RB Global Inc (RBA) 2015 Q1 法說會逐字稿

Good morning, ladies and gentlemen. My name is Sally, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers first quarter 2015 Earnings Conference Call.

(Operator Instructions)

Thank you. I would now like to turn the call over to Jamie Kokoska, please go ahead.

Thank you, operator. Good morning, everyone, and thanks for joining us on our fiscal first-quarter 2015 results earnings conference call.

Discussing Ritchie Brothers' performance today are Ravi Saligram, Chief Executive Officer; and Rob McLeod, Chief Financial Officer. Joining them for the Q&A session following the formal remarks will be Jim Barr, Group President; Randy Wall, President Canada; and Todd Wohler, Chief Human Resources Officer.

The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not a statement of fact, including projections of future earnings, revenue, gross auction proceeds, and other items such as our potential addressable market, are considered forward-looking and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our SEC and Canadian securities filings, available on the SEC and SEDAR websites, as well as rbauction.com.

Our definition of gross auction proceeds may differ from those used by other participants in our industry. It is not a measure of financial performance, liquidity, or revenue, and is not presented in our statement of operations. Our first quarter 2015 results were made available yesterday after market close. We encourage you to review our earnings release, MD&A and financial statements, which are available on rbauction.com, as well as EDGAR and SEDAR.

All figures discussed on today's call are in US dollars unless otherwise indicated. While we may use million dollar figures for brevity on today's call, all percent changes have been calculated using full unrounded figures.

I will now turn the call over to Ravi Saligram, Chief Executive Officer.

Thank you, Jamie, and thanks everyone for joining us on our earnings call today. It is a beautiful, sunny morning in Vancouver, and we have some sunny results for you.

As you would have seen from our earnings results release, we had an exceptionally strong quarter. We achieved strong results on both P&L and balance sheet measures. Let me give you a quick summary of our first-quarter results, then go into details.

Our GAP grew 12% versus prior year on a reported basis, and 18% when adjusted for constant currency. Our first-quarter revenue was a record, and grew 17% on a reported basis and 24% when adjusted for constant currency. We achieved a strong revenue rate of 12.1%, up 57 basis points versus prior year. We delivered a 65% increase in net income versus prior year.

Diluted EPS was $0.22, up 65% versus prior year. We grew operating free cash flow 62% on a rolling 12 month basis. I'm very proud of the team's performance and believe it's an indication that we've begun to execute against our strategy.

Let's go through some details of our performance. GAP for the first quarter was $956 million, a 12% increase from the first quarter last year. Our sales productivity, as measured by GAP per revenue producer, was up 4.4% on a rolling 12 month basis. Overall, equipment pricing remained fairly stable during the quarter and up from this time last year.

Much of the GAP growth was due to an increase in volume, with a 16% increase in the number of lots sold at our auctions compared to the same quarter last year. It's important to note that this increase in lots sold came from a variety of industries. Consigned assets grew in almost every sector we cover, but mainly from construction and transportation, our priority sectors. While assets from the oil and gas sector certainly did increase compared to the same quarter last year, it was not a significant driver, contributing only to 500 additional lots to the overall increase of over 10,000 lots during the quarter.

Just as important, auction volumes grew year over year in 9 of the 12 countries we held sales in during the first quarter. Increased sales activity wasn't just isolated to one or two particular regions. You can see why our strategy of increasing sector and geographic diversity is important.

During the first quarter, we achieved record revenue of $115.6 million. A 17% increase from the same quarter last year. While GAP growth contributed to this increase in revenue, it was also bolstered by the 12.1% revenue rate we achieved during the quarter, which was up significantly from 11.53% in the first quarter of last year.

On an organic basis, removing FX impacts, that is on a constant currency basis, revenue grew 24% compared to the first quarter last year, with approximately 18% attributable to volumes and 6% to rate improvement. Our straight commission rates were largely in line with our historical averages, but the strength of our underwritten business elevated our overall revenue rate to this level. As we've discussed in the past, we believe there's significant opportunity for the Company to leverage our market data and marketing expertise to improve the overall performance of our underwritten business. And this quarter is an early indication of the impact of these efforts.

