an additional headwind in terms of trying to grow GAP?

Yes, that's a great question, Bruce. It's maybe akin to looking at who owns the equipment and how do they choose or want to sell it. Ultimately, everything has to be sold in a cycle and what we have seen is in the last few years in North America, particularly, is that people are off cycle, they were hanging on to their equipment just a little bit longer, a little bit less certainty in the marketplace, a little bit uncomfortable about where things were going, and it upset the flow of equipment that we normally see in the marketplace and that was not just through us, that was through all different channels we examined.

When you see that, you see people rather than buying new, they might want to go and rent something, and just hedge their bets a little bit. The rental house have done a nice job of positioning themselves albeit on the mid-to low-end, lower end -- I say lower end, smaller stuff in the marketplace, and they've done a nice job at fleeting and making sure that they're positioning. You can see even the average age of the fleets within rental operations have aged beyond probably the area or a level they're comfortable with and they recognize they have to go out and deal with that. You're seeing some people react that way. When that happens, that triggers transactions, for us that becomes fodder for us. They can try to sell it through existing channels and we compete with that kind of activity everyday.

We have to outline our value proposition as a company and say what can we do to help that person be more effective in their own core business in what they do, and typically rental houses are great at renting things, and they can sell it in a market but sometimes that creates a bit of cannibalization within their network so they're mindful of that, they're very mindful that they need to continue to sell and/or rent equipment -- new stuff so when they sell used into their market, it affects their demand within the marketplace. They have to figure out solutions that get more equipment out to a broader population. I think you'll see that coming in the coming periods here where you'll see more transactions coming, more volume, there's more confidence we mentioned in the US that we're seeing early signs of a nice renaissance happening the United States and back to a bit more confidence and that creates more transactions. I think you're right to say you've seen increase in rental and I think that's created a bit of a pause for us.

We saw the pause with 2008, 2009 product not being produced. I think we're on our way through that and we're quite optimistic. We're reiterating our forecast for the year in terms of our bottom line and where we think we'll end up, and we're out there -- our job is to go and execute on our business plan.

Okay. Just on the EquipmentOne, $18.7 million in GAP for the quarter and $3 million in auction revenues, can you -- that's all legacy EquipmentOne business, I guess, given the commercial launch. Can you give a sense as to what that looks like year-over-year? Is that legacy business being maintained or is that atrophying?

So you're right, Bert, it's primarily legacy business. There's some new, but it's mostly legacy. How does it compare year-over-year? Last year I think the grand extent of guidance we gave was that the AssetNation world was running a little over $100 million, but it ramps very differently than the Ritchie Brothers year. While we never gave specific guidance on this, it's better than last year, but not dramatically and it's a small part of year so it's not really indicative.

Okay, thank you.

Your next question comes from the line of Neal Forster from Scotiabank. Your line is open.

Good morning, guys.

(Multiple speakers) Good morning.

My first question is a two-part question, so hopefully not cheating. I'm trying to get a sense of how much GAP you guys walked away from through tighter bidding in Q1? And I'm not looking for a precise number, but doyou think you could have grown GAP in Q1 if you would have had the same approach as you had last year? The second part of that, is given that you're chasing more profitable GAP at this time, I would have expected margins to be higher than they were, so I'm just wondering what your comments on that would be?

Steve Simpson here. The amount of GAP that we could have had if we were, if we took some of those questionable deals, I guess the quick answer is, yes, there probably would have been -- our GAP number would have been a bit higher, but also with that our revenue would have been lower. I don't know that -- I think we're pleased with the path we chose for the quarter and we're happy with what we're doing going forward and what we see so far in the second quarter.

I don't necessarily think -- I think your question whether there was a whole pile of business there that we walked by, and the answer to that would be no, because we're like some of the questions, we're well aware of what we need to do to be successful and we're out there chasing stuff all day everyday, and we're pushing the envelope everyday on deals to make sure we get them, and if it gets to the point where we think we're going to see brackets and there's no money to be made and the deal is not strategic, then typically we'll let them have it. As I said to one of the other callers earlier, we're tracking that stuff and in a lot of cases, it's not a result that anybody would enjoy.

Neal, the second part of your question, given that we're focused on profitable GAP, not just GAP in general, why we we're [at] the margins higher, we actually would say that we did extremely well on that in fact, I think it's the highest auction revenue rate we've had in a quarter. It's not just as high as you would hope for.

It sounds like the lower year-over-year GAP was more of a function of mix and not really driven by the tighter bidding and walking away from business?

Yes. It's Pete here, Neil. 20-20 hindsight is a wonderful thing. There'sprobably deals walked by that you wish you would've had, and deals you walked by that you're happy you didn't have. If you would have taken them all, you would have had a pretty odd ball result in the end. We were quite happy some of the deals we did push over, as Steve said, but you can't hand-pick. You do the best you can with the information that you have, and I think our focus is growing profitable GAP and not necessarily buying GAP. I think your conclusion is right, it's more of a mix impact than just simply walking by some deals.

That's helpful. Then second question is just a quick one on SG&A, just a point of clarification. So sounds like there's pushes and pulls this year. Is Q1 a good run rate to use moving forward for the full year or is it likely to be higher than what we saw in the quarter?

Hey, Neal, it's Rob. The Q1 is probably a relatively good run rate, so there will be ups and downs, and unique things in quarter one, and then there's always unique things for sure in quarter three for sure, and then quarter two and quarter four are just bigger quarters, so you end up with more activity, which generates slightly higher incremental expenses as well.

