RB Global Inc (RBA) 2014 Q2 法說會逐字稿

Good morning and welcome to the Ritchie Brothers second-quarter earnings conference call.

(Operator Instructions)

I would like to remind everybody that this call is being recorded on Tuesday, August 5, 2014. I would now like to turn the conference over to Rob McLeod, CFO. Please go ahead.

Thank you, Joanna. Good morning everyone and thanks for joining us on our fiscal second-quarter 2014 earnings conference call. Also on the call today are Ravi Saligram, our CEO; Bob Armstrong, Chief Strategic Development Officer; and Steve Simpson, 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 Canadian Securities filings, available on the SEC and CEDAR websites, as well as www.RBAuction.com.

Our definition of gross auction proceeds may differ from those used by the participants in our industry. It is not a measure of financial performance, liquidity, or revenue, and is not presented in our financial statement of operations. Our second-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 www.RBAuction.com, and will be available on EDGAR and CEDAR later today. I will now pass the call to Ravi for some comments.

Thanks, Rob. Good morning everyone. While it's only been a month since I joined the Company I'm increasingly convinced that we're in a market with significant untapped opportunities. The Ritchie Brothers brand has a strong position and our execution of current strategies is already building momentum.

As I indicated to you when my appointment was announced, I'm in the process of collecting feedback, input, and perspectives from all stakeholders in the Company as part of a listening tool to receive a 360 degree view of the business. I've already traveled to our recent Fort Worth auction, where I saw our team drive terrific results. I was impressed by the operational efficiency, position, and seamless integration of online and on-site bidders. This integration is particularly noteworthy and speaks well of our internet bidding technology given that most items are sold in less than a minute. Our operational competence and auctioneering skills are key strengths.

I also met several consignors and buyers who provided me with good insights. Importantly, many are repeat customers and have great faith in our brand and model.

I also visited our team at the Morris site in greater Chicago who provided excellent perspectives. In particular, I spent time with yard managers and equipment managers who gave me excellent suggestions on how we can continue to enhance our customer experience. I also sat down with many of our territory sales managers, and clearly they're an important asset to grow our consignments. We discussed ideas on how we can optimize our on-boarding process to get our new territory managers off to a faster start.

Of course, one of my most memorable meetings what spending a whole day with Dave Ritchie, who shared his continued infectious enthusiasm for the Company. I also spent time in strategic sales planning sessions, and have met with most members of our Senior Management team across the Organization.

I've also begun learning more about our business through departmental reviews, which have provided me with an excellent orientation to the inner workings of our Company. It's too early in the process to comment on most of my initial assessment, however, my observations so far have indicated that we have opportunities to build on the growth trajectory already underway.

As evidenced by our second-quarter results, our auction business continues to generate strong performance. But I believe there are opportunities to build on that momentum to capture a greater share of the market, especially in the United States and Europe. I plan on working closely with our sales, marketing, and operations team to grow our presence and penetration in these key markets which will supplement the already strong growth and performance of our auction business in Canada.

I also plan to spend a lot of time understanding our EquipmentOne solution and determining how we can accelerate growth with this model. I'm excited about EOne and it's a very important step in expanding our equipment solution set to target customers who prefer an online negotiation model.

In line with this, I also believe there are ways we can further unlock shareholder value for our investors. We have a strong balance sheet and I will spend some time and effort with the team to optimize capital allocation and capital structure, which will flow from our overall strategy. I look forward to sharing our strategic roadmap with you towards the end of this year or early next year, after I've had more time to hear from all our stakeholders and see more aspects of the business first hand.

Having been in my role for only a month at this point other members of the Management team will lead most of this earnings call. So with that brief introduction, I will now pass the call onto Rob McLeod for our quarterly results discussion.

Thank you, Ravi. I'll take a few minutes to go over some of the highlights of the quarter and then we'll discuss our earnings results in detail. As you learned through our monthly auction room metrics disclosure, quarter two was a very strong quarter. Our quarter-two GAP of $1.2 billion, up 15%, and our year-to-date GAP of $2.1 billion, up 9%, were both records for the second quarter and first half of the year. As well, it was a record GAP on a 12 month trailing basis at $3.98 billion. This growth demonstrates the momentum we're building and the impact of favorable changes to the equipment market.

Revenue for the second quarter was also a record for Ritchie Brothers. At $141.8 million, it was 10.5% higher than revenue in the second quarter last year. This increase in revenue was driven from the growth in gross auction proceeds, offset by a lower revenue rate for the quarter at 11.54%, which is in line with historic averages and at the midpoint of our guidance range for 2014.

Underwritten or at-risk transactions comprised 32% of GAP during the quarter, an increase from 27% in the same quarter last year but within historic ranges. As many of you know, we primarily provide underwritten contracts to meet the needs of our customers and match their risk profiles, and we also use underwritten contracts as a marketing tool to generate further consignments and to showcase our capabilities to new consignors.

