RB Global Inc (RBA) 2013 Q3 法說會逐字稿

Good morning, my name is Tiffany and I will be your conference operator today. At this time I would like to welcome everyone to the Ritchie Bros. Auctioneer 2013 Q3 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions).

Peter Blake, CEO, you may begin your conference.

Thank you, Tiffany. Morning, everyone and thanks for joining us on our fiscal third-quarter 2013 earnings conference call. Joining me on the call today are Rob McLeod, our CFO, Bob Armstrong, Chief Strategic Development Officer, and Steve Simpson, our Chief Sales Officer.

Before we start I would like to make a Safe Harbor Statement. The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact including projections of future earnings, revenue, Gross Auction Proceeds and other items such as our potential addressable market are considered forward-looking and involve risks and uncertainties.

The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our SEC and Canadian securities filings available on the SEC and SEDAR websites, as well as RBAuction.com.

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 in our statement of operations.

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

Our quarterly results were made available earlier this morning. We encourage you to review our third-quarter earnings release, MD&A and financial statements which are available on RBAuction.com and will be available on EDGAR and SE -- or on SEDAR later today.

So let's get into our quarterly results discussion. Net earnings for Ritchie Bros. during our third quarter doubled compared to the same quarter last year to $16.4 million due primarily to the record Auction Revenue Rate or ARR that we achieved. At 13.4%, ARR in the third quarter was 133 basis points higher than our previous quarterly record and 252 basis points higher than our ARR in the comparable period last year.

This quarter's record ARR was driven largely by our underwritten or at-risk business, which continued to perform well as a result of our disciplined approach to contract management as well as the select number of packages of equipment that performed extremely well. Because of those packages, we are not counting on this high revenue rate to repeat.

We continue to be disciplined and prudent about the underwritten deals we are securing and not at the expense of our GAAP growth. We are still being very competitive in all of our markets, but we are chasing profitable GAAP, not GAAP at any cost.

As you learned in our monthly GAAP disclosure in early October, Gross Auction Proceeds for the third quarter were $790 million, a decline of approximately 7% compared to the same quarter last year. The year-over-year decline was due mostly to a difficult comparable period in 2012. You may recall that we secured a significant mining package in Q3 last year. As well, four auction locations that held auctions in the third quarter of 2012 held their auctions in October this year.

As we have now tabulated GAAP for the month of October, I am pleased to confirm October GAAP totaled $361 million, up 29% from last year. On a 12-month trailing basis ending October 31, GAAP was $3.79 billion, down 4% from a year ago. While we are selling more lots, the average value of lots sold has decreased as a result of the mix and age of used equipment currently coming to market.

I would like to take this opportunity to remind everyone that our monthly and quarterly GAAP does and will continue to fluctuate considerably as we don't manage our business for comparable periods. We schedule auctions throughout the year on dates that best cater to our customers and generate the best prices for them.

During the first nine months of 2013, we held 166 industrial auctions compared to 160 in the same period last year, and the average GAAP per auction was $15 million compared to $17 million in the same period last year.

The increase in auctions held and decrease in average GAAP per auction is due in part to holding more off-site auctions, or those sales held at sites other than our 44 fixed locations, which we often do in new markets or in areas we believe we can build further brand presence. While smaller, on average, off-site sales are a great way of exposing our industrial auctions to new customers in new or underpenetrated markets and are one of the tools that we use to continue our growth strategy.

As we noted on our last earnings call, we are acutely focused on enhancing the productivity of our Territory Managers as a sizable portion of our sales force is still early in their Ritchie Bros. careers. The investments we have made to provide new support tools, lead generation, compensation structures and coaching opportunities are beginning to pay off. We are starting to see signs of positive developments.

We are continuing to recruit high-quality talent. But we are also continually evaluating the capabilities and fit of new hires to ensure they are well-suited for our business.

During the quarter we recruited several new sales team members, however, also managed out a number of TMs who we believe were not showing the progress we had hoped for. At the end of Q3, we had 273 Territory Managers. We are currently building our plan for 2014 and expect to continue our focus on TM recruiting next year with about 5% to 10% sales force growth.

With that brief overview, I will now comment on some more background on our sales performance and market environment. Normally Steve Simpson would address this topic. He is on the line and will hopefully be able to answer questions, but he is on mobile right now and we wanted to be sure that the main part of our call was not going to be at risk with technical challenges.

Our sales team continues to be very busy and the investments we are making are driving meaningful improvements in our sales capabilities. In fact, during the first nine months of 2013, we secured 5% more consignors and over 11% more lots than in the same period last year. While supply dynamics continue to skew the average age of equipment going through our auctions to be older, we believe that a more normalized age mix will return to the equipment population in the coming periods and that age will become less of a headwind by the end of next year.

The lack of OEM production three or four years ago is working its way through the system and the age of equipment being sold at our auctions are tracking as expected in 2013. We are selling proportionally more one-year-old to two-year-old equipment than three-year-old to four-year-old equipment because production levels were markedly higher in more recent periods.

We also believe that some equipment owners particularly in the United States are hanging on to their tier 3 equipment a little bit longer than they usually would as they wait for tier 4 final equipment to rollout and for the new emission standards to come into full effect. We expect this will help create used equipment transactions in the coming quarters as contractors become more comfortable with tier 4 machines and begin updating their fleets.

The pricing environment continues to be pretty stable with marginal improvement in certain categories. Prices of good quality, premium and [ARR] construction equipment has experienced slight improvement supported by a very strong demand. Agricultural and transportation goods are also continuing to see solid demand, particularly for low ARR or well-maintained equipment.

In general, mining-specific equipment is still expensing softer prices.

On the ag side we have a couple of large agricultural equipment focused auctions coming up in both Canada, and the United States and this area of our business is growing well for us. Pricing remains firm.

The rental channel is something we are watching as we are aware fleets of many large rental companies are starting to age especially in the US. While rental companies in aggregate represent less than 5% of our GAAP, we do see opportunity to capture sales from this channel over the next several quarters as well as from dealer owned rental divisions. We believe we will soon see some fleet turnover as these firms begin to re-fleet or grow their tier 4 offerings.

Regionally, Canada continues to perform well while in the US we are seeing some increase in construction activity, mostly in the Western and Central US. Our European business units continue to perform well and in Australia we are seeing good results and continue to be optimistic about our prospects there.

As we mentioned before, we have been successful in growing the size of our sales force. Our focus is also on enhancing the productivity of our Territory Managers. Many of the self-support tools we invested in are now rolling out and are being widely adopted by our TMs. This technology allows us to sort through industry data to more effectively qualify leads and packages of equipment.

As well, a firmwide rollout of sales and lead tracking software will take place in the first half of 2014. Overall, these tools are improving our efficiency and prospecting and customer targeting. These support tools along with the continued focus on sales training and coaching are shortening the time it takes to ramp up new TMs. We are seeing better productivity in TMs hired during the past year than we did in prior cohorts.

With that I will now turn the call over to Bob Armstrong to provide an update on EquipmentOne and with our other strategic initiatives.

Thanks, Pete. We are very pleased with the progress we are seeing for EquipmentOne, our online equipment marketplace. Web traffic and sales yield and statistics have been trending up in recent months and it is clear that equipment buyers and sellers are responding well to the model. We like the direction that EquipmentOne is heading.

As noted on prior calls, we are not expecting this business to have a material impact on EBITDA this year and, given the fact that EquipmentOne is less than a year old, we do not plan to provide guidance for future years at this time. The opportunity for our Ritchie Bros. branded online equipment marketplace remains huge. That is why we launched this marketplace. But it would be negligent to speculate about how big it might become and how fast.

Turning to our traditional auction channel we continue to see opportunities to grow our core underserved auction offering. During the third quarter we held an auction in Finland. While we have always had a sales presence in Scandinavia, consignment opportunities this quarter supported holding our first-ever auction right in Finland rather than moving that equipment to one of our other European auction sites.

We were pleased with the results of that sale, especially with the number of new customers we were able to introduce to our auctions. And we look forward to holding future auctions in Finland when we find the right future opportunities.

Our second auction in China is scheduled to take place on November 21. We expect this auction will still be fairly small in size, but we are taking a careful and methodical approach to growing our presence in this important market to ensure that our value proposition, our brand and our strong reputation are well understood by the consignor piece.

We see immense opportunities to grow our footprint and presence in Asia, but similar to my comments regarding EquipmentOne, we are not factoring in contributions from these initiatives into our guidance. They're important strategic initiatives of Ritchie Bros. and they both have potential to be very large contributors to our future growth and profitability. However, it is still very early days for both of these strategies and it is just too soon to signal how large the opportunities might be.

I will now pass the call to Rob McLeod for a review of our financial performance.

Thanks, Bob. Revenue for the quarter was $105.8 million, an increase of 15% compared to Q3 2012 and this resulted in earnings doubling for the quarter compared to the same quarter last year.

This increase in earnings demonstrated the leverage inherent in our business model. As Pete mentioned previously, the earnings and revenue growth this quarter was driven largely by the 13.4% Auction Revenue Rate we achieved.

Included in this quarter's results was approximately $400,000 of net income generated from gains on the sale of excess land during the quarter. This compares to the net loss on property transactions in quarter 3 2012 of $1.5 million. Our adjusted net earnings for the quarter but excludes contributions from property sales with $16 million, still $0.15 per diluted share.

Also included in this quarter's results and also included in adjusted earnings were $2.3 million of pretax charges associated with the cost alignment plan we implemented at the end of July when we organized some administrative departments and our teams, associated with their capital infrastructure, and also rationalized some operational procedures. This initiative more appropriately aligned our cost structure to better position us for future earnings growth. While we have reduced and avoided operating expenses to a level more appropriate for sales growth, we expect a net neutral impact from these activities for our second-half 2013 results, due to the one-time charges.