Okay, that's helpful. Thanks, guys.

And your next question comes from the line of Ross Gilardi from Bank of America. Your line is open.

Thanks. Good morning. Most of my questions have been answered at this point. Just the bigger picture. It ties into some of the prior questions. Ritchie historically has been able to grow earnings 15% when you were growing gross auction proceeds by closer to 10%.

Now you have a flat quarter, but you've got record auction revenue rates. Can you get back to growing the gross auction proceeds at a high single digit, low double digit rate without sacrificing auction revenue rate? I imagine you could stimulate the top line very easily if you cut your auction revenue rate, but that of course doesn't necessarily make a lot of sense with the strategy, sohow should we think about that?

(Multiple speakers) We're all pointing at each other. You want to take it? I'll take it.

The reason I want this one is because we've talked about it internally over the years. What would happen if you reduced your commission rate by 1% to all your customers or what would happen if you raised your commission rate by 1%? And the story we've often discussed internally, was we're already essentially the most expensive rate out there. You get what you pay for and you get a lot with Ritchie Brothers when you pay a lot for Ritchie Bros.

If we reduced our rate by 1%, I don't think we would see a lot of business coming in the door. Steve is agreeing, he's nodding his head which means, I think, yes.

No, we wouldn't see a lot.

If we raised it, we probably would do ourselves some pain. We're think we're providing fair value and charging fair value. I don't think the way to generate way more volume is to cut our rates. I don't think that's would be a meaningful way to do it. But it's an interesting question. We've debated it internally. Steve already said to say that.

I agree. There's no need to lower our rates. I think our rates given what we provide to the customers, they're all ready very competitive in comparison to what else is out there. The at-risk stuff that we talked about, it will be interesting going through the rest of the year because if we -- (inaudible) as everybody knows, the Q2 and Q3 part of life for us was the bumpiest part of the year for us and having a clear picture of what the risks looked like and that's where we took some of the challenges on some of our deals, and all indications are right now is it feels a lot smoother rolling in through this quarter and if we see some strength in the market and the pricing through the year, then obviously it will be a lot easier for us to load up and take as much risk as we need to through the rest of the year to finish off with a smile. It feels good, it's early, but I think we're on the right path to delivering what we said we were going to deliver.

Then on the sales force issue. Are you having to compete harder for sales force? The rental companies are also hiring right now and getting a lot of business. Where are you getting people and are you having to raise compensation levels? Just address that, please.

First, the compensation levels. We're paying what we need to pay to get the quality of the people that we're looking for, and there's different levels of that. We're out there chasing younger guys that we're going to train and we're chasing second basemen if you will and we're chasing A players. We're looking at every individual as they come at us and we're paying what the market requires us to pay, and as far as where we're getting them from, it's like every company. We've got all sorts of tentacles out there looking for these folks and this is actually quite refreshing. This year we're getting a lot of the guys we're hiring are coming through our regional sales managers and our TMs through referrals, which has been a nice change and we're quite pleased with the quality and caliber of the folks we're getting, and now the key is just to get them on board and train them up, and get them into the mix as quickly as we can and get them to perform.

Thanks a lot.

If there's a question, we'll take the last one and then sign off after that.

Your final question comes from the line of Craig Kennison from Robert W. Baird. Your line is open.

Good morning, thanks for taking my question as well. This has been a very productive conference call. Maybe I'll shift to EquipmentOne once again. I'm just curious what you view as the synergies between Ritchie Bros. and EquipmentOne, and how many people may start at EquipmentOne and then ultimately flow through to Ritchie Brothers if the equipment listed on EquipmentOne isn't selling?

Synergies are pretty straightforward. We're marketing EquipmentOne to large corporate accounts, think Fortune 500, and we're marketing it as part of a solution staff. The synergy is that it doesn't sit alone, it sits with Ritchie Brothers Auctions. And we have a team, our strategic accounts team which is out there meeting with those particular customers and offering the full solution set. Knowing that we don't have -- neither solution will get a hundred percent of wallet with these larger customers. Legacy Ritchie brothers and legacy AssetNation have partial coverage of these accounts.

Together we can provide a comprehensive solution and it's been extremely well-received with that particular group. The second part of your question was a spillover. One of the things we fully expect is that if something doesn't sell in EquipmentOne because it might not. Recall, it's an online negotiation, it's not an auction. If something does not sell, one of the options that a seller has is to send it to the auction. We've all ready seen a couple of assets heading that direction, but it's early days to see if it will be a landslide. The nice thing about it now it was captured within the Ritchie Brothers' systemand we have a chance to sell it once, and then a second chance if we're not successful the second time around, and that's a great service for the customer.

Second question, I know you tweaked the compensation formula a little bit. Any impact on your results and how that has been received by your sales force and by customers?

Steve Simpson here again. Yes, all of our sales force now are remunerated based on revenue generated and it's been very well received by all of the guys. We made the whole program simple for them to understand how they get paid for what they do, and that's something we didn't have in the past. The buy in from the guys in the field has been excellent. Perhaps even it's probably had some nice effect from the revenue rate you saw in Q1 from those guys because they're recognizing when the opportunities present themselves to get the rates that they should be getting, and they're asking for it. And it's like anything, if you ask for it, you'll get it and that's what they're doinga bit more of. So very positive from the sales force. We're all very pleased with the way that's going.

Thank you.

Okay, thanks everyone. thanks Lisa. We'll end the call here and look forward to talking to you guys at the end of Q2. Thanks, everyone.

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