It is also a competitive tool to demonstrate our confidence in our model compared to other channels of equipment resale. This past quarter we saw opportunities to use underwritten contracts more aggressively to drive larger packages of equipment to our auctions. It's important to note that while the amount of at-risk business grew in the second quarter, so did the amount of straight commission business; collectively, they helped us achieve record GAP during the quarter.

There was a strong contribution from our Canadian operations during the second quarter, which was underpinned by the largest Edmonton auction we've ever held. In just three days our April Edmonton auction sold CAD140 million worth of equipment, the most ever sold at our already high-producing Edmonton site. The growth seen from auctions across Canada meant that revenue from Canada contributed more to quarter-two revenue than any other geography. During the first half of the year our geographic revenue contributions are more typical, as US operations provided 46% of total revenue, compared to 33% from Canada.

Our US operations continued to perform well but we didn't see the same kind of growth we experienced in Canada during the second quarter. In some regions such as Texas we continue to see good growth. We anticipate we'll see the effects of our investments and acute management attention in certain areas of the US over the balance of the year.

During the second quarter we also held our third auction in China where we continue to see meaningful opportunities for long-term growth. We are fully committed to growing our reach in China in a steady and deliberate manner, to ensure that our brand is trusted, and our value proposition is well understood by equipment sellers and buyers in this important market.

The pricing environment continues to be strong with much of the pricing increases occurring in the first quarter of the year. This strong pricing environment combined with improving mix and age of equipment sold at our auctions has supported further GAP growth. The impact of OEM production declines after the financial crisis is now dissipating as expected. We believe we're now past the peak of equipment age headwinds as the average age of equipment coming to our auction has turned the corner and is now starting to decline.

Now I'll give you a little bit more detail on our quarterly financial performance. Net earnings attributable to shareholders during the second quarter was $38.6 million, or $0.36 per share, a 30% increase from the same quarter last year. As I mentioned earlier, revenue for the quarter was a record $141.8 million, and the revenue rate for the quarter was 11.54%. The performance of our underwritten contracts was not at the same elevated levels as quarter two 2013, but consistent with historic norms, putting our revenue rate at the midpoint of our expected range.

The record GAP and revenue we achieved during quarter two was complemented by continued discipline on the expense side. While revenue was up 11% compared to the year-ago quarter, SG&A excluding depreciation and amortization was up only 2%. Within SG&A, operating and administrative expenses declined 2% and 1% respectively, while sales and marketing costs increased 7%, in line with our strategy of growing our sales force. This expense control allowed 77% of the incremental revenue we earned to flow directly to EBITDA.

Our tax rate decreased over the same period last year as a result of an increase in income earned in some jurisdictions which allowed us to recognize more tax losses in the quarter. In addition, as a result of the quarter's high stock price compared to 2013, we had an increase in deferred tax asset values on the valuation of stock options. Internally, we continue to model tax rate in a range of 30% on an annual basis, and don't believe the lower tax rate in the past two quarters is indicative of a longer-term trend.

Compared to the same period last year, the Canadian dollar has lost some value, so comparable results were impacted modestly by foreign exchange. If we were to use the same exchange rate as quarter two last year GAP and revenue would have been 2.4% higher for the quarter, while expenses, excluding depreciation, would have been 1.9% higher, nearly netting one another out.

Our balance sheet continues to remain strong with $119 million of working capital at June 30, and we're looking at ways to best optimize our capital flows and structure going forward, and this will be impacted by our corporate strategy going forward, which will evolve with Ravi's recent CEO appointment.

During the first six months of 2014 we generated $58 million of free cash flow excluding changes in working capital, and paid out $20 million as dividends to stockholders, and used $30 million to pay down long-term debt. So we expect to begin generating excess cash in the latter half of 2014 and early 2015.

As a result of our current strong earnings performance and cash generation we are pleased to increase our quarter two dividend to $0.14 per share, an increase of 7.7%, consistent with our practice of annual increases over the past 11 years, bringing our payout ratio into the high 50% range.

We are a growth Company and we recognize that the best way to drive shareholder value is through growth initiatives. Our first priority will continue to be deploying excess cash within the business to invest in activities that will drive further growth.

Now we'll comment briefly for our expectations for the year. In the first half of the year we have grown our pretax earnings by 15% as a result of our GAP growth and cost control. When forecasting 2014 on an annual basis it's important to reflect on the second half of 2013 when we achieved an extremely high revenue rate, particularly in quarter three; as well, our GAP growth really began to kick in during the fourth quarter of 2013.

Similar to April this year, we have come out of the gates in quarter three with strong GAP growth for July, reaching $234 million, a 33% increase compared to July 2013. As always, the timing of our auction has an impact on monthly GAP performance as scheduling fluctuates year to year. As a reminder, we strongly encourage you to review our auction performance on a 12-month trailing basis to provide a better snapshot of growth while removing most auction timing impacts.

On a 12-month trailing basis ending July 31, 2014 GAP was just over $4 billion, 6.6% higher than the comparable 12-month trailing period ending July last year. While our first half generated very strong results for us, we still believe our current GAP revenue rate, and earnings before tax growth guidance is appropriate for 2014, though we're likely going to come in near the top of our stated GAP range.

As a reminder, we stated in our last earnings call that we expect GAP for 2014 to be in the range of $3.9 billion to $4.1 billion. We believe the revenue rate with fall within the 11% to 12% range, and we expect pretax adjusted earnings growth in the mid-single digits. As you know, we provide ranges for these metrics to account for a wide variety of variables during the year. With that overview of our quarterly highlights and performance, I'll now pass the call to Steve Simpson to provide you with an update from the sales team.

Thanks, Rob. We are generally pleased with how the sales team performed in Q2. We're continuing to execute our strategy as planned. There are more tools to assist our sales team now with generating leads and tracking their pipeline than ever has been before. The adoption rates of these technologies has met our expectations.

Growing the size and scale of our sales team continues to be an important focus for our Company. During the second quarter we added five new territory managers, increasing the number of territory managers by 7.3% since the start of the year. So we're well on our way of achieving our stated target of 5% to 10% TM for growth this year. Most of these TM additions are based in the US and Europe, which we believe will help broaden the reach we have into those markets.

As you heard, Canada was particularly strong for us during the second quarter, with solid growth experienced consistently across the country. In the US our performance varied a bit between regions. The oil and gas plays in the northern midwest and construction activity in Texas provided a meaningful lift to the auction activity in these regions.

In US West and the US central regions we continue to be pleased with the overall performance of the team. And as you heard on our recent calls we have been investing management time and resources to help us drive business in the US East and through our strategic accounts team. While these initiatives will take some time, we're making some in-roads.

We saw a notable pickup in large packages of equipment during the second quarter, more than we've seen for a number of years. It's a positive sign that the equipment owners are updating and turning over their fleets, and our teams have worked seamlessly around the world to best market these packages.

On the ag side, we continue to see a very strong performance in Canada relative to our expectations for that sector. We held 81 ag auctions in Canada and the US during the second quarter, compared to 71 ag auctions in the same period last year. Prices on the ag side are holding stable. Buyers today are more particular about what they're buying and some of the pricing on aged assets has come off the high water mark. Drought in a few areas of US West, Texas, and North sections of the US are causing some downward pressure there, but generally speaking the ag market remains stable.

We also saw very strong activity in the transportation sector during the quarter, both on the demand and the supply side. The trucking sector has been a key focus for our growth for us over the last several quarters, and we're seeing the benefits of that dovetail nicely, with stronger truck and trailer pricing at our auctions.

In fact, during the second quarter and the first half of the year, we sold more transportation assets than any other three- or six-month period in our history. In the US specifically, GAP from transportation assets in the first half of the year grew 12% over the same period last year. And if our recent Fort Worth sales are any indication, the momentum of the transportation asset appears to be growing. At that one auction alone we sold over 300 truck tractors for consignors.

This sector diversification is an important part of our sales strategy as it not only expands our consignor base across industries, it also attracts new and different bidders to our auctions. Competition remains strong on nearly every deal we pursue, but we're successfully getting the business. We want to grow our customer relationships and attract new ones, so we're using every tool in our belt including underwritten contracts to achieve this. As we stated last year, we're being very smart about the deals we underwrite, but as long as the transaction is economical for us we are aggressively pursuing it.

There's a lot of excitement and interest at our auctions these days, and we're seeing that momentum continue into the second half of the year. There's a buzz in the sales team that we haven't seen for some time, and looking forward to the balance of year. At this point I'll pass the call over to Bob Armstrong for an update on EquipmentOne.

Thanks, Steve. During the second quarter EquipmentOne contributed $29.6 million of gross transaction value to our GAP. This is up marginally from Q2 of last year.

Revenues for EquipmentOne declined 11% to $3.3 million during the second quarter, due largely to a promotional campaign we held during the quarter that waived some fees in order to encourage new listings. As well, there was a higher proportion of lower-revenue self-serve listings. And just as a reminder, our larger corporate accounts often select a full-service auction, which commands higher fees, through our asset management services.

We are focused on continuing our effort to build a critical mass of equipment listings on the site through our strategic accounts team, which will in turn, attract more buyers to the site, eventually drawing even more direct community listings. It is the same cycle that successfully grew our auction business over the years.

EquipmentOne expenses for the quarter declined 11% from the year-ago quarter. We continue to keep operating expenses tightly controled and in line with growth while continuing to invest in marketing activities. In the end, EquipmentOne generated $600,000 negative contributions to EBITDA during the second quarter.

We continue to be encouraged by many of the operational metrics for the sales channel. During the first half of the year, business to the EquipmentOne website increased 49% compared to the first half of 2013. Unique visitors to the site increased 59%. As well, the number of new full-service members, or full-privilege members, that means they're users who actively post on these offers, was 40.1% higher than the number of new members who joined the marketplace in the first half of last year.

Deals for EquipmentOne, meaning the percentage of listings that end up transacting, was 75% for the first half of 2014, down 85% in the first half of 2013. This decline was due to the kinds of listings that were posted; while listings increased in the first half of the year, there were more self-serve or direct user listings, and these generally have a lower yield than listings from our large corporate accounts. Rapidly looking at ways to bolt-on scale and volume to help drive further listings on EquipmentOne, and plan to put a significant focus on evolving our strategy to help EquipmentOne achieve its full potential.

During the quarter we were pleased to announce an agreement with AssetWorks, a leading provider of enterprise asset management software solutions. This agreement will deliver seamless user experience between AssetWorks fleet management services and our fleet sales capabilities. One example is the kind of partnerships we're building to fully incorporate EquipmentOne into our customers' corporate fleet management processes. With that quick overview of EquipmentOne, I'll turn the call back over to Ravi.

Thank you, Bob. As you just heard it was a tremendous quarter for Ritchie Brothers. I believe it reveals the momentum and growth opportunity ahead for the Company. I want to thank everyone at the Company for their demonstrated enthusiasm and commitment during this year of transition. It speaks to the quality of people we have at Ritchie Brothers, specifically their dedication and passion.

With that, I'd like to open the lines for questions from analysts and investors. We ask that you please limit yourself to two questions as we have a lot of participation on the call today. Operator?

(Operator Instructions)

Peter Prattas, Cantor Fitzgerald.

My first question has to do with your growth auction proceeds, guidance there, it does look like you had a strong July, so I have you up 11% year-to-date. And things do seem to be accelerating after a slow Q1, so I'm just wondering why you're a bit pessimistic, I guess for the rest of the year? I think that if you just look at the math there, it implies that you're going to slow down to a pace of around 3% growth for the remaining months.

Morning Peter, it's Rob. Yet, pessimistic wasn't the term we used; perhaps conservative. But also a few things remember. One is that the GAP growth really started to accelerate in quarter four last year versus the first two quarters of 2013.

And also, we have, as you've seen in the past, it's a tough business to forecast because we have a very short selling cycle. We right now, we have very little volume signed for quarter four, which is totally normal, but it does demonstrate our -- the challenge in forecasting the business, for sure. It's -- it is a $50 million, $60 million worth of GAP, that's really only potentially a few deals that happen or do not happen, and so it is a challenge -- continuing to be a challenge.

Okay, fair enough. And then my next question has to do with the revenue by geography. It does seem that all the strength is coming in Canada and that in the US, you're actually down slightly.

That does seem to contradict, I guess, a turnaround in US construction spending and the enormous opportunity that you see for growing in the US. I'm just wondering why you were relatively strong in Canada and not so in the US?

I think it's a reflection of the penetration that we have in Canada and what's going on in Canada. It's really a super great news story in Canada if you will versus a bad story in the United States.

And so you're getting, seeing great growth in Western Canada, obviously, particularly Alberta with the amount of industrial activity going on there. As well as a number of initiatives that we undertook in Eastern Canada in the past two years in terms of really both in terms of our team and our people in Eastern Canada that's now bearing fruit, which is great to see. And as we've noted in the US, in particular regions in particular groups, we are also undertaking some of that people changes and people strategies that will bear fruit in the coming quarters, for sure. So it's really great news in Canada.

Okay, that's it for me. Thanks very much.

Nick Coppola, Thompson Research Group

I want to make sure I understand if anything changed in terms of auction calendar. So were there any auctions in Q2 that occurred that typically happen in Q1 or Q3?

That happened in Q2 that occur -- I think to be honest, Nick, I think there was maybe one auction and I think it might have been more [dyke] that happened in quarter two this year that actually occurred in quarter three this year, and then also potentially we extended the number of auctions from four to five. But it wasn't a significant shift that's going to be moving the needle in terms of explaining the GAP growth in quarter two.

Okay, so not a big driver there. I want to follow-up on the age of equipment improving as well. Certainly a positive development to see you turning the corner there. How do you think about that going forward?

Is there any way that you can kind of capture for us the slope or recovery there, or how much ebb and flow you're looking for? Or if you really think things are just headed in the right direction and there's going to be a positive impact there in terms of price realization and the age of equipment is getting better?

Great question, Nick. As we mentioned we think we've reached the peak of the headwind, if you will, in terms of the age of equipment as a result of the OEM production declines.

And I guess it's really important to remember, we will sell whatever is for sale. And so if somebody shows up at one of our auctions and they have a 10-year-old piece of equipment, we will sell it. And so we're not turning it away.

So we're not making business decisions based on the fact that it's going to be slightly younger equipment showing up in our auction yard, because we will take it all. We will sell it all, for sure. So we don't specifically model it, but we will happily accept the fact and any incremental benefit that younger age brings with it.

This is Bob, I would like to comment if I could. We've watched the average age of equipment increase gradually and steadily for a multi-year period, maybe two or three or four years. So if I can anticipate where you're heading with this, Nick, we wouldn't expect a sharp change here. It's likely a gradual improvement; the headwind developed gradually, and it's likely to dissipate gradually.

I think Rob, the numbers you were showing me was what in terms of the number of years of equipment, three or so, was 16% of new three years or so.

Yes.

Versus 14% in the first quarter or first four months versus --

So the first six months of 2014, 16% of the GAP was from equipment two to three years old and in the same period in 2013 it was about 10%. So it's a shift in the right direction, for sure.

That's very helpful. Thank you.

Yuri Lynk, Canaccord.

Ravi, in your prepared remarks you talked about ways to potentially increase shareholder value. But I understand we'll hear more about that later in the year.

But just curious what, at this point, is kind of on the table versus off the table? Are we talking about more traditional means in terms of tinkering with dividend policy or buybacks or M&A? Or are we also exploring more financial engineering type deals like perhaps monetizing some real estate holdings or something like that? Any color you can provide on that remark would be helpful.

Yuri, thanks. I think it is a bit premature. I'm not trying to evade or avoid your question, it's just it is premature.

At this point though I'd say for me I want to really, the history of my career, at least in the last several leadership roles I've held is that I like to pay as much attention to the balance sheet as I do to the P&L. And so how do you look at the drivers.

So to me at this stage in time, as I'm listening to different perspectives, I'm not trying to say these are sacred cows and this can't be looked at and this should be looked at, I'm just trying to elicit different viewpoints. And so I think it is really premature for me to comment on it, except to say that the ultimate goal here is putting strategies in place that will accelerate shareholder value growth. I think the good news is the foundational strategy the team has put in place is already getting us back onto a growth trajectory as evidenced by the results.

So it's going to be an evolution. So I think the fact that I think as Rob mentioned, we continue to grow the dividends in this quarter 7.7%. And the fact we paid out $28 million in dividends in the first half is all indicative that the whole team here is very cognizant of looking at both sides and returning value to shareholders.

Okay, that's helpful. Second question. We did see an uptick in the at-risk business.

Does that indicate a change in competitive conditions or are we kind of seeing a reduction in some of the internal redtape in approving some at-risk business? So the sales force is kind of a little more responsive to the market now than they might have been a year ago?

Rob, why don't you kick it off and then Steve can add to it.

You bet. Great questions, Yuri. I will take the redtape part of your question.

And there hasn't been any change in our policies, in our structure, in our approval limits in terms of how to get a deal done. It's as rigorous, but as efficient as ever in terms of having our evaluation specialists participate with the field sales teams to evaluate packages of equipment. And to develop a proposal or multiple proposals for the equipment owner to best meet their needs, and obviously achieve success from our point of view and achieve our strategy.

Steve, do you want to comment on the competitive environment?

Sure. Yes, there's no doubt about the competitive environment.

As we commented earlier in the call, the competition is, there's very few deals that we're on that we don't have competition. So as we go out there we pursue that business. If the amount of it we're doing goes from 25% to 32% or whatever the number is, it's just a numbers game, and we are aggressively, as we said to you folks before, we are aggressively chasing all the business that's out there, that's profitable.

And if it's -- you've got some environments, as an example, in the US market where things are heating up there, there's more demand than there has been in the past. And of course, some of the other opportunities that are out there for competition knowing that the market is heating up, there's more folks looking to buy and trade up, that those guys are out there chasing that business as well. So it's business as usual, but as we do we're going to go and get every deal there is that we can have.

While the percentage of underwritten business has increased, it's still within our range and so it's not that it's significantly more competitive out there. It remains competitive but I don't think we've seen a material shift in the amount of competition. It's a fairly modest move up or down within the range, and still within the range.

Sounds like it is just quarterly variation. Okay guys, I'll turn it over. Thanks.

Nate Brochmann, William Blair & Company.

Ravi, this might be a little bit premature, and I apologize for maybe trying to dig into it a little bit. But one of the comments in the press release was your excitement, and you also alluded to this on the call in terms of your excitement around the EquipmentOne platform and the potential there. And again I know it's pretty early, but as you think about some of these growth opportunities that you're seeing, how are you thinking initially about the balance between that investment in those growth opportunities versus delivering some of that -- those returns back to shareholders?

Because that's been one of the critical things I think that a lot of people have been looking for in terms of a lot of platform being built and kind of really leveraging that. I'm just wondering if you had any initial thoughts about whether you think that there's any huge investment platforms or whether it's more about building off of what we have and just making it better?

I think, Nate, first, in terms of EquipmentOne right now only a very preliminary because I'm actually going down to Pittsburgh tomorrow to meet with the whole team and spend two or three days there. I do think it's an important tool because that represents our real first foray outside of the unreserved model.

On one hand, because one of the things that attracted me to the Company was really the evolved vision, which was not defining us as purely as an auction Company. But really as an equipment solution for customers no matter what the solution. And this is the first one, first solution that really evolved as truly there.

When you do that there's a process, it takes time to see that in, and I do believe that from what little I've seen in terms of customer base, that there are different types of customers for different occasions. So I do believe that we have to put focus on EquipmentOne and organizational strength and resources, and that's why for me there's a strong level of excitement about it. But clearly we'll need to evolve the strategy to make sure it reaches its full potential.

I think the good news for us is that our core auction model is showing great strength. And so EquipmentOne is really not a distraction, it's a good time for us because the [makes] business, which is the critical growth engine for our Company, is doing well.

So I think, now your larger question, or question about investments and returns, I can't really give you a view on that at this stage. It is premature.

And to me I would not kind of look at a general statement that investments are kind of mutually exclusive from shareholder value. The whole point of making investments and redeploying resources into the business is to drive shareholder value.

And I look at this as a marathon, not a sprint, but that's a very short-term view. I think this Company has been successful for 50 years, and it's how you keep doing it, but there's a great sense of urgency. I think it is finding the appropriate balance and to making sure that it's not all about sort of milking the business, nor is all about just investing and forgetting about returns. I think it's finding the appropriate balance and that's about all I can say at this stage.

That makes perfect sense and thank you for elaborating on that. And then second question.

Maybe this is for Steve, but can you give us a little bit of an update in terms of where we are in terms of seeing some of the productivity, I appreciate the growth summaries and the territory managers. But where we are in terms of seeing some productivity increases from maybe the new training efforts. And whether that was to play in some of the results up in Canada in addition to just the good operating environment. And is that one of the reasons why we can expect, not to get only overall growth but just better productivity in the US, or if you could just elaborate on that a little bit I'd appreciate it.

We continue to see nice growth in the productivity of all of our new TMs and our TTMs that are coming into the business. All of the training initiatives that we have in place, we've had in place for the last couple of years, are certainly starting to bear some fruit with how the guys are performing. And just as a general rule across the board in all areas of the Company, not just in Canada, or the US, very, very happy with the TTM, how those folks are coming along. We're seeing really, really nice input from those guys.

I think just generally speaking, the TM training programs we have are being very successful. We recently had RSM training that equally went very well. We had all of our senior folks take that same training program as well.

So I have to say to you just as a general comment, overall in the Company, all the initiatives that we have for all of our sales folks has been successful and it's certainly providing some of the lift that we're seeing in the market, for sure.

Just as a quick reminder the TTM program that Steve was referring to is a training territory manager program, so that 6 months to 12 month program where we bring somebody in, have them work in the business and then they get promoted into a territory managerial position, which is a significant focus for us now.

Thanks guys. I appreciate it.

Scott Schneeberger, Oppenheimer & Co.

Thanks. A follow-up on the sales question. Obviously excellent results in Canada, and sounds like Central and Western US very good. You said in Eastern and strategic accounts, could you elaborate a little bit more?

And you also, just following up on what you just said, give us a feeling that things could get better. Could you give us a feeling for timeline in those specific softer areas right now? Thanks.

The US East, at the 1st of April we put a new Senior Vice President in charge of that area so that was a significant change. Actually one of the fellows that ran our Eastern Canadian operation, so he's very new in the role, for sure. And he's not unlike Ravi, he's sort of doing his 90-, 100-day tour of understanding the market, the people, and things, and the challenges we're having, and issues and things we need to address.

So he's been with us a long time, very smart guy. We're really excited about already seeing some really early gains and some momentum going there. Those guys struggled a little bit in the first half but feeling really solid about how the second half is looking.

And then equally in strategic accounts, we also added more sort of senior-level horsepower to our strategic accounts group as well. They've actually had a very good first half. And equally the amount of activity they have on with some of our major players that we do business with, it appears that the second half is going to be equal to what they did in the first half, possibly even better.

So it is, it's so much what we do everyday. And as everybody knows on the call, it's all about people, and we've been making some changes. And obviously the early stages of the changes here sort of in a rebuilding mode, but as everything starts to come together we are getting the momentum and the results. So it's both of those goods are heading in a positive direction for the balance of the year.

Great, thanks. And then for my second question, you mentioned in tractor-trailers I think you said it was the best first half you've ever had.

I'd love to get more elaboration on, is that competitive, if that just a high tide? What's driving the high tide with regard to that market? Are you doing anything specifically competitively on your end that is getting better results? And then anything geographic if it's worth fitting in. Thanks.

Just as a general comment as it relates to the truck and trailer business. We decided a couple of years ago we were going to get -- we are already very strong in the vocational end of the market.

The more the over the road sort of the longer haul kind of business, we haven't really had a lot of strength in it in the past, but we have had a focus on it. We've got guys that are dedicated to it. We have a strategy in place to go after that business.

And as we've told you folks the last couple of years, we've had really nice growth in that transportation sector. And we continue to push hard into it and will continue to do so. And it's actually really, it's really gaining some traction for us, and the results have been very pleasing.

Bert Powell, BMO.

Steve, question on sales force turnover. I know that's something that has been a hindrance for you guys, and I would assume that as GAP starts to pick up that yield inclinations stick around a little better. Can you give us just some insights in terms of what you're seeing on sales force turnover? And maybe break that down between what you're seeing in Canada versus what you're seeing in the United States.

I'll start off. I'm not actually in the office I don't have much of the math or numbers in front of me, so perhaps one of the guys in Vancouver can elaborate. But as far as the turnover goes, obviously we've been aware of it, and it was getting on the high side of where we wanted it to be.

So with all of the initiatives that we've done, again, as we talked about some of the training things that we've done and some personal development plans for all of our folks and giving everybody a clear path of what life looks like going forward, we are seeing our turnover is coming down and it's by design. Obviously the better job that we can do to ensure that we're keeping our people engaged and out there working for us is a goal for the Company.

So we're pleased with the direction it's going. Bob or Rob, one of you guys want to comment on his other question?

Well, it's the difference between Canada and the US and I think -- there isn't currently, I don't believe, there's not much difference between the turnover rates within Canada and the US in the two marketplaces. And also, it's not that much difference between the two marketplaces between voluntary versus involuntary as well. And so as Steve said, earlier comments about some buzz in the sales force, that also has a positive impact on turnover.

One of the things we have seen that's been really cool to see Bert, is involuntary turnover has been improving and going down, so overall turnover is decreasing which is good. The component that's decreasing the most is the voluntary turnover. We're having less of that.

And I attribute that to the investment we made last year, in particular in the regional sales manager training. Put a bunch of energy last year into training all of our sales managers, giving them the tools to be better managers. I'm a firm believer that people don't need jobs, they need bosses, and I think we actually helped our bosses become better, and we've seen a real improvement there. It's been one of the real strengths of our program last year.

I thought I might add and dig a bit deeper into your question in terms of the comparison with US versus Canada, and I think there were some questions earlier. Clearly, as I mentioned in my prepared remarks the US represents a tremendous opportunity.

And I think this is clearly one of the things that I want to put a lot of analytical rigor on the team to better understand our performance in Canada relative to the States, and see what are their best practices, are there things while the US is doing well. I think the potential in the US for our core auction business is really far greater than where we are, and that scenario that would be a particular focus to me.

Thank you for that. Just secondly, Rob, just in terms of G&A costs, costs were higher for automation, sales force automation rollout this quarter, and inventory write down. Can you comment on to the extent that the automation cost -- to what extent that continues into subsequent quarters, and just confirm where the $470,000 write down went, which line item in the quarter. Thanks.

Yes, the sales force rollout was obviously specific to that technology product that we rolled out to the whole sales force and to a good portion of the operations team really in the second quarter just spilled over a little bit into July. So that was really a one-time, one-time cost.

There will be some additional costs as we rollout the very final portion of part of the solution to our operations team likely in September, October of this year. But it won't be the same magnitude as the first one, the first part of the rollout.

And yes, every quarter, every period end we evaluate where we're at in terms of our inventory packages and also our guarantee packages and what their performance has been. And so we will effectively book any losses that happen in the beginning of the subsequent quarter, so at June 30 we will book losses that occurred at July sales because they're actual results. That goes against our revenue line.

Perfect. Thank you.

Ross Gilardi, Bank of America.

Ravi, in Rob's formal comments you mentioned that the first priority remains to deploy excess cash to drive growth, and again, obviously it's early. You're formulating your plans. But based on what you know now, would you foresee that change at all once you have had a chance to unveil your broader plan?

And then any thoughts on what additional end markets might make sense for Ritchie based on your initial observations and your past experience in other businesses? And would you foresee a pickup in spending to support that?

Let me just, when you said markets are you talking geographies or sectors?

More like sectors.

I think -- let me answer the second question first. Clearly we are operating from any one of the [way side process is] about focus and really about depth versus breadth and not having the shotgun approach. Generally speaking that applies to both sectors and geographies.

So geographies, I'm not a big believer in flags on maps just to sort of say we're in 200 countries or 100 countries, I'd rather really have key positions. And so sectors, we are already operating in the construction sector, the ag sector, transportation, energy, so it's getting sharp on these. And that doesn't preclude down the road maybe other ones. But right now, I just think from the very preliminary views that I had is that there is enough opportunity in just these sectors to start deepening our positions. I think Steve mentioned transportation, the momentum we're getting there.

And then clearly to me the United States is a big focus because there's just a lot of opportunity, particularly in Texas. And then Europe I think places like the UK, Germany, are really bigger opportunities, and I know [Irhun], our head of Europe, is spending a lot of time there as well.

In terms of your first question about asset allocation, about capital structure, I think it is premature to comment on it. Just suffice to say I have no preconceived notions or biases except a strong bias that long-term we're going to keep driving shareholder value. And that by generally speaking to many, one of the attractive things about Ritchie and this opportunity was that this is a Company that had growth potential and was not a turnaround, and it's not broken and my first month I've not found anything to suggest otherwise. I think it has strong growth prospects.

So I just wouldn't look at this and say growth is something that is mutually exclusive from shareholder value. We're going to take a full view and ultimately say how do we put a roadmap, which is an evolution from where we are, that continues to put the Company in a strong position to make shareholders happy.

Thanks very much. And then I had a follow-up unrelated question. I'm just wondering from the team what are you seeing out of the large US rental companies these days? They seem to have brought down there fleet age significantly and certainly some of that shows up in the data you presented, and deleveling off their CapEx and they're also paying a lot more attention to returns.

How does that impact your business? And can you quantify what the rental companies mean to your overall gross auction proceeds? And does the trend of more rental versus owning negatively impact demand for buying used equipment at your auctions?

Ross, I'll just jump in and answer part of that question then maybe I'll let Steve comment on the kind of what we're seeing in terms of activity in the rental companies. The rental companies, the big rental companies, obviously particularly in the United States and in Europe, don't represent a significant portion of our business. Certainly low-single digits in terms of our volume, which has been very consistent year-over-year decade after decade really.

We also get -- one of our rental customers is also the rental companies attached to an OEM dealership. And normally those rental companies have some of the larger equipment that is, if you will, more typical of what you see in our auction yards and higher value as well. Again, we see business from those folks as well.

That's not a significant part of our business and a nice complement to the business that we do with the actually OEM dealer itself, not just the rental side of the business. And so, Steve do you want to comment on kind of what we're seeing and feeling from the big guys in the US?

Sure. Most if not all of the rental companies today are seeing all-time high utilization rates. So they are very, very busy and most of the stuff is in the field working.

But as you commented, a lot of their new assets are now starting to be delivered, for sure. A lot of those guys have are seeing that there's a little bit more stuff lying around the yard that isn't moving out the way it was because of all the new stuff coming on board.

So I think we've seen a slight uptick of consignments from the rental companies in Q2. And if utilization rates remain strong throughout 3Q, 4Q, I think we'll continue to see some of that as more new deliveries come in. And if things calm down a little bit and those rates come down, I think for sure that we could see the rental guys selling more in the balance of the second half.

And just general thoughts on renting versus owning and how does that trend? It's been a long-term trend now, of more renting (inaudible) impact demand for used equipment at your auctions.

Yes, I think, and we've had this conversation before is I truly believe as we continue to see more confidence in the market, the customers will go more towards owning than renting. I think we'll see more of that take place.

A lot of the guys that are out there buying these assets, they can go and put $2,000, $3,000, $4,000, or $5,000 or up on these assets and have them pay down, virtually have no debt on them, and then sell them in the auction sales and have a nice little revenue stream coming in on that basis. Whereas of course on the rental stuff, once you send them back they're gone and all of that opportunity for that revenue goes back to the dealer or the rental company. So I think that it will continue to be positive for us going forward.

Thanks guys.

[Kaunie West], Morningstar.

Unfortunately I had to hop off briefly, so forgive me if you've already answered this. But maybe if you could do a little bit more sort of specify what exactly was going on with mix and age that helped the average transaction price in the quarter.

Clearly, over the next couple of years it's a little bit hard for us to guess what the mix is going to be between construction, ag, and transportation, but it does sounds like the falling average age should be a bit of a tailwind. So anything you can do to kind of quantify what was going on months wise, year over year, or percentage of mix for your different sectors that you're doing auctions in, that would be helpful.

Good morning. The mix of what we sell, that's a challenge to I guess analyze and use as a basis for forecasting because it changes every single day, auctions to auction, location to location, obviously because we are there to sell whatever is available for sale.

But as you pointed out, the average size of lot that we're selling, average value of the lot that we're selling is up slightly, which is terrific, which reflects our mix. A part of Steve's commentary was the number of large packages of equipment that are coming our way, which is nice to see, which we haven't seen in the last few years. Normally with those larger packages of equipment you will have significant assets in there, significant value pieces of equipment in there that will help to bump up your average.

And then the second component would be that age of equipment and the lingering effects of the OEM production declines in 2009 and 2010 that are now just working their way through the system. And so that the population of equipment that is aged two, three, four, five years old is now increasing, which makes potentially more equipment available for us to sell in that age group.

And maybe if I think about, two of the things that you highlighted there, was larger packages are coming to you and you also mentioned ages falling. Should I think of the larger packages of equipment coming to you, is that something that persists beyond three to six months? Is that something that has a one to two-year runway? Or maybe just help me think about am I just seeing a quarterly blip or am I starting to see a real change in the business over the next 12 months to 36 months?

I don't think it's necessarily, Steve, you might be able to comment on this as well, but I don't believe it's a quarterly blip. I think that a little bit more typical, what we would have seen in the, if you will, the good old days 2004 to 2009 kind of thing. And does reflect that confidence in the marketplace from rent owners turning over their fleet, upgrading their fleet, and then making significant divestments of some of their assets.

I'll just comment on that, Rob, too. I think the other thing, too, it's hard to nail it down over a 12-, 24-, 36-month period. But the other thing that we're seeing is as we continue to drive our business through our strategic accounts group with some of these major corporations around the world where we're starting to build some relationships with.

With that comes some very nice opportunities when these guys are getting ready to sell their fleets. So many of those large corporations have massive fleets that we're obviously jogging our way into to help them manage those, so we're certainly seeing a lift from those activities as well.

Great. Thank you so much.

Perfect. Thanks very much and thank you very much and [anything else happens.]

We'll see you, talk to you in November.

Thanks, Joanna.

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