Our operating costs continue to be tightly controlled. Excluding the charges associated with the cost alignment initiative, SG&A was flat with the same quarter last year. Within this, our investment in our sales teams are increasing as planned, and our office and administrative costs are decreasing.

Direct expenses were in line with prior quarters but grew as a percentage of GAAP this quarter, due to some smaller auctions held and more auctions being held off-site. We are not concerned by this quarterly uptick and expect our DE ratio will fall more in line with past quarters going forward.

Over the last several years, we have built our capacity up and we have the platform we need to support future growth. We continue to guide to CapEx of around $60 million this year, but believe CapEx expenditures will drop below $50 million in 2014.

After reviewing our forecast and expectations for the fourth quarter, and accounting for this quarter's record ARR, we are making some updates through guidance for 2013.

We continue to believe GAAP during 2013 will come in in the range of $3.6 billion to $3.8 billion, but our update in guidance on our Auction Revenue Rate, [will be] 11.5% to 12% for the fourth quarter. Related to this, we now expect revenue for 2013 to be in the range of $440 million to $465 million, up slightly from previous guidance.

And finally given this quarter's performance, we are revising the range of earnings before tax growth guidance for the year to mid-single-digit growth from the year earlier, up from our previous guidance of flat to 5% growth. We still believe we are on track to achieve our long-term targets of 15% average EPS growth per year, at least 15% return on vested capital and EBITDA margins of at least 40%.

With that financial overview, I will turn the call back over to Pete.

Thanks, Rob. Before we open the line to questions, I would like to take this opportunity to thank everybody in the investment community for their comments and support in relation to my decision to step aside in May of next year. Our Board is actively involved in identifying appropriate candidates for the CEO role, both from an external and internal pool of candidates and understand that this is one of the most important things that they will be tasked with.

The Board is determined to select a candidate who has the right balance of leadership, ability to grow the top line and cultural fit at Ritchie Bros. I intend to be part of that process to assist in landing a great new leader for us.

We are confident that we have the right strategies in place to enhance shareholder returns. The cost alignment initiatives we undertook during the third quarter have enabled us to more effectively leverage our global platform while continuing to provide our customers with the best-in-class service. New sales support tools we recently launched have already gained traction amongst our Territory Managers contributing to improved productivity and the capital commitments we had made to bolster our auction site network and infrastructure are now tapering off.

These developments, coupled with changing supply dynamics, and our dominant market position underpin our confidence that Ritchie Bros. is very well-suited for long-term growth. We have an amazing group of people at Ritchie Bros. I think everyone here should be very proud of what we achieved and their contributions to our corporate performance.

So with that, I would like to open the line for questions from the analysts and institutional investors. As with our previous calls, we ask that you please limit yourself to two questions as we have a lot of participation on the call today.

So, Tiffany, can you please open the lines?

(Operator Instructions). Nate Brochmann, William Blair & Company.

Good morning, everyone. Wanted to talk a couple of things. One the focus on the Territory Managers, obviously we know that kind of new program has been in place since last year and certainly the refocus on hiring and training seems to, as well as the investment in the new tools, seems to be incrementally showing some dividends.

But yet, like the number of total Territory Managers, it is still down a little bit from last quarter. How do you foresee the ramp going up and is that more voluntary or is that more your decision in terms of why those numbers are still down? And what is going to be the process going forward to get those Territory Manager numbers up in total?

Our focus for sure is on hiring and finding the right quality of candidates and we are being a little bit more regimented in our view of whether they are performing or not. So part of that is our -- at our will to determine whether we up or down those numbers. All -- so you know the sales compensation structure we put in place is all of those sales managers are tied, their comp is tied to having productive folks on their team.

So, part of what we have is the right behavior forming with the revised compensation structure that only started this year. But we are pretty focused on the math and we know that more Territory Managers bring more lots and more lots bring more revenue and more revenue brings more earnings.

So it is pretty simple math for us and we are pretty focused on making sure that that execution continues.

I think we have done a nice job this year. There was a bit of a tweak in the quarter. We exited some folks that we didn't think were performing at the right level and finding new hires in the latter part of the year traditionally is a little bit more challenging because folks like to stay in their current roles usually before they make a change, so we find our hiring time the most appropriate hiring time and the optimal time for us tends to be first half of year.

But overall, we are acutely focused on making sure we execute on that. And I think we have done a nice job for the last while and we will continue to do that.

Steve, do you have any comments on that?

Yes, no, I think you said it all. At the end of the day we do our very best to ensure we bring the best guys possible, the best people possible into the mix, but sometimes it is on totally the rubber hits the road and the guys get engaged in the market and understand what it takes to go out and be successful as a Ritchie sales guy in the marketplace. It is -- we start seeing things that we don't see in the interview and the onboarding process and it is what it is, but as Pete said, we are acutely focused on growing our sales force and growing it with the very best people we can.

Thanks for that. Then a follow-up to that. Obviously we have seen some incremental investment on the margin this year with some of the technology to make those folks more productive. As we go into next year, will there still be some ongoing investment in terms of technology or any productivity improvements? And then if we are successful in terms of ramping up in the first half of the year, the total TM count, would that be an incremental headwind on expense before we start seeing that flow through in terms of the benefit? Or are the folks that were now more productive this year would that offset the incremental investment in new hires next year? Thanks.

It's Bob. With respect to the investment in technology there's a number of new tools that have hit the road this year and some that are actually going to hit the road in the coming three or four months. So we don't want to put too much on the guys' plates at one time there's only so much one can absorb. But in fact there is quite a bit of technology investment coming over the next several years.

The largest impact for the sales team which, to your question, will be the rollout of salesforce.com, salesforce innovation platform in the first half of next year. So that is the big thing that is going to come technology-wise, and I think I will let Rob McLeod take the second half of your question.

The second half of your question was in regards to the cost of that investment in new TMs and that kind of driving down our performance and whether that is offset by the productivity of new TMs that have been here for 12 months, 18 months.

And I, for sure, I think depending on the quantum of TMs that we hired 12 months ago versus the quantum that we would hire in the first half of next year, I think they would -- the productivity gains from the guys that got hired 12 months ago would outweigh any costs associated with new TMs. But also remember those new TMs that we hire, depending on the territory that they are in, are likely just on a pure cash basis for that TM they are probably profitable pretty quickly. They are just not as profitable as we want them to be or as productive as they will be in the future.

Okay, makes sense. Thanks a lot.

Peter Prattas, Cantor Fitzgerald.

Good morning. Clearly your Auction Revenue Rate was fantastic this quarter and I am wondering here, are you simply getting better at assessing which at risk business to take on? And do you attribute that to you making better use of your informational database?

I will take a stab at that one first, maybe Steve wants to jump in afterwards. We are, as Pete said, we are being more disciplined in our approach to our at risk business and the -- and that comes, obviously shows up in our performance of that risk business and then in the performance of our revenue rate.

Are we using our information better? Perhaps, but it is a -- I guess the information is still there, but it is probably more the environment that we are in and that stable pricing environment is probably more to -- to better results in our at risk business as opposed to, in the past, you have heard us talk about chasing the market up or chasing the market down. In the relatively stable environment that we are in right now, it is perhaps a little bit more straightforward in regards to assessing the at risk packages that are presented to us.

Steve, did you have any color on that one as well?

And I think the other thing is for sure we are -- and this question will probably come up so I think I'll just say it right now as it relates to us walking by GAAP because our rates are so high this quarter. We continue to be extremely aggressive on all the right deals as the guys mentioned, and I think in many cases now, I think one of the other things that we are doing is really analyzing the risk positions we are taking and ensuring the risk and reward balance is right for the risk that is at hand.

And I think this quarter was a perfect example that we got ourselves to do a few substantial size deals that definitely has some risk attached to them. There wasn't a lot of history on some of the stuff and some values and we elected to move forward with them and had a really, really pleasant result, and it is just really having to look at the market and seeing what is out there and knowing what you are doing and responding accordingly.

So I think that is about all there is to say on the risk part of the business. It is performing well and we are focused on it, and it is refreshing to end up the quarter the way we have for sure.

Thanks for that and my second question is related to online. It looks like the sales to online bidders declined year over year for the first time in a while. And also on the EquipmentOne side, the auction proceeds were relatively flat year over year.

So I am just wondering here, do you feel that you are losing any traction at all or is there something else that is causing the pause here?

We will quickly place the numbers here. My take would be that the online activity actually is up dramatically year over year in terms of percentage of registrants and [overriding ourselves]. I will mumble along while somebody looks up some numbers --.

I think we clicked over $1 billion of online sales the earliest point this year in our history which was sometime in September. Normally I think prior years it has been in December when we got to the $1 billion mark. I think we are pretty comfortable that the online is performing well.

Bob, you want to comment on EquipmentOne and ---.

Yes, so within the numbers here I think I could, Pete. The online side has just shown continued growth. It doesn't mean it is a lack of business the other way, it is just we have been able to track a lot of people to play online which is great. And then with respect to EquipmentOne, it is actually that the total volume growth was flat with where it was last year and that is okay. I mean obviously it would be nice if it was even bigger, but it is brand-new, it is nine months old and I'm not -- we are not concerned by it being roughly flat with last year. That is fine for us.

Hamzah Mazari, Credit Suisse.

Good morning. Thank you. A Question on whether you are seeing any change in the competitive behavior from brokers and dealers out in the marketplace. It seems like you are doing much better on the at risk side. Curious to see if you have seen any lightning up of the competitive environment from some of the brokers and dealers.

I will take that. The brokers and dealers absolutely continue to be a competitive force. There is no question about it. I would say to you it is not really anything other than business as usual, but when you say that business as usual, the market is very tight for late-model low hour premium type assets that are spec'd well.

So there is more and more people that are chasing those, including ourselves. So it has for sure heated up, but I don't think it is anything out of the ordinary, given what the market is for the quality assets at the moment.

And a bigger picture question just to follow up. How do you folks think about the impact of less equipment moving overseas combined by the fact that most OEMs are cautious in terms of producing to end market demand after having overproduced? Do you see that impacting your business at all? How should investors think about that? Thank you.

Pete, do you want to take that one?

Yes, sure, Hamzah. It is Pete here. We're not -- part of the less equipment moving overseas is really a shift back to the US and if you remember back in 2008, 2009, there the US dollar was lower. We had a lot of Australians coming to the United States where activity in Australia was very, very brisk and the US was on a bit of a down slide. So a lot of equipment proportionally higher than normal left the US in 2009 -- 2008, 2009, 2010 and that sort of pendulum has swung back so there are not as many.

The US dollar is a little stronger. Those other markets are not as brisk and there is demand in the US. Construction activity in the US is up and we are seeing some res and non-res activity. You can watch other participants and what they are doing with their data in terms of what is happening in the US.

So we are seeing some very positive things in the US right now that would cause greater demand and therefore greater end sales in the US overall. So I don't - I am not actually worried about it. I think our model is well-positioned to be able to serve the market whatever the market's needs are. And that global footprint is super important as everything changes in the world from yesterday to today to tomorrow. I am not particularly concerned about it at all.

Great. Thanks a lot.

Nick Coppola, Thompson Research.

Nick Coppola, your line is open. Your next question comes from the line of Jamie Sullivan, RBC Capital Markets.

Good morning. Wondered if you could give some color on the fourth quarter in GAAP. You mentioned October was up almost 30%, I think. You talked about the productivity gains.

Maybe you could just give us a little bit more color because the range is leaving us around down 10% to up 10%. We have five weeks left in the quarter. Just wondered do you expect growth, what are you seeing over the next few weeks here?

It is Rob. You are correct five weeks or so, but man alive, those are big five weeks. We have the majority of our volumes for sure is still ahead of us in the fourth quarter. We are still signing contracts, and with the huge volume of auctions that occur in the first two weeks, first three weeks of December, there's a lot of time left to the signing equipment. So that is why we haven't narrowed our guidance for GAAP.

Just to give you some math, Jamie, we have 58 auctions in 12 countries in the next six weeks.

So, and also I think it is important for -- take Pete's comment about our October GAAP, that is up compared to last year, and to take that with that single data point with a bit of a grain of salt because you have seen it in prior months where it is up significantly one month. Maybe the next month up a bit and third month down a bit. So you are -- significant fluctuations in those monthly results. And yes, we are not prepared to provide specific guidance on quarter 4 GAAP.

Then I guess on -- you talked about the sales headcount what was driving that. Maybe you can just couch it. Where is turnover today and over the longer term, what is a band where you would like to be running or seeing the turnover levels at?

Yes, sales headcount, if we are at 273 right now, 1 or 2 up or down can have percentage fluctuations that are a bit [belie] the truth, but the real trend. We are not overly concerned about the attrition rate. The attrition rate has actually come down year over year, in fact, especially in the voluntary which is heartening. I think what we are -- what we created this year with our sales comp program has been really well-received by our Territory Managers as being clarity and simplicity and they have bitten into this in a big way. And I think that has helped focus our revenue and our revenue performance because it has driven on revenue.

So the headcount for us is important. I think Nate's commented -- the opening question at the opening was square on about TMs and we are acutely, and I can say the word in capital letters, acutely focused on making sure that we hire the right people and train them to get them productive and going forward.

So the strategy is not super complicated. It is really more about execution and execution of a few various simple things about at risk business, about TM hiring, about coaching and getting the right managers in place and supporting them. And it is starting to pay dividends now and that is heartening for us.

Thank you.

Scott Schneeberger, Oppenheimer.

Could you address your process of field communicating with corporate with regard to at risk business and controlling ARR? And then if you could get us any quantification or feel for how much of a headwind on volume or GAAP growth your success in controlling ARR, what impact that might have been. Thanks.

(technical difficulty) I will just quickly walk you through our process for evaluating and moving forward on underwritten business. And it is absolutely a collaborative effort where the our sales force will source the package of equipment by their relationships with that equipment owner. They will evaluate the needs of that customer and part of that evaluation is potentially doing an inspection of the equipment so that an appraisal can be done on each piece of equipment. That appraisal is done by normally by that salesperson and their direct managers in the field as well as evaluation and appraisal of that equipment by our pricing team, the majority of whom are here in our Vancouver office. And then depending on the size of the package or the size of the deal, there's very clear and strict levels for approvals.

So depending on the size does it need the approval of the Vice President -- the field Vice President plus one of the senior pricing analysts here in the head office or does it need the Senior Vice President in its approval or does it need Steve Simpson approval plus in combination with other approvals from the pricing team here in Vancouver.

So it is very -- it is rigorous and it -- that concept of having approval limits has always been in place and we have always been very diligent about following them. So there's not -- there is not rogue salespeople or rogue deals happening out there. There hasn't been and there aren't.

And, Scott, your second part of your question I didn't quite understand. Maybe you can repeat it.

(multiple speakers) just want to say the headwinds that, Scott, I presume the second part of your question was about the headwinds all this control and scrutiny falls on at risk or underwritten business and it doesn't cause a headwind. If you are a salesperson you are going after every deal and you are presenting every opportunity you get and going through the process to make it happen as best you can. So that is a rigor of review on our underwritten packages that are presented to us. Doesn't create a headwind in terms of fewer deals being presented or deals being -- good deals being turned down. That is not, that isn't happening and we are not walking by deals or walking by GAAP.

Rob, can I just make a comment?

Yes.

Just one thing to add to that. Sure our process for sure is thorough and rigorous, no doubt about it, but make no mistake either. I mean, it is not -- we are still nimble and opportunistic out there and we are turning around deals very, very quickly when we need to react quickly for whatever reasons are coming out us. So, yes, we are doing all the right things, but again, I don't want anybody in the market to think for a second that we are not doing everything we have to do to ensure we get those deals done.

Thanks. That's helpful. I know that was a two-parter on the first one, but if I could sneak a follow-up. The -- I think, Peter, you had mentioned you are seeing some opportunity and perhaps getting some rental business.

I realize seasonally this is the time of the year and you guys have mentioned 58 auctions before year end. Was that a seasonal comment or is there something structural that you see as an opportunity? Thanks.

I think it is probably a bit of both. I think the structural side of it is, the rent -- when you guys think about rental, it is not just the big guys like the Uniteds and the others of the world. Every dealer fleet out there and the dealers are very, very intelligent business people and they have probably enhanced their rental fleets over the last three or four years to support demand for the caution that the market requires for people not to want to invest a pile of money so they will go and rent one or two assets or three or more. And you can see that those fleets are getting aged and they are ready to turn.

So that is an opportunity for us to continue to focus on it. So it is a bit structural that way in that it is really responsive to the economic conditions of the time, particularly in the United States I would say.

So, for us it is just more potential business. We go out there and we compete everyday and we have got to convince people that we are going to add value with our services and we get out there and bang on doors and we have just seen that that is obvious, an obvious opportunity. All of that said, it's still accounts for less than 5% of our GAAP. So it is not like we are beholden to it. And it is an opportunity we just want to continue to form relationships and exercise with relationships that we have formed, exercise those opportunities that we see coming out.

And so that structural shift, a lot of people loaded up with tier 3 equipment prior to the changeover and now that tier 4 is in and tier 4 is becoming accepted, people see it. The engines are working fine. They are productive. They are probably more productive than the older ones, some of the federal work that is underway right now especially the non-res stuff, California, interestingly enough looking at what they are doing with regulations there requiring contractors to have certain level or tier 4 interim and tier 4 final equipment in their fleet. You are going to see a continued evolution of that over the States in the US.

So that will continue to help support people making the leap into the next level of technology. And that is good for us because it creates transactions.

Thanks.

Bert Powell, BMO Capital Markets.

Pete, just wanted to look at the average age commentary that you made. Is that systemwide or are there markets where you are starting to see the average age come down?

A good question. We look at Canada and the US as two interesting markets because it counts like 75% of our fleet. You see in Canada, behavior's a little bit different than the US. US guys tend to turn their equipment earlier. And in Canada they tend to hold onto it a little bit longer. So there is a little bit of a flatter curve in Canada than the US.

But overall, it is not that dramatically different. So, I wouldn't say that it has any material impact on where we have seen the market behavior happen in the last three or four years and where we see it coming.

We see today we are selling more one -- proportionally more one-year-old and two-year-old equipment this year than we had last year and the year before. So you can see it working its way through the system and we believe it will become a lessening headwind. In fact, neutral would be great for us because we have been fighting this thing for about four years now.

But it is what it is and we, again, we sell what is for sale and what is for sale today is evolving to be more familiar than we had seen in the past few years with the aging of iron coming to market.

So we would expect as we roll through 2014 that the average age should move down a little each quarter as we start to churn through the GAAP (multiple speakers).

Yes, I would love to give you a precise date because you guys love those charts and graphs, but all we can say is that we are seeing signs of the level of OEM production that declined in 2009 and 2010, we are seeing that work its way through the system now and we are starting to see signs that that will abate. I can't give you an exact date, but it is abating.

Thanks for that. And, Rob, on the G&A so the 2.3 charge, I guess, if you will, as in the general admin for this quarter, can you give us how you are thinking about the G&A number going forward? Is the focus on cost going to enable you to get that down as a percentage of GAAP or as a percentage of revenue? Help us think 2014 G&A through here, based on what you are doing today.

We haven't completed our plans for 2014, so I can't give you an answer when it is by giving 2014 guidance. But yes, for sure, obviously the plan and the model is leveraged and the absolute focus is on the top line, which is growing the volume of business which is gross off of proceeds and having a well-performing commission rate or Auction Revenue Rate. That, for sure, is what is going to drive the leverage in the business while utilizing the capacity that we already have in our system will (technical difficulty) [particularly] obviously our physical capacity and auction yards. Absolutely we have capacity in the vast part of our infrastructure. But as your Gross Auction Proceeds or your volume in business grows, you do obviously for sure we will increase our sales team next year and I think it was Pete's commentary of expectation of 5% to 10% growth in our sales team.

And that has added partly -- sorry, part of the impact of the increase in volume is also some increase in operating and administrative expenses. So the operating team is actually at the auction sites and administrative team processing all of that activity. So as your number of consignors, number of lots, number of buyers, number of bidders increases, that does create additional work.

Absolutely the expectation is that that growth in administrative and operating expenses will be less than the growth in Gross Auction Proceeds or less than the growth in our number of lots and number of consignors.

Lastly, a bit of a maintenance question. The tax rate in the quarter, you know, historically there's always one quarter like this. Is there anything to think that it shouldn't be in the 29%, 30% range?

Yes, sorry, great point. Yes, the tax rate in quarter 3 was particularly high absolutely reflecting the profits earned in high tax jurisdictions, which is the United States is by a long measure, the highest tax jurisdiction. In addition, just the mix of where our auctions occurred in quarter 3 and there was probably less activity in low rate tech tax jurisdictions in quarter 3 this year compared to last year. So those two things we combine to have a relatively dramatic impact on our quarter 3 tax rate.

Going forward, yes, your tax rate in the 30s -- 29% to 30% to 31% range, something like that. Similar to what it has been.

Okay, thank you.

Ross Gilardi, Bank of America.

Good morning. I am wondering how should we think about your revenue, your longer term revenue growth outlook in terms of what the main driver is going to be. Is it going to be more gross auction proceeds or is it going to be more auction revenue rate? Like how should we put the 11.5% to 12% for this year into context in terms of the long-term outlook? Do you think you can continue to improve from that?

Great question. And our model is all about growth in the business and growth in the business is really growth in gross auction proceeds. So we expect revenue growth to come from growth in volume, growth in the business. We don't -- we are not expecting to have an ever-increasing revenue rate.

Okay, thanks. It is pretty clear that the OEMs are struggling right now with weak new construction equipment volumes despite the pickup in the US housing market. I am wondering what do you think the root cause of that is? Is it the move to rental? Is the fleet to new? Is it foreign competition? If anything it feels like many of the OEMs need to cut production rather than increase production of new. I am just wondering how that ties into your comments on seeing -- hopefully seeing more late-model used equipment coming through in coming years.

I guess when I was listening to a few calls recently, the -- absolutely the overriding commentary was both the mining equipment and also that the -- when the segregate mining equipment from construction equipment, even inside construction equipment, some of the bigger units or bigger models inside construction equipment are actually impacted by the mining. They are quasi mining equipment and so my take on that was that within the construction equipment, the mining aspects of that are what is hurting it. And the mid- to smaller size mining -- sorry, construction equipment is actually doing okay.

Yes. We saw Cat release retail dealer stats the other day that three months rolling average, they report X% down overall worldwide primarily again what Rob says of mining in Asia-related issues for them. I think their construction equipment trend in North America retail sales was up 4% year over year. We look at US construction spending up around $915 billion now which is up from sort of low troughs of the high 7's.

Seeing signs of residential stuff that comments from other players about non-res about an 18-month delay of non-res activity; we are seeing companies that are in the end construction market like Granite, people like that that released and they are talking about big backlogs and increased activity and improving margins.

So those are all little nuggets of signs that you are seeing that things are modifying a little bit. So you say OEMs are struggling with weak sales. You pack our -- they came up with decent number of truck sales are good in North America. The ag guys are booming along. They are probably a little bit more worried about next year or the year after with commodity pricing dropping off.

But we are seeing some decent activity with the ag and lots of production there. So we are quite buoyed by the fact in this tier 4 issue that is behaviorally shifting in to create more comfort that people see, it is not the first item off the production line. These are working out there. The fuel is available. Every [other] knows what DES stands for now.

So there's lots of things that are creating more familiarity and comfort within the construction community and the transportation community and the ag community that really add up for us to be more promising than we have seen in the last long while.

That's great, guys. Is there any way to quantify what sort of mining and ag mean to your overall mix now in terms of percentage of auction proceeds?

Either one of them isn't going to be significant enough to have a big impact on our results. I think probably in the last in well, I guess quarter 3 2012, we had a lot of mining gear and we spoke about the impact that that had.

All right. Thanks very much.

[Richard Linhart], Morgan Stanley.

Thank you. Following up on that question about mining and ag. Can you comment about energy and give us some color in the US and in Canada what kind of impact you are seeing from the energy market?

Steve, you want to take that?

The energy market is -- I mean it is very interesting right now. We are -- we have got several auction sales that are coming into play right now more all in gas-type related stuff and at three or four different locations. So we right now we are seeing -- we have a bit more of this on our plate than we typically do.

So it is going to be interesting to see how that evolves. And then, of course, the other energy markets related to coal and others. The coal market is continuing to be very, very challenging and doesn't appear for sure in the US that that is going to change anytime soon.

So it is definitely a mixture of what is going on right now and it is a bit hard to read on some of the oil and gas stuff as I said, because we haven't had a lot of that stuff run through the auctions of late. So we are certainly going to be a bit smarter on what that looks like as we roll through the end of the quarter.

Do you have a sense -- if you take the energy category and all of the related things. Obviously there is a lot of trucking and various other equipment that may not be specifically made for energy, but ends up being used in energy. Do you have a sense of what the overall impact is on the Company?

Oh. As far as the percentages go, I mean, I don't have a good feel for it. I would think the amount of energy stuff we sell in percentages, I am thinking it is probably something like 10% or 15% of what we sell.

I would say that would be awfully high. Well, I guess --

It depends on what you put it into it though, Rob.

Exactly. A [30 ton] excavator for sure is energy. It is also construction. It is also highway development. And so, yes, I think to be -- it is almost too challenging to say what is an energy piece of equipment.

For sure, we are enjoying the activity and the energy marketplace right now with our auctions, for example, coming up in North Dakota. So we are enjoying that. Whether that is -- well, it probably isn't energy-specific items. They are probably relatively a little bit more generic.

Got it. Okay, great. Thank you very much.

(inaudible), Raymond James.

Nice quarter. Just had a quick question on your free cash flow. With your CapEx coming off pretty significantly next year we should expect to see some cash pile up and what are your plans to do with that?

Great question. Yes, the cash piling up, I am sure bankers will be loving to hear that. But the expectation in 2014 is we do have some long-term debt that is coming due. So we will be repaying that in early 2014, and the excess cash after that, when you take out our CapEx program and you factor in our run rate for our dividend, you are not going to have stacks of cash sitting there that would warrant any other special distribution or special program for returning it. That is probably going to be more of a 2015, 2016 program.

And what is the amount that is coming due in early 2014? Do you have that note, or --?

Yes, (technical difficulty) $30 million.

All right. So nothing imminent here, then?

It is not --. Correct.

Thanks. And I missed the one-time costs that were in SG&A this quarter.

In SG&A $2.3 million.

All right. That is my two. Thank you.

Neil Frohnapple, Longbow Research.

Good morning. Congrats on a nice quarter. Would you guys be able to provide more color on the few deals you mentioned that boosted ARR in the quarter? I am just trying to gauge if used equipment prices accelerated on these deals in light of your commentary that prices are relatively stable or, again, if you guys were just more disciplined on pricing.

Yes. When we talk we never get into details of a deal. But in general a good deal and kind of the characteristics of a good deal are a complete dispersal, a deal where the equipment is located in various parts of the jurisdictions, for example, in a number of different states in the United States that has a nice overlap with our auction sites. And so our auction sites are at a competitive advantage to us as we are going into that deal and negotiating it.

The other thing that makes a nice deal is that there is a nice variety of equipment. So lots of yellow wire. In addition, lots of what we call smalls, that those small pieces and ancillary pieces of equipment that are, frankly, a challenge to handle logistically and many participants in the marketplace don't want to handle them, we are more than happy to handle them. We have the teams and we have the auction sites to be able to take care of that part of the business for our customer. And, again, that would be absolutely one of our competitive advantages to negotiating that deal.

I will just jump in there as well. Rob identified what makes a deal great for Ritchie Bros. and that is really what the answer was in Q3. It wasn't so much that equipment prices were going up on us. I think part of your question was curious about did we do well because prices improved maybe unexpectedly.

That really wasn't the answer in Q3. The deals that we had great success with really because they were just awesome fits with our model and we were able to bring great value [to the concern].

Thanks for the color. And, Bob, is there any way to strip out the legacy AssetNation GAAP to get a sense of the EquipmentOne performance in the quarter? Because I am assuming that $20 million GAAP included those legacy deals last year as well as this year.

There really isn't. We have got [convention] completely blended together the sales force for the legacy AssetNation world into the strategic accounts deal with Ritchie Bros. And so we are getting -- we are playing volume through the auction and EquipmentOne from legacy AssetNation customers and we are seeing volumes through the auctions at EquipmentOne from legacy Ritchie Bros. customers. And we are seeing volumes that are both from new customers that that team is attracting. So we are kind of past the point where it is easy to do apples to apples.

Okay. Great. Thanks very much.

Tiffani, we probably have time for one more question then we will wrap it up.

Gary Prestopino, Barrington Research.

Most -- the questions have been answered. I was going to focus on this auction revenue run rate. I guess what I would say is that you know, talking about some good deals, but you have also improved your process. Would these -- would the floor be now about a 12% auction revenue run rate? Because as I look across the first three quarters of this year, it looks like the lowest has been 11.96%.

Yes probably a floor of 12% would be quite optimistic. And so we haven't actually changed our annual guidance or annual expectations on our range for our Auction Revenue Rate. And because it is -- as you have seen over the last few years, it does fluctuate and it will fluctuate in the future for sure.

Okay, thanks.

Thanks everyone. Appreciate your attendance and questions and we will look forward to chatting with you in February when we do our year end. Okay. Thanks, guys. Thanks, Tiffany.

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