Before I move on, I want to take a moment to clarify our strategy related to the underwritten business. As reminder to everyone who may not have participated in our January Investor Day, we believe there is significant opportunity to more effectively use our information, insights, expertise, and equipment knowledge to drive continuous improvement in results from our underwritten transactions. So we're proactively focusing on the structuring and negotiation of our underwritten contracts as an important strategy to support stronger Company performance.

We will aggressively pursue opportunities where an underwritten transaction makes the most sense and achieves our strategic objectives, and is the right win-win model for both our customers and RBA. The volume of our underwritten business reflects the volume of opportunities in the marketplace. We've completed over $10 billion in underwritten transactions in the last 11 years, which has been profitable every year. For some customers, our underwritten contract can be very effective in meeting their needs due to the type of equipment being sold or the business cycle they are currently in, such as a retirement scenario.

Historically, there's been some volatility in the performance of our underwritten business, and therefore volatility in our revenue rate. Interestingly, this occurs more on smaller contracts below the $500,000 mark. Also underwritten performance tend to vary by region and team. Our current focus has been on lowering this volatility and transferring best practices region to region. We've also implemented a more rigorous approvals process when pursuing underwritten transactions, and have made it very clear to the field teams that underwritten contracts are not a vehicle to simply buy GAP. Exactly, not a vehicle to simply buy GAP.

We're only pursuing the kinds of deals that we believe will benefit us financially and drive excellent value for our customers. We want to clarify that while the Company may have used underwritten business more frequently in times of tightened supply in the past, this is not the reason for our focus on underwritten transactions now. We're focused on improving our underwritten performance and leveraging market opportunities when they arise.

As our recent revenue rate and more specifically the performance of our underwritten business indicates, our efforts to improve our approach to underwritten contracts is already generating results. This is especially true in the United States, where the performance of our underwritten transactions improved considerably during the first quarter.

Returning to our overall performance, now. On a regional basis, we saw significant revenue growth in both Canada and the US. Revenue from our Canadian operations grew 18% on an already strong quarter from last year. We have a tremendous team in Canada, and their efforts have generated results that surpassed our expectations. Just as important, we saw meaningful revenue growth from our US team who are driving considerably stronger results in our most important market.

Revenue from our US operations grew 27% compared to the first quarter last year. The growth in revenue we saw from both Canada and the US increased the relative proportion of total first-quarter revenue, which in turn lowered the proportion of revenue attributable to both Europe and other locations. On a local currency basis, removing the impact of foreign exchange on US dollar translation, revenue in the first quarter grew approximately 33% in Canada and 9% in Europe. While it's difficult to determine market share in our space, we believe our GAP and revenue results demonstrate that we are gaining share in many of our markets.

Earnings for the first quarter of 2015 were a record $23.6 million, or $0.22 per diluted share. This was attributable to our revenue growth combined with the operating leverage inherent in our business model. Earnings were 65% higher than year ago quarter, while operating income was 67% higher. While we're very pleased with our first-quarter results, we recognize that the challenges encountered in the first quarter of last year provided a relatively easy comp. Given this, we expected strong first-quarter growth and the team delivered.

While auction activity across the board has been strong for the last few months, there are a few key events that took place during the first quarter that I want to draw your attention to. First, we held a very successful $54 million complete dispersal auction in Casper, Wyoming in March. This was the single largest underwritten transaction Ritchie Bros. has completed, and one that demonstrated our value proposition and competitive advantages.

It was a testament to the talent and teamwork of our global team and specifically highlighted our world-class logistics, marketing, and data analytics abilities. I want to, in particular, congratulate our northwest division sales team for identifying this opportunity and building a strong relationship with the owner. Our operations team for doing a terrific job merchandising on the yard of the owner, and our marketing team for brilliant target marketing.

The results of this auction increased the percent of GAP that was underwritten during the first quarter to 32%, which is up from 24% in the same quarter last year. Our $179 million Orlando auction in February set new volume records, with over 10,500 lots sold. As we discussed in our fourth-quarter call, the overall performance of our underwritten contracts at this auction were strong, and provided an early glimpse into how our approach to underwritten deals is working. As you are already aware, this Orlando auction generated the most revenue of any auction we've held at that site.

The average age of equipment at our Orlando auction was older than it was the year before, due mostly to contracts we chose not to pursue. But it was only one auction. When we look at the mix of what we've sold at auctions so far in 2015, the average age of equipment has continued to decline. In 2015 to the end of April, equipment aged 3 to 5 years old, which is our sweet spot, represented 25.4% of GAP. This is a significant improvement compared to the 18.5% of equipment that was aged 3 to 5 years old in 2014. The age of equipment we're selling is continuing to track progressively better in our sweet spot, as expected.

As we mentioned on our last earnings call, our February Edmonton auction exceeded our expectations. Our recent Edmonton auction, last week, which will be recorded as a May sale for monthly GAP disclosure, was one for the record books. It broke nearly every one of our Canadian records and some important company-wide ones.

At CAD215 million, last week's Edmonton sale was CAD72 million or 50% larger than the previous Canadian record auction. In fact, with current exchange rates, this four day auction nearly matched the performance of our five day Orlando auction in February. On an equipment mix basis, we saw assets from a variety of sectors, as we usually do. Of the CAD250 million of equipment sold, oil and gas and drilling assets comprised approximately CAD2 million. Of the CAD250 million, over CAD105 million or $86 million was sold to online bidders.

More and then 14,000 people registered to bid at the auction, which is approximately 4,500 more than the previous company-wide record. And there were 3,200 buyers which was also a new Company record. Our live Internet bidding capabilities added significant value to this auction. Online bidders were either the successful buyer or runner up bidder on 76% of the lots we sold in Edmonton.

Most importantly, we generated a very healthy revenue rate at this auction from both our straight commission and underwritten contracts. In fact, as we stated in yesterday's earnings release, this Edmonton sale generated the most revenue from a single auction in Ritchie Bros. history. Again, the results demonstrate excellent teamwork between sales, operations, and marketing.

What has probably been most surprising to us is the level of demand from Canadian bidders at recent Canadian auctions and particularly those in Alberta and Western Canada. Yes, the oil and gas sector is losing supply, but the strength of other sectors is clearly picking up most of the increase in sector agnostic equipment and redeploying it in other industries. Approximately 89% of equipment sold at our recent Edmonton auction went to buyers within Canada, and 51% went to buyers in Alberta.

Our marketing efforts have also been ramped up in recent months, with more targeted activities underway. We believe one of the products of this effort has been increased bidding activity. For example, we have used our vast customer databank to specifically target potential bidders and buyers of high-value or unique equipment, and we're also more effectively targeting customers based on their needs and preferences. And have lunched targeted campaigns based on their web behaviors, such as posting banner ads for equipment they have searched for in the past on websites they use. For example, websites to track sports scores.

We have also begun analyzing customer data to better determine how our customers navigate our websites, experience our live auctions, and make bidding and buying decisions. This 360-degree view will provide us with extremely important insights as we aim to enhance our customer experience.

On the EquipmentOne side, we're seeing early but very encouraging signs that our renewed strategy's having an impact. This business segment exceeded -- with strong 20% revenue growth, compared to the first quarter of last year. We've seen particular success in growing EquipmentOne sales from our strategic accounts group.

During the first quarter, we made several improvements to the EquipmentOne website to improve the overall user experience. This included the launch of MyOne Dashboard, a personalized dashboard for EquipmentOne users, which notes not only what's closing on EquipmentOne, but also any live auction Ritchie Bros. is holding on the days the user specifies. We'll also test a cross-promotion in rbauction.com website search results, and we'll continue to test cross marketing efforts on a targeted basis.

The pilots we launched to test the sale of our EquipmentOne offerings through our sales force and full force. We'll be training more territory managers in the second quarter to build on what we've already learned, and anticipate rolling out a sales strategy to our US sales force for EquipmentOne by the end of the year.

Turning to capital for a moment, we are pleased to return $62.6 million to our shareholders during the first quarter, through both dividends and share repurchases. In line with our stated strategy of offsetting expected dilutions from option, 1.9 million shares were repurchased for $48 million in March and subsequently canceled. We'll continue to evaluate share purchase needs and opportunities on a quarterly basis.

Before I pass the call on the Rob to discuss our financial performance in more detail, I wanted to take a minute to discuss our capital priorities and reiterate our strategy. First, we're committed to growing our dividend in line with earnings, with a payout ratio of 55% to 60%. This obviously means that as earnings grow, so do our dividends. Second, we've made it clear that we intend to use share repurchase to mitigate any expected dilution from options.

Third, we expect to pursue M&A opportunities that could either grow our scale or reach in important markets and sectors, or provide us with complementary business lines. We have a disciplined and methodical approach to our M&A strategy, and currently have a number of irons in the fire. This includes opportunities in the auction space, which would add sector and geographic depth, and also opportunities in the digital space, which really excites us.

Of course transactions take time to evaluate, to undertake due diligence, and to ultimately negotiate. In particular, in cases of private family businesses. Given confidentiality agreements, I hope you can all understand that I cannot go into any specifics. We will update you as appropriate.

And when other capital allocation priorities are met, we also have authorization from our Board and from the TSX to pursue additional share buybacks in addition to those made to hold our diluted share count flat if and when we see the opportunity, and importantly, other capital needs have been met. Our focus right now is on deploying capital to drive sustainable, profitable growth in the long-term. While it's not listed as a capital allocation priority, I want to make sure that everyone understands that we constantly make use of our balance sheet for deal activity.

Our cash balance is regularly utilized when we negotiate underwritten transactions. As we focus on underwritten deals, we'll continue to draw on the availability of capital from our strong balance sheet. Our balance sheet is a competitive advantage in operating the Business.

At this point, I'll pass on the call to Rob for a detailed discussion of our financial performance.

Thanks, Ravi.

As mentioned, gross auction proceeds were $956 million for the first quarter, a 12% increase compared to last year. Revenue for the quarter increased 17% to $115.6 million, compared to the $98.6 million in the comparable period last year. This year, US sales accounted for 63% of global revenue in the first quarter, compared to 58% last year. This distribution of revenue mitigated the foreign exchange impact on our business, relative to what we expect for quarters two, three, and four in 2015, which I'll speak more about shortly.

Our focus on our underwritten business delivered a revenue rate of 12.1%, which is above our historic range. Nearly 64% of incremental revenue from our core auction business flowed through to earnings, a great example of the operating leverage inherent in our business model.

Our first quarter SG&A expenses grew 6%, with most of this expense growth occurring in employee compensation costs, which included $2.1 million related to the separation agreement for our former Chief Sales Officer. We had a 4% net increase in headcount compared to the same period last year, including an 11% increase in the number of revenue producers and sales support personnel. And as well, our annual merit and wage increases took effect in January. Other quarter one expenses, which are nonrecurring, included the cost of our January global meetings, and various professional fees related to implementing our strategy and recruitment and placement of executive personnel.

Operating income for the first quarter was $29.6 million, an increase of 67% relative to quarter one last year. Our operating income margin was 25.6%, an improvement of 766 basis points from the same quarter in 2014. Two items below the operating line had an impact on our results. We recorded a non-cash foreign-exchange gain of $3.2 million compared to the gain of $1.3 million in quarter one 2014. This gain mainly resulted from the timing of inter-company transactions and the sudden strengthening of the US dollar early in the year, and the impact of short-term monetary assets and liabilities in our subsidiary companies. This foreign-exchange effect is really a transactional foreign-exchange gain versus the effects of translating our non-US dollar denominated operations into our reporting currency, the US dollar.

The second item was our tax rate. As we have spoken about before, our tax rate in quarter one, 2015 returned to our historic range due to the geographic distribution of our earnings, with a greater proportion being earned in higher tax jurisdictions in quarter one, 2015, versus quarter one, 2014. Net earnings for the first quarter were $23.6 million, a 65% increase from the year ago quarter. Diluted EPS was $0.22, also a 65% increase from quarter one last year.

As I've noted, the strengthening of the US dollar year over year continues to affect our business. However, in quarter one, it had limited effect on our bottom-line due to the relatively low proportion of business volume in Canada, which is consistent with our first quarter in prior years. In future quarters, we anticipate it may influence our earnings growth more significantly due to the greater proportion of Canadian business expected in quarters two through four as is usually the case.

That said, there were significant line item foreign-exchange impacts this quarter. On an organic basis, using the same foreign-exchange rates in quarter one last year, revenue for the quarter would've grown 24% compared to the prior year versus the reported 17% growth, while expenses would've grown 14% versus the reported 6% growth. On a line by line basis, GAP would have been $52.9 million higher, revenue would have been $6.7 million higher, expenses, which include direct expenses, SG&A, and depreciation, would have been $6 million higher. Operating profit would have been over $700,000 higher, and net earnings would have been only $450,000 higher.

Turning to our balance sheet scorecard, I'll just highlight two key items. Operating free cash flow for the 12 months ended March 31, 2015 increased 62% relative to the comparable period ended March 31, last year. This increase was due to more cash being generated from operating activities and less capital spending.

Return on net assets, or RONA, improved to 21.1% for the 12 months ended March 31, 2015, up from 17.6% in the same period last year. This improvement was attributable to a 5% increase in our 12 month rolling net operating profit after tax, combined with a 12% decrease in adjusted net assets primarily related to foreign exchange effects on US denominated assets -- sorry, non-US denominated assets, offset by a decrease in current liabilities.

As you may have already seen, we've posted our monthly auction metrics for April earlier this morning. This month's figures are a prime example of why we believe it is important to look at our auction metrics on a 12 month rolling basis, due to auction timing and the variability it can cause in monthly reporting. Our recent Edmonton auction last week generated $177 million US in gross auction proceeds, and will be included in our May auction metrics as the auction completed on May first.

The comparable Edmonton auction last year was included in our April stats. If we were to include the recent Edmonton auction in our April GAP performance for a more apples to apples comparison, GAP would've grown by $44 million, a healthy 12% increase.

With that financial overview, I'll turn the call back over to Ravi for some final remarks.

Thanks, Rob.

Before I make my concluding remarks, I want to talk a bit about earnings guidance. As you know, we work very hard to establish our evergreen model for the Business, and our performance scorecard provides strong transparency to quarterly performance. The evergreen model captures our target for what we expect the Business to deliver on average over the coming years.

Clearly, some years will be better than the model, while others may be a bit less, but it represents what we at Management are shooting for year in and year out. This allows us to focus on optimizing shareholder value for the long-term. The scorecard is intended to capture the most important financial metrics in the Business, and ensure that we talk with you about our results on some of the key metrics in each quarter. In this way, you'll clearly see where we are performing well and where we are not, and will hear what are our plans to improve performance as needed.

We think these two tools are a powerful way for you to understand the Business. It's with this in mind that we want to deemphasize quarterly and annual guidance. Given the volatility in economic outlook by country, foreign-exchange rates and oil prices, and importantly the inherent nature of the auction business, we don't think it's a productive use of Management's time to try and predict quarterly and annual results. We think this will distract the team from driving the Business, and frankly not add much value for you.

As a result, coming from the new guy on the block, from here forward we're deemphasizing the discussion of our short-term earnings outlook. Consequently we do not plan to provide annual guidance or quarterly updates, nor plan to update our 2015 outlook provided in February. Therefore, our original outlook may no longer be relevant.

Rest assured that we feel very good about where the Business is, where the Business is going, and the team's ability to drive growth and sustain momentum. Our field sales teams, in conjunction with our operations and marketing teams, are growing consignment volume, bringing in bidders from around the globe, and achieving good pricing. If anything significant is implemented, or if there's any impacts that could materially change our evergreen model, we will certainly update the market.

In that context, keep in mind FX headwinds and that 2015 will have a normal tax rate year. We're laser focused now on execution, and our attention is focused on delivering the evergreen model over the long-term, making good on our commitment to drive shareholder value to you as our owners.

We're making significant progress in filling the remaining roles on our global executive team. As many of you already know, on Monday we announced that Terry Dolan will be joining Ritchie Bros. as President of the US and Latin America Business. We're very excited to welcome him to our team. I believe Terry's strong background and leadership experience in many of our key sectors will be instrumental in helping us grow our market share and brand awareness in our largest market, the US, as well as in Panama and Mexico.

We're also well into the recruitment process for a new CFO, and have met with many highly qualified and impressive candidates. I expect we'll be in a position to announce a CFO appointment by the end of the second quarter. So, you can see our global executive team is nearly complete. And I want to take this opportunity to thank all Ritchie Bros. employees and shareholders for your patience during this executive selection process. I believe our efforts to ensure we've found the right people for the right roles will pay off.

At the Board level, we also welcome someone new, as our shareholders endorsed the nomination of Lisa Pollina as a new Director. Lisa has tremendous capital markets experience and provides an important new perspective and complementary skill-set to our Board. Among other things, she will be an important advisor in our strategy to optimize our balance sheet and provide important perspectives on future M&A activity.

There's been a lot of change at Ritchie Bros. in the last year, and our employees have done an absolutely amazing job of staying focused on our customers and the tasks at hand, as we've navigated the Business and implemented structural change to better align us for our new corporate strategy. As stated at our recent AGM, I have never witnessed the same level of passion and pride at a Company as I've experience firsthand from our employees at Ritchie Bros. They are the single biggest asset at our Company, and I want to thank them for their tremendous efforts and achievements, especially in the first quarter. We're in the equipment disposition and asset management business, but at the end of the day we are a people business, and our people are what makes Ritchie Bros. strong.

And with that, we would like to welcome questions from analysts and institutional investors. Given the level of participation on today's call, we'd please ask you to limit yourself to two questions to provide time for others on today's call. Operator?

(Operator Instructions)

Sara O'Brien, RBC Capital Markets.

Good morning. Can you comment a little bit about the underwritten business objectives for the rest of FY15? Obviously Q1 had a very significant auction success in it. Just wondering, do you think the trend of percentage of revenue can continue up in the 30% range from 25% or so historically?

Rob, I'll let you comment on that.

Morning, Sara. I think it's really important just to reiterate what we had in our comments, that we're pursuing underwritten business as the opportunities arise. And in the marketplace what we're seeing right now is the opportunities on significant size packages that maybe we haven't really seen probably in the last four or five years, and now we're seeing them. And so for sure we will continue to pursue them.

Also important to recognize that we will pursue them to the extent that we believe it meets our strategy and the strategies -- financial strategies and also competitive strategies. And so I don't see a significant change in the volumes of our underwritten business.

Having said that, just recognize in first quarter we had a very large -- our largest auction, which is the Wyoming deal, and those don't come every day. And so that's just one note, but I think in the main, Rob is absolutely right. So, thanks.

Maybe if you can comment a little bit on the competitive environment for auction volume and consignors. Noticed the number of consignors is down, and I'm just wondering is that a concerted effort to target larger deals and lots? Or is there some kind of a differentiation happening in the market, where smaller players are going to certain auction houses versus Ritchie?

Hi Sara, it is Rob again. The number of consignors that we have along with the number of lots and bidders and buyers for sure will fluctuate period to period. And so it's not a concerted effort to either limit the number of consignors or not focus on smaller consignors.

We have a huge variety and a huge mix of customers -- consignors that bring their assets to the auction, and so we will continue to focus on all of them. Of course, as Ravi mentioned, when you have one consignor that has a $54 million consignment in the quarter, that skews the results as well. But that number of consignors for sure fluctuates period-to-period, and there isn't any concerted effort to only focus on larger customers or larger potential customers.

Okay maybe just a tag onto that one. In the competitive environment right now, it sounds like your auction commission rate is pretty stable into the second quarter, I'm just wondering if you expect to kind of have some giveaway on commission to get into more market share in the US, as you progress there?

Let me take a shot at that and Rob can add to it. Basically for us, it's all about the customer, and we will evaluate every package on a case-by-case basis. This is really about how you approach and go to market. There are some packages which really allow us to really embellish the whole sale.

But we're -- as I said in my prepared remarks on the underwritten business, we don't use the underwritten business just to buy market share. We want to make sure it drives value for the customer, but also drives value for us and that it's really profitable, as opposed to just GAP. We're not in the business -- we really look at GAP conversion to revenue, and if there's one thing that I'm trying to emphasize a lot with our field teams is the importance of revenue, not just GAP. But that doesn't mean GAP's not important, it's really both. It's GAP and revenue rate.

Okay, thanks a lot.

Thank you, Sara.

Thanks, Sara.

Stephen Volkmann, Jefferies.

Good morning, guys. Just one quick follow-up on that. Can you just make some sort of qualitative comment about the performance of the non-Wyoming underwritten business in the quarter?

I'll do it and then give it to Rob. Stephen, thank you for that. It's been really good.

Wyoming clearly did well, but you can't have just one auction drive your total revenue rate when you're close to $1 billion in GAP. So it was really -- what we're seeing is really improvement, and that's because we're beginning to really drive home the message and discipline. I'm very proud of the team for doing that.

Rob, anything to add on that?

No go ahead, Steve.

Great, sorry about that. So change of subject a little bit, and look at the balance sheet. Ravi, I'm wondering two things. One, I think you've mentioned in the past that there might be some assets on the balance sheet that perhaps were excess in terms of real estate, so any comment there?

And then secondarily, if you hit your evergreen targets with respect to leverage, the net debt-to-EBITDA somewhere, I don't know, put a two handle on it or something, obviously a lot of borrowing capacity there. And I guess I'm curious, not to speak specifically about your M&A plans, but would you expect to see that much M&A? The numbers work out to something north of $500 million of capacity, that just seems like a lot. Is there that much opportunity out there?

So, Stephen I'll let Rob comment on the assets on the balance sheet. Let me deal with the M&A question.

We've just started the process, we're gaining momentum. As I said, a lot of irons in the fire. We're actually very excited as we have started looking in. There is not only tuck-ins and bolt-ons, but needle-movers as well.

So we'll do this step-by-step. Recognize since EquipmentOne, we've really not done anything major in terms of an acquisition, so we're putting a roadmap, we're very committed. The acquisitions have to be accretive for us as well as drive, help us drive growth, that's the whole point.

But I'm actually very pleased with the level of activity. I think the important thing is to post one or two deals, because as you do that, the market also understands you're serious about it. So, stay tuned. It takes time, as I said, but there is a lot of emphasis and focus on it, and it's not just tuck-in and bolt-ons, I think. As we've expanded our view to really the digital space as well, a lot of exciting opportunities there. So just stay tuned on it, please.

And Steve, just to follow up on your question on excess real estate. We do have a couple of parcels of land for sale. The most significant one is 50 acres, 50 prime acres of property in Edmonton that are for sale. We have a very small pocket of land that's for sale in Orlando.

We did sell our land in London, Ontario, and that's being finalized. And really, there is some pieces of excess property or property that we're not using in the Business right now in various spots around the world. But they're not that -- they don't have that high of a market value on it, and so if we proceed with disposing of them, I don't think that's going to be much of a needle mover going forward.

Okay, great, thanks, guys.

Thank you.

Yuri Lynk, Canaccord Genuity.

Good morning, guys.

How are you?

Great quarter. Ravi, can you help us think about the auction revenue rate here? You did mention that you're still early in the process of improving the underwritten business.

I mean should we be -- how should we think about it in terms of the prior guidance of 11% to 12%? Are we looking at something more consistent, or do you think you can actually -- is the goal here to actually drive it higher, above 12%?

Yuri, I think one of the very reasons why we said we don't want to -- this is a tough business to predict. But I think our range remains unchanged on the parameters of 11% to 12%. What we're trying to do is reduce volatility and just get to be more consistent.

Clearly, we had a tremendous quarter. But we should not expect that every quarter will be like that, and recognize that last quarter -- last year's quarter was a bit of an easier comp, and there was less volume in this quarter.

What I talked about, the very important set of words I used was continuous improvement. We just need to get better and better, but it's not going to happen overnight. The good news is, we're just improving awareness, and but I think 11% to 12% is sort of the range we have consistently talked about, and that's what we still believe is the right range to think about this business.

Okay, that's fair. And I guess just staying with that, when you talked about the Edmonton auction that finished in May, it sounded like you also had very strong revenue performance from that auction. I mean is this kind of on par with what we saw in Wyoming?

Yuri, it's Rob. It's very difficult to compare the Wyoming sale to the Edmonton sale. In the Edmonton sale, we had 800 owners, Wyoming, we had one owner. Edmonton had -- obviously a majority of it was straight commission and a broad spectrum of underwritten contracts, so they're very different animals.

But we were, as you saw in our remarks and in our press release, we were pleased with the results in Edmonton. And I guess to some extent surprised at the level of support and the strength of bidding from customers in Western Canada. And so, I think to some extent, ourselves and our customers were the beneficiaries of that.

One thing to add, Yuri, suffice to say, given that this is our largest revenue auction in our history in the Company, clearly, it was because the Canadian team drove great revenue rates. And for Canada, they've always operated at high underwritten business, high levels. And they delivered, so we had really great straight commission performance, as well as great underwritten performance. But it's just as Rob said, it's not one owner, it was across a variety, which actually is more important: the fact that you can do it on several packages.

But I should once again emphasize one thing that is an inflection point for the Company, is that our marketing teams are really beginning to take it up one or two notches. Our sophistication of our targeting really came through in Wyoming, in Orlando, and in Edmonton. And really kudos to that team, and I think we're going to do more and more sophisticated marketing.

Right, I got that Edmonton would have been more than one, I was just trying to get at the overall impact and I think you've cleared that up. So I'll get back in the queue. Congratulations again, and thanks.

Thanks, Yuri.

Thanks, Yuri.

Nate Brochmann, William Blair.

Good morning, everyone, and echo my comments on congratulations on a great quarter and great start to the year.

Morning, Nate.

Thank you, Nate.

So, Ravi, and obviously you have been fairly aggressive at implementing some of these changes and implementing the marketing initiatives. And all this despite the fact that you guys have been obviously a little bit distracted with the ongoing searches on solidifying the Management team.

What do you think in terms of the progress that you've already made, in terms of why that's happened so fast? And as you get the entire team together and everyone gels and we kind of refocus on territory manager hiring, and get those net numbers up, like, where do you think the real opportunity here is? And why did we reach an important inflection point so fast?

I think, Nate, great question. Look, I look at myself as only the orchestra conductor. An orchestra conductor is only as good as the musicians. And we have some amazing musicians in this Company. We had sort of fallen into a trough and had become stagnant, but the thing is, the Ritchie Bros. team are a bunch of winners, and they want to win.

So I think Vegas was a great, great inflection point for us, where we reignited the passion of our teams. Canada just continues to perform in an amazing manner, and I am in awe of that team.

The American team has just come back, and wow, what a performance. So I think it's inherent with the new team, we've just got the direction and I think the teams just got focused on what we do best. Focus on our customer, and the Management focuses on employees, and I think we're just gaining momentum. So that's the secret sauce of this company is people.

So clearly, I wanted to move fast, perhaps a little bit too fast at times for things, but I'm trying to moderate that a little bit. So, but the responsiveness, it's all about our teams. That might sound cliched, but it is really not. I mean that from my heart.

And just to put that in a little bit of focus then. But it sounds like maybe there was a little bit of lack of focus as you came in, and really just honing in on what needed to be done and getting everybody rallied, like you said back in maybe the Vegas meeting. Like, maybe that's as simple as in terms of getting the momentum going, and obviously there's more to come. Again, as I would assume that the team comes together and starts gelling.

I think, Nate, one quarter does not make a trend, so I also want to be careful to get over-enthusiastic or have irrational exuