RB Global Inc (RBA) 2014 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to Ritchie Brothers Auctioneers First-Quarter Results Conference Call.

(Operator Instructions)

I would like to remind everyone that this conference is being recorded on Monday, May 5, 2014. I would now like to turn the call over to Peter Blake, CEO.

Please go ahead, sir.

Thanks, Joanna.

Good morning, everyone. Thanks for joining us on our Fiscal First-Quarter 2014 Earnings conference call.

Joining me today on the call are Rob McLeod, Chief Financial Officer; Bob Armstrong, Chief Strategic Development Officer; and Steve Simpson, our Chief Sales Officer.

Before we start, I'd 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 our 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 it is not presented in our statement of operations.

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

Now on to our quarterly results discussion. As we announced earlier in April, gross auction proceeds for the first quarter totaled $855 million, a 1.2% increase from the same quarter last year.

We were generally pleased with the GAP performance of this quarter, considering some challenging weather conditions in the Eastern US and Canada that impacted some of our customers. GAP was positively influenced by the strong performance of our Las Vegas auction in March, which coincided with ConExpo. That was offset by the fact that two offset industrial auctions that occurred during the first quarter last year were not repeated in 2014.

Our revenue in the recent quarter was 11.5%, which was more normalized and in line with our stated 2014 revenue rate expectations of between 11% and 12%. As you may recall, we achieved an elevated revenue rate in Q1 last year, which makes for a tough year-over-year comp.

Revenue for the first quarter of 2014 declined slightly from the same quarter last year to $98.6 million. And earnings for the first quarter, at $14.3 million, or $0.13 per diluted share, was equal to diluted EPS generated in the same quarter last year.

Our performance during Q1 was positively impacted by a favorable tax rate and foreign exchange gain that Rob will speak to more in a minute.

First quarters typically are our smallest of the year, and our performance this quarter was in line with our expectations. Overall, we're quite pleased with how Q2 is shaping up so far.

As you heard last week, our Edmonton auction broke many records. At CAD143 million, it was the largest ever sale in Canada and 37.5% larger than the same auction held in April last year.

I'm pleased to tell you that our April gross auction proceeds totaled $366 million, which is a 17% increase compared to April of last year. On a 12-month rolling basis ending April, GAP was $3.9 billion, a slight increase compared to the same period ending last year. Timing of some of the auctions has a small role in April's year-over-year GAP growth.

We are continuing to see improvement in the age and mix of used equipment available for sale. Since the start of 2014, a larger proportion of GAP has been generated through the sale of two- to three-year-old equipment than in the previous two years.

More specifically, in the first four months of 2014, approximately 14% of GAP came from two- or three-year-old machinery, compared to 10% in 2013 and 8% in 2012. So the supply environment of what we're seeing coming to auctions is unfolding as we expected.

Our auction metrics for the first quarter confirm that we're reaching more equipment consignors and buyers and growing our market share in spite of the equipment age headwinds that we've been facing. The number of lots, consignments, registered bidders and buyers all grew compared to the same quarter last year, even with fewer auctions held.

So we're very confident that we're executing on the right strategies for growth, and that the real power of our platform and operating leverage will be evident as equipment supply dynamics shift more favorably to us.

With that quick overview, I'll pass the call over to Steve Simpson to provide you an update on sales force.

Thanks, Pete.

In Q1, we saw strong performance from our sales team in Canada East, agriculture, and US West regions, as well as from our strategic accounts team. As an example, we signed two contracts with the State Department of Transportation Agencies during the first quarter, which were secured as a result of offering a full solution set. Meaning a combined contract offering with both our auction and online marketplace sales channels.

We expect this combined solution approach will continue to generate results for us going forward. We see continuing to grow the market share in the US Central and the US East sales regions, and have recently made some leadership changes to help guide and train our sales teams in these areas to enhance sales performance.

As we discussed at the Analyst Day in March, we are aggressively growing the size of our sales team. As of March 31, we had 287 territory managers, an increase of 15 TMs, or 5.5%, in a three-month period. The majority of these positions were added in key regions of the US and through our strategic accounts team.

We've also added more sales leadership positions to help manage and mentor our growing sales team. Three new management positions were created, increasing the total number of revenue producers to 358, an increase of 18 positions, or 5%, compared to the total number of revenue producers we had at the start of 2014.

As you can appreciate, the more we grow our sales force, the more the average tenure of our TMs is diluted by new recruits. At the end of March, approximately 60% of our TMs had over two years experience with Ritchie Brothers.

This is unchanged from the 60% we reported in August of last year. But I have to emphasize that this figure is being diluted due to our conscious efforts and strategy to add to our sales team. There are more tenured TMs in our ranks, but there are also more TMs that we've recently recruited.

We recognize the importance of continuing to recruit and train quality sales professionals. And we're still strongly focused on providing the best coaching and support tools we can to help our new TMs become more productive as quickly as possible.

We began rolling out one of these sales support tools in March and April across many of our regions. The new salesforce.com platform is currently being deployed and integrated across our sales teams, and is replacing legacy systems to provide greater functionality and efficiencies of our sales team and customers.

Specifically, it allows our TMs to consolidate their sales leads, pipeline and data in one system and provides better line of sight on our sales pipeline. It also allows our TMs to more quickly propose contracts and obtain electronic signatures from our customers, increasing the speed at which we can confirm information from our customers and improving the overall consignor experience.

It's still very early days to fully appreciate how much these tools will improve productivity. But we're already hearing great feedback and encouraging stories from our sales teams that indicate both they and our customers are pleased with the technology improvements.

Turning to the market environment now.

Pricing remains strong for equipment across many categories. We're seeing particularly strong demand for mid-sized equipment and also late-model low-usage and well-spec construction, ag, and trucking assets to our auctions.

Competition remains as strong as it has been in recent quarters, but we remain disciplined in our approach regarding contract negotiation. We will only pursue contracts if we believe the outcome in terms of the deal will be beneficial to both our customer's business and ours. As we've stated before, we always strive to grow GAP; but more specifically, we're pursuing profitable GAP.

As Pete noted, we're quite pleased with how Q2 has started off. And we're encouraged with the current pipeline of activity we see for the remainder of the quarter.

Now with that, I'll pass the call over to Bob Armstrong for his update on EquipmentOne.

Thanks, Steve.

EquipmentOne continued to perform well in Q1, delivering strong yields and better-than-projected traffic. Gross transaction value, or GTV, is the term that we use to describe the combined value of both sales price and of our premium that we generate from EquipmentOne. It's the equivalent to GAP.

During the first quarter of 2014, GTV was $18.7 million, down a bit from the comparable quarter last year. It was a difficult year-over-year comparison, and E-One was bolstered by one particularly large package of energy assets in March of last year. Excluding this one package, GTV was roughly in line of Q1 of 2013.

As with our option business, the first quarter of the year will typically be the smallest for E-One.

Our focus for EquipmentOne is to drive more traffic and volume to the site through marketing and sales efforts. Website traffic has continued to increase and was up 47% compared to the first quarter of last year, with over 225,000 unique visitors.

Importantly, yield or the percent of listings that transact, remained solid at 85% during the quarter, which is an extremely strong rate for online marketplaces. Overall, we're very pleased with the operating metrics for EquipmentOne. It's really a matter of driving more volume through the system at this point.

As Steve mentioned earlier, we're having success by combining EquipmentOne with our core auction channel to provide a complete sales solution to large corporate clients.

Individually, our two equipment exchange solutions meet different needs of equipment sellers. Combined, they are a complete sales solution that can be tailored to meet the diverse needs of large fleet managers and multinational customers.

We still expect EquipmentOne to make a positive but not material contribution to Corporate performance in 2014.

With that overview, I'll now pass the call to Rob McLeod to go over the quarter's financial performance.

Thanks, Bob.

Good morning, everyone.

As Pete outlined, GAP for the first quarter was $855 million, an increase of 1.2% from the same quarter of last year. And our revenue rate was back at 11.5%.

Underwritten or at-risk contracts comprised approximately 24% of total GAP during the quarter, up in volume compared to 20% in quarter one last year. The performance of our underwritten business this quarter decreased compared to the exceptionally strong performance in quarter one last year.

This was the main contributor in our lower revenue rate during the first quarter of 2014. At 11.5% is at the mid point of our expected range. As a result, revenue for the first quarter was $98.6 million a decrease of 3% compared to the same quarter last year.

Total operating expenses were also in line with the same quarter last year. There was $1 million increase in direct expenses related to auction operations. This was due mostly to a lower-than-normal DE rate in the comparable quarter last year.

Our SG&A expenses were down over last year. We continue to grow our sales team; and as a result, our sales and marketing costs increased 3% over 2013 quarter one.

In contrast, our operations and admin costs decreased 3% over quarter one 2013. This reflects our strategy of growing before we spend while investing in our sales team.

Earnings before interest, taxes, depreciation and amortization for the first quarter was $28.3 million, compared to $31.9 million in quarter one last year, a decrease of $3.6 million due primarily to our lower revenue rate.

Foreign exchange rates, particularly the Canadian-US rate moved significantly in the first quarter. These movements had an impact on individual income statement line items, but a minimal impact on our operating income, as they offset one another as usual. Although in quarter one we did have a $1.3 million foreign exchange gain related to the translation of monetary items on our balance sheet.

We also benefited from a 23.5% tax rate this quarter, down from 31.4% in the same quarter last year. This was due to a change in certain tax estimates and an increase in earnings in jurisdictions subject to a lower rate of tax.

These changes had no side effects on our rate, as quarter one is a relatively small quarter. We believe that our annual tax rate will continue to be in the 30% range.

Overall, net earnings attributable to Ritchie Brothers for the first quarter were $14.3 million, an increase of 2% compared to net earnings in the same quarter last year. Diluted earnings per share were $0.13, equal to EPS in quarter one 2013.

We continue to expect CapEx for 2014 to be in the range of $45 million to $50 million, mostly for the development of IT systems, but also for investment in some of our existing auction sites. During the first quarter, we invested $10.5 million into property, plants and equipment and proprietary software systems.

As it relates to our ongoing evaluation of capital expenditures, we made the decision to consolidate our option operations in Spain, centralizing our operations that are at our Ocana site near Madrid. As our result, we will not be renewing our lease at the site Moncofa in Eastern Spain.

Doing so will allow us to gain more efficiencies in this region by leveraging the investment we made at our largest site in Spain, where most customers prefer to operate from.

Now that we have the first quarter under our belt, I'll take this opportunity to provide a guidance update.

We now expect the Company will generate gross auction proceeds between $3.9 billion and $4.1 billion, changed from $3.9 billion to $4.2 billion previously. This translates to mid single-digit pretax adjusted earnings growth for the year.

As Steve indicated, we have a strong pipeline of activity and continue to see an improvement in the equipment supply environment. But we feel it's prudent to lower the top end of GAP guidance, given quarter one's GAP performance.

And with that financial overview, I'll now pass the call back over to Pete for his final comments.

Okay, thanks, Rob.

I'm sure there's a lot of interest out there regarding the impending appointment of a new CEO. The Board is progressing well, and the Board selection commitment is in the advanced stage of identifying a great new leader for Ritchie Brothers.

As you can appreciate, these kinds of appointments can often take time and involve a lot of different considerations, including transition from a candidate's current role and relocation needs. So we're in the home stretch of this process at this point.

Before I open up the call for questions, I'd just like to take a moment to share a few personal comments. This will be my last earnings conference call as CEO of Ritchie Brothers.

It has been a tremendous 23 years for me here and a real honor to have been a part of this great Company, to play a part in its evolution and growth.

I also want to thank all of you, the investors and analysts who cover us, for your interest in RBA and your consistently great, but occasionally infuriating, questions. Quite frankly, it's one of the biggest benefits we enjoy as a public Company, to have bright minds look at our business in relation to others that they review and be curious and ask those why questions.

Your reviews on our business have always provided us a great channel check for our strategies, I believe we're very lucky to have such an informed coverage of our business and industry. It has been a real privilege for me discussing our business with you over the years.

When the Board announces the next CEO, I am committed to provide whatever is needed to ensure a seamless and smooth transition of responsibilities. I have no doubt the new leader will be welcomed into the Ritchie Brothers family with the same enthusiasm and respect that I've been lucky enough to have enjoyed over the years from everyone I work with here.

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

Joanna, can you please open the lines?

Thank you.

(Operator Instructions)

Your first question comes from Yuri Lynk from Canaccord Genuity.

Good morning, guys.

Good morning.

Congrats to you, to Pete, and I hope you have a good time after Ritchie Brothers. On to the infuriating questions. (laughter) Just how would you characterize productivity amongst your TMs? Is it trending in line with your expectations? When can we start to see GAP per TM start to turn the corner here and possibly pick up?

Steve, do you want to take that? Or I'd be happy to answer.

Productivity right now is right in line with where we expected it to be, so we're feeling good about that. As far as where it's going, as this market continues to get strength and confidence as it is, I think the productivity and all of the tools that we're putting in place for these guys to be more productive, it's just going to continue to get better and better for sure. So we're on it, and the guys are embracing the stuff that we're giving them. It's moving forward, so to me it's all good.

Okay, and where is this TM headcount going? What should we expect a year from now? Is there a risk that you add too many rookies, for lack of a better word, that that could possibly become a distraction and hurt productivity that way?

Sure, and that's a great question. We're managing the amounts of guys that we're bringing on. I think this year we're looking at somewhere just under 10% growth with the TMs. Right now we're just north of 5%.

For sure, we want to make sure that we're bringing them on, onboarding them properly and giving them all the support and tools that -- we need them to be successful. But as far as where does it go, there's so much in the market worldwide that is out there for us to get.

We're just scratching the surfaces in a lot of areas for penetration. I don't really see any cap, if you will, on the quantity of TMs, but the quality and bringing them on at the right pace, if you will, to ensure that they're productive is for sure the key.

Okay, thanks, guys, I'll turn it over.

Thanks, Yuri.

Thank you. Your next question comes from Neil Frohnapple from Longbow Research.

Hi, good morning. And, Pete, congrats again.

Thank you, Neil.

I'm a little surprised you guys are taking down the top end of GAP guidance range this early in the year. It sounds like Q2 is off to a good start, and obviously Q1 was negatively impacted by weather. So what's changed in the market?

Because I thought a lot of the equipment that was not sold in Q1 due to weather may have found its way into other auctions. Could you just provide a little bit more granularity there?

You bet, Neil, good morning. You're right. Some say you're right when you say this early in the year.

The challenge in our business that's always been there, is our ability to forecast, our ability to see where we're going to end up in 3 months, 6 months, 12 months. Because of the very short selling cycle that we have and the time between negotiating a deal and selling the equipment that's particularly short.

As we stated on the call, based on our quarter one GAP performance and years of history on how a calendar year of business will shape up, and how does it show up on a first half versus second half. We're just trying to be prudent with our expectations. Not taking anything away from the fact that we saw good growth in April and we are seeing a healthy pipeline for quarter two, but we're for sure just being prudent because we've demonstrated in the past that forecasting this business is really tricky.

Okay, that's helpful. A question for Steve. Is the confidence in the US market among your buyer base still strong like you articulated two months ago at the Analyst Day? Or has there been a little bit of a pullback?

Oh, no. It's solid and improving, for sure. Pete commented on a big sale we just had up in Edmonton. We had a few years there where we saw very little participation with the US guys bidding up north in Canada.

The activity that they're showing right now, we haven't seen for several years. So it's solid and improving, and we expect it to continue.

Great, thank you.

Your next question comes from Bert Powell from BMO Capital Markets.

Thanks. Steve, can you just give us a sense on the support tools for sales that you're rolling out? Like how many sales guys have that? I'm just trying to figure out, is this disruptive as guys figure out how to switch modes and load up and get using this tool versus going out and actually doing what they're supposed to be doing? I understand long-term benefits, but I'm wondering can you give us a sense of how this is rolling out to get a sense if there's an impact on that side?

Sure, so the platform as I said earlier, is salesforce.com. We've rolled it out now to, I don't have any numbers in front of me, but I would suggest to you we're about half of the sales force it's been rolled out to already, maybe a little north of that.

We've got sessions in play today. We will have it rolled out in its entirety by the end of June. Perhaps if we get a delay here, there might be the first or second week of July. But we'll be right in that area.

Your comments as it relates to the changeover and the disruptiveness, it's for sure that that's there. Anytime you put anything new in front of a sales force, there's a bump in the road. But we've got a lot of our folks are out there every day in the field.

Of course we have a lot of sales guys that are grabbing ahold of this thing. They are already fully engaged and they get it, because we have a big chunk of our sales force that are really techy. And then some of the older more mature folks are a bit more challenged.

But I'm happy to say that we have a lot of our training folks in the field, and anybody that needs training is getting it. We recognize that some of our guys are going to struggle with this in the beginning and we knew that going in, but we're on it.

As I said in the engagement, from even those folks it's been really, really good. You have to stay current with the market and this salesforce.com is one of the premier platforms in the world today. The guys know that and they're excited to have it. There's bumps in the road, but I believe we're on it and it's going very well so far.

Sorry, Bert, I want to follow-up on one part of Steve's comment. It's important to also recognize that the system that we've rolled out is replacing quite a manual system, if you will, and it's adding incremental functionality to our sales team.

So it's not -- I don't want to leave you with the impression that this is a Big Bang changeover for our sales force. It is a, for sure as Steve said, there's some, as always, adoption challenges.

But it's by design, a relatively straightforward movement from a limited functionality system to a higher functionality system. So our TMs are able to do exactly what they used to do in short order.

Thanks for that. Steve, what were the changes you made for the US Central and East? You said you made some changes.

Just some changes in some management in those locations.

Okay, is anything material there?

No. It's just normal course of business. We had some things we wanted to move around and some guys that we wanted to put in some different areas just to freshen it up a bit. So no, it was part of the plan.

Okay, and lastly, Pete, I don't think I could do a better job than what Ben articulated at your AGM, so I would just echo those sentiments as well. Good luck.

Appreciate the comments. Thanks, Bert.

Your next question comes from Scott Schneeberger from Oppenheimer.

Thanks, good morning. Best wishes, Pete. I'm curious, when you guys say home stretch. Pete, we won't be hearing from you on these calls again.

That feels like something's pretty certain or definite. Is there any more elaboration that you guys can -- is it down to one candidate and you're just waiting to wrap it up? Any additional color?

I'm careful with my words here, Scott. But I will share with you that we're down to a very small number, a really small number of very, very highly qualified people. I've read the bios of these folks and they are all exceptional people.

So I'm quite excited about what's coming here. I think it's really a matter for the Board and selection committee to finalize their to and fro. I can't give you a date, but you will not be hearing from me on the next call. (laughter)

Okay, well, thanks for entertaining that. And again, best wishes with everything. I guess, guys, the auction revenue rate in quarter, right dead center of what you're anticipating for the full year.

Curious on thoughts with at-risk a little bit above where it was in first quarter last year, some puts and takes on that. Could you speak on how you're addressing at-risk for the balance of the year, please?

Well, Scott, I'll give you a little flavor first and maybe Steve can chime in as well. I guess our range for our revenue rate of 11% to 12% is our going-forward rate. It's not necessarily just for 2014. That's what we expect from the business going forward as well.

The at-risk volume that, as you mentioned, ticked up a bit here in quarter one, really reflects what's happening in the marketplace, what opportunity is being presented to us. We will pursue those opportunities.

Also making sure that we are being aggressive on those opportunities in order to get that equipment into our yard and use it as a marketing tool. Also to potentially be building those relationships with customers that are new to our sales channels.

Of course, with that comes with, as we're being aggressive, comes with some opportunities, if you will, to have a little lower commission rate on it in order to achieve our other objectives of marketing, competition, and relationship building. Steve, did you have any other color on that?

The competitive part of the picture is, as the assets become more available of quality that we've talked about, the later-houred more well-spec stuff that's coming onto the market that's challenging for us to get. There's a line-up of folks that are chasing it.

It's out there now and we talked that there's more confidence in the market. There's more people out there buying. A lot more people that have been a bit challenged recently are getting back into the market as competitors.

Those assets that are premium are in more demand, and you have to push it to get it. That's what we're doing and we're seeing great results.

But as we pointed out, our Q1 last year was a bit unique. We had a couple really big wins that pushed our rate up there for a bit. We're still seeing really positive rates, hoping for those big wins that we get occasionally as well.

At 11.5%, it's still a very reasonable rate to be achieving. It's competitive out there, so you got to go get it.

Okay, great, got it. Thanks guys.

Thanks, Scott.

Your next question is from Hamzah Mazari from Credit Suisse.

Hi, this is Flavio. I'm standing in for Hamzah today. How are you?

Good.

Most of my questions have been answered. Can you give us some color if you're still seeing higher competition from brokers and dealers in the used-equipment market? Or if that has moderated somewhat?

Steve Simpson here again. No, that has not moderated for sure. Those guys are, again, they're picking up a little steam here because of the markets getting some steam.

As the market gets better, there's more people out there looking for opportunities of equipment to buy. These guys are out there looking for a lot of the same stuff we are.

They're attending more of our auctions and trying to buy at the sales as well. So, no, I would say, if anything, it's a little bit more competitive.

Perfect, that's helpful.

Really that's the sign of the times. When things are happening and there's good times out there, there's more people playing.

Sounds good. Just turning to capital allocation for a second. Do you have any updates on that on returning cash to shareowners? CapEx seems to be coming down over the past couple of years, or relative to history. If you can give some color on that and on the acquisition pipeline as well.

Yes, as you state, by design our CapEx is falling compared to the peak of about $150 million two years ago. And that was certainly our strategy. As we get into position to have excess cash, then for sure, the conversation has to turn to our needs internally, if there's a acquisition target or an opportunity to extend our business or our lines of business.

Barring that, then certainly we look at opportunities to return it to shareholders. Obviously continuing with our dividend and also opportunities for share buybacks or other tools that investment bankers might suggest.

That sounds good. I think those are my two, then, so I'll hop back into queue. Thank you for your time, guys.

Your next question comes from Ben Cherniavsky from Raymond James.

Good morning, guys.

Good morning, Ben.

Pete, I'm going to play good cop-bad cop following my comments at your AGM.

Brace yourself.

Actually the follow-up to the previous question about capital structure. I'm curious that, Rob, you say as we get in a position to have excess cash. I look at your balance sheet, we've talked about this before. I think you guys have a lazy balance sheet. You could do more.

There's really no need to wait to build excess cash. You basically you have no debt in a business like this. And you're on some idle assets, Edmonton for example.

I'm curious that you consolidated Spain, that's, I think, a step in the right direction. But what's it going to take to move more assertively on your capital structure and your balance sheet? I'm not really sure what you guys are waiting for at this stage.

Yes, Ben you're right. We had the conversation previously, I think, in March as well. For sure, we're having those internal conversations about the return on capital and our opportunities with our balance sheet. And as you said, our availability of taking on debt, as well as obviously generating, truly generating, excess cash flow.

It's a continuing conversation and we want to make sure that we have the ability to grab opportunities as they come and keep our powder dry, as well as maintaining our conservative stance in terms of long-term debt positions as well.

Okay. My second question would be somewhat related, because the challenges that you guys have faced in re-accelerating your growth have all been positioned within the context of the sales force. There's a lot of emphasis around hiring, training people and retooling them with the right technologies, and those sorts of things to raise productivity.

But, very frankly, it's not the first time that we've heard this. I go back to your Investor Day, I think it was 2009, four or five years ago, and you guys were talking about a lot of new initiatives that you were rolling out at the time. The FAIM, field asset information system, sales force automation, and a number of other tools that were all designed to raise your productivity. We're still waiting to see the payback on those initiatives.

So my question is, why is it different this time? Why should we believe that the changes you're making, the investments you're making, are finally going to catalyze a change in the sales force?

It's a great question. Pete here, and I think it's a very fair question. We go back in time to 2009 and these are comments that I shared with folks at the AGM as well.

We highlighted a few of the larger macroeconomic events that have happened, particularly in the United States, where half our revenue is. We underestimated the impact of this great recession and the lack of production in the OEM side and the impact it had on the transaction, the post new equipment transaction, or the aftermarket in our world.

We make money on transactions, and when there aren't any, for whatever reason, we can convince people to sell through our channels when they're ready to sell, but if they're not interested selling anything or buying anything, then that limits our ability to make money. The environment is turning nicely now. The focus for us has always been on the basics of hiring good people and giving them the tools they need to get out there and make it happen.

On the technology side, the productivity that we've had so far has been okay, but I think there's significant room for improvement. So the tools that we move now and that we invest in to provide our people, we're not building a new rocket here.

This is pretty plain Jane stuff for most sales organizations. I think that as we introduce and roll them into a platform, we can and should expect better productivity.

That was a misstep on our part back in 2009 and 2010 when we started contracting on our interest in investing in more folks as we go forward. Let's go and grow our bottom line first and then start. I think that part of the need for us to grow our bottom line is to invest in that kind of sales productivity side of life.

I think we did a very, very good job in all of the operations in the core business. We're investing in other businesses like EquipmentOne, to allow us to have more of a solution set.

So that's had a dampening effect on ROIC, but at the same time you have this long-term view of the business. I know you guys are kind of sick of hearing about the long-term view.

We made a couple of really long-term bets here with China and EquipmentOne. Those are long-term interesting investments that will pay dividends long into the future. I also recognize there's an element of frustration from an investor level to say, well, instead of doing those long-term things, give us the money back or do something that has a more immediate impact on the earnings.

That's clearly in the square sight of the Board and of the Management team is, if we're going to invest in anything, it's going to have some immediate accretive impact. And if not, then let's figure out a way and figure it out and make it very clear to investors going forward about what we can do with the excess cash.

It's a really good question, a very valid one, too. I would not count that as one of the infuriating questions, Ben. (laughter)

Okay. Well, thanks, Pete. I'll miss your very candid answers going forward.

The next question comes from Nate Brochmann from William Blair & Company.

Good morning, everyone.

Good morning, Nate.

And, Pete, definitely best wishes to you in the future. Definitely appreciate all your candor as well and echo all the other sentiments.

Thanks, Nate. Appreciate that.

So a couple things. Steve, this is for you. To get a little bit more granular on the operating environment certainly as you echoed, it seems like trends are definitely moving in the right direction, both on what you're seeing as well as the operating environment. On the top line a little difficult to predict, and a little conservative there, but could you get a little more granular in terms of what you're seeing in terms of whether the activity out there is more equipment refreshes versus more overall activity and people's confidence the market getting better in terms of raising that activity?

And also, too, one of the other big questions on everyone's mind is whether we have a permanent shift over to the rental market. But maybe with some of these activity levels picking up, maybe people are more apt to own versus rent, if their pipeline's a little bit better. Wondering what your thoughts would be on that?

Sure. Let's start with the rental one. Typically when the customer or the contractors or the trucking companies are challenged by how much work they have in front of them, they tend to rent more than buy. Now with the amount of work that's being let and the amount of bid opportunities for these guys to have more work and to know what's coming up, we're definitely seeing more guys are wanting to buy and not rent as much as they are.

The rental thing is a great comfort zone for them when they don't have it in front of them. But when they know what they have in front of them, they tend to want to buy more than rent.

On that other question, for sure, is the strength in the marketplace and the depth in the work out there, is much greater than it was. You go around to the auction sales and talk to all of the customers. Almost in every case, everywhere you go right now, everybody is talking more positive about the amount of work that's out there. The opportunities for the jobs are greater.

Now when a bid is coming up, instead of 15 guys bidding on it, maybe there's 5. You can just tell it's getting spread out there. There's a lot of guys that are refreshing, is the words we use, use some of their fleet and updating and upgrading.

A lot of guys are paying attention to the tier 4 situation with the engine thing that they're working on now as well. Then also there's a lot of guys that are buying more fleet because they don't have enough stuff now to benefit the work they have coming up in front of them.

Okay, that's great and thanks for that. Rob, in terms of thinking about the SG&A levels and not looking for exact guidance here. But given some of the initiatives that you've had in terms of keeping the costs down, as you mentioned, versus the new hires, should we expect that balance to continue throughout the year in terms of maybe give or take maintaining absolute dollars of SG&A relatively constant? Or will the new hires coming on at a greater rate push that number up a little bit?

As mentioned, we had a 5% growth in our sales force just during the first quarter, so that will have an impact. We would expect sales force to grow around 10%, give or take a little bit, through the whole year.

That SG&A level will probably be relatively consistent for the balance of the year, with typical swing quarter to quarter that aren't huge, but probably relatively consistent through the balance of the year. Because we will continue to grow the sales force, but we don't have that same growth built in for the operations and admin costs.

Okay, thanks for the extra help in modeling, appreciate it. And again best of luck, Pete.

Thanks.

Your next question comes from Peter Prattas from Cantor Fitzgerald.

Good morning, everyone. I just have one question on pricing. Last call you made mention of pricing improvement in the first couple months of the year. I'm wondering if things have continued to improve there? And if you have any sort of estimate on how much the improvement has been in percentage terms?

Steve Simpson here. The pricing of the quality assets, without a doubt, continues to be solid to improving. I don't really have a percentage I can put on it for you. To be honest with you, I don't have it. I don't know if any of the other guys on the line do. But it's no question, the quality is -- the pricing is very solid to improving, for sure.

Fair enough. That's it for me. Good luck, Pete.

Thanks, Peter.

Your next question is from Cheril Radbourne from TD Securities.

Thanks very much and good morning. You highlighted the improvement in their percentage of your mix coming from two- to three-year old equipment, which was, I think, 14% this quarter. Can you remind us what's historically normal?

Historically, well, yes. How far back to get to historically normal, that's for sure the challenge.

If you look at our -- I'm envisioning and hopefully you can as well, that chart with the one line per year that's in our investor material. I believe that chart starts in 2009.

The proportion of two-, three-, four-year old machines is probably somewhere around 20%. But I would suggest that that was historically high as a percentage. So somewhere probably south of that number is where the pendulum would be at an even spot. But of course it will swing back and forth a little bit.

The interesting thing, we pointed this out in a chart we showed at the AGM, was the shift in year over year. In 2014 we gave you the first four months of 2014 and that shifted in percentage, and again, reiterated that in our comments today.

I think it's fascinating that the delta over the last two or three years is moving in the direction that we expect it to. And it really does relate back to that production that occurred in the OEM world in 2009 and 2010 rolled out that just weren't there, so that shift is favorable.

I think it's just moving back in line to where it's normal. Where it is right now and where it's going to be going forward, I think it continues to move in that same direction of major assets, which has really been a headwind for us in the last four or five years. It wasn't really recognized until probably a couple, three years ago.

Okay. I also wanted to ask about your recent Edmonton auction. You highlighted big, big increase in the GAP on a year-over-year basis. Can you give us a bit of color on that?

Was there anything unique in the mix? Does that indicate that there's a lot of strength in Western Canada? What did your analysis indicate post auction?

Sure, I'll share that with you because I was there and working. Those guys had me working for three days solid. It was a lot of fun.

The fascinating thing I took away from Edmonton was there was not really one big deal. Sometimes when we have a big auction like that, we have this mammoth key package that allows us to start building an auction and really create an event. And there wasn't one there.

It was all just general stuff across the board. There was some fleet refreshing. There was a couple guys retiring. But it was really more normal course of stuff, but the velocity of the transactions was rapidly improving.

I think it was a large percentage was sold into the Alberta market. But probably somewhere in the neighborhood of over $50 million left Alberta. And Alberta is probably one of the strongest construction markets in the world.

Steve shared comments earlier about the strength in the US and the dollar, the way it is. We're seeing a real resurgence in interest and activity, but the fascinating thing about Alberta was really it was across the board.

The more fascinating thing was in the June sale coming up in Alberta. We released -- on the Friday morning of the auction, we released a flyer for the June sale coming up, which has a monster single owner that's being offered up for auctions.

Some equipment of a big operator that really raised the eyebrows of lots of folks, that's coming to market. It is very nice equipment in June, so that gave them a huge lift for, that's like a June sale that adds to the fuel of the velocity that's happening in Alberta.

Okay, that's helpful color. That's it for me and best wishes to you, Pete.

Thank you, Cheril.

Your next question comes from Jamie Sullivan of RBC Capital Markets.

Hi, good morning. Pete, best of luck. If you have any suggestions on infuriating questions, please forward them along. (laughter)

I think you actually are pretty good at those. (laughter) I'm only kidding.

Oh, well, on that note, on the guidance you mentioned you expect pretax income growth this year. Last quarter you were talking in the 5% to 10% range. Have you adjusted the expectation there a little bit as well?

Yes, correct. In the prior call we're at guidance of 5% to 10% range, and we're just narrowing a little bit to be in the mid single-digit. So probably closer to that 5% end of that range.

Okay, thanks. Then just on EquipmentOne, the switch from GMV to GTV, do you have a comparable GTV number for 2013? Talk about what drove that change. Does GTV go into the GAP number? Just some details there?

Sure, Jamie, it's Bob. I think that I was starting to feel lonely. (laughter) GTV is the correct number to be using and it's essentially 10% higher than -- the number that doesn't include a buyer's premium. We're trying to do apples to apples, and our view is the number to best compare to GAP is what is termed GTV is the amounts of buyer staying. So that number we are using.

Last year we used a different number and probably shouldn't have. But it was an immaterial difference, and so that's why there hasn't been any big fanfare about it.

Going forward you will hear us talk about GTV as the GAP equivalent. That's what you're seeing now. In the press release we gave you the apples-to-apples comparison last year, which was a little bit different than the number disclosed last year I think was 18.7 was the Q1 number for last year.

Right here at the bottom of the press release. So there's $1.7 million of buyer's premium included in the GTV for this quarter. It's in the translation change to make it more comparable.

Okay, thanks very much. That's all I had.

Thanks, Jamie.

Your next question is from Craig Kennison, Robert W. Baird.

Good morning. Thanks for taking my questions as well. Wanted to ask about territory manager productivity. I would be interested in if you could give us color on how a typical territory manager ramp unfolds after 6 months, 12 months, 36 months. I'm curious how productivity should evolve.

Steve, would you want to take that? Are you still there, Steve?

Sorry, Pete. So territory manager productivity, typically the guys come into a training program for the first six months. They get run through pretty well the full spectrum of everything we do in the auction business, from being in the yard to the back gate to the front office to what's going on in the finance part as well.

That's the beginning stages of the training program. Post that, the guys are, whether it's 6 months or 12 months, depending on the individual. Then the guys are given a territory, and they're out in their territory. Quite often they're being supported by perhaps some senior TMs within that region.

The regional sales manager will travel with that guy, those folks. Sometimes the VPs and the SVPs are also out on the road spending some time with some of these new folks. Especially when we have got a lot of them out there and the key is to get as much good solid information into those guys as you can. And, as we call it, dip them in orange.

That process typically could be another 12 months. In some cases the guys are grabbing ahold of it sooner than that, and they're performing and they're out there running and gunning and making stuff happen. Post that first year, year and a half, into the second year, the guys should be self-sufficient and are out there managing their territory, with all of the assets that we give them to do that and bringing deals to the office.

And of course always having support from the senior guys to help get those deals done. I hope that gives you enough color. It's a bit of a snapshot on it, but that's the basics of how it works.

That's helpful color. A follow-up on EquipmentOne. You've got a very high transaction success rate. I'm curious what you're doing to market that service better, given the success you're having.

Thanks, Craig. Yes, this is one of the key market features when we're talking to people is letting them know what the yield is and sell-through rate is. Because it is quite unique and it's quite appealing. I think you answered the question in your question, we're marketing it. We're telling people that.

I think you probably know our focus for this year in terms of selling the EquipmentOne service, is to focus on the large corporate account through our strategic accounts team. They are with armed with their marketing materials and the sales pitch for value proposition and that yield is a key part of it.

Okay, that's great. Pete, best of luck to you.

Thanks, Craig, appreciate it.

The next question comes from Nick Coppola from Thompson Research Group.

Good morning. Is there any way to estimate or quantify how weather impacted you in Q1? Were there any specific auctions that occurred during or around severe weather that really points to what happened there?

I'll take that, Pete. So a lot of the things that happened with the weather, not only did it hinder a lot of our customers in the -- most particularly the North Central and the Northeast and up in Canada as well too. Had some severe stuff going on all over the place.

A lot of these guys were not able to finish the jobs that they were on. In many cases, particularly in the US, with the US folks, the jobs got delayed and they just stopped and they weren't working at all. That was a big chunk of it.

Then as you progressed in through to January and February, even when there was some of the folks that wanted to sell some gear, because the winter was so severe and there was so much frost on the roads in a lot of places that aren't used to getting it, they put road bans on. Which means you're only limited to the amount of weight that you can haul on your trailer.

So there was a lot of guys even they had some stuff that they wanted to send, say, to Florida as an example. Given they had road bans on in the location they lived up North, they weren't even able to get it on a truck to move it even if they wanted to.

So there was a whole bunch of that stuff that went on through the latter part of 2013 and into the first quarter of 2014. I don't have a measurement to tell you how much it was, but it was reasonably significant, the amount of guys that couldn't participate.

How do you think about how long it should take to recoup some of that lost volume? It depends on the reason that they weren't able to auction the equipment throughout Q1. But how should we think about that? Is it take a little while here?

I think you'll see some of the guys are playing now. They had some stuff in the latter part of Q1. For sure there will be guys that are in Q2 that are wanting to -- that will be able to finish up and get out.

The balance of the guys that still want to sell, obviously as time goes by things change. A guy that decided he was going to sell at a sale in February or March and all of his stuff, his assets were parked and he wasn't able to work it. Then all of a sudden another job comes up, he goes, maybe I won't sell after all.

So you've got some of that going on as well. I think it will be scattered through the next few quarters, what's still available to be sold.

Okay. Then second question here is on territory managers. It sounds like you're adding territory managers typically within the US. Is there any geographic or sector exposure that's particularly prevalent there?

No, really we're open to adding territory managers everywhere we have locations in the world, where the guys are in a position where our business is at a level that we've grown to such that the territories are perhaps too big, and the guys are looking after too much business. No matter where it is, whether it's in the Eastern United States or in Canada or Australia or Europe, if they think that their business is ready to add some more TMs, and it pencils, then we're going to go out and find them and hire them.

All right, thanks for taking my questions. Pete, pleasure working with you.

Thanks, Nick. Joanna, we probably have time for one more question and then we'll wrap up.

Your last question comes from Garo Norian, Pallisade Capital Management.

Hi, I wanted to see if I could understand a little better the tax rate that came through in the quarter and the comment about jurisdictions. Does that suggest that -- I don't know if the US maybe didn't start the year as strong as you expected and planned?

Yes, great question, Garo. The tax rate was for sure lower this quarter than it has been historically and certainly lower than it was quarter one last year. Our comments, we talked about some tax estimates that got changed, that's really more or less a one-time item. You're not going to see that recurring every quarter.

The impact of where we earn our income is more pronounced in quarter one, because it's a relatively small quarter. Because the US has such a high tax rate, when we earn income in another jurisdiction that has a relatively low tax rate, it definitely has an impact. And it has an outside impact on a small quarter like quarter one.

Okay, got it. And one other question. Relative to plan at the beginning of the year, is currency now a greater benefit in the plan going forward?

It isn't. It never has been. Because, as we commented, it will have an effect on each line item, obviously revenue and expenses, but they more or less net each other out. We would expect that to continue in the foreseeable future. On a net basis, it is not a consideration, if you will, going forward.

Great, thank you.

Thanks, everyone. Appreciate your time and attention. Again, it's been a privilege. We'll look forward to running into you down the road somewhere. Thanks, everyone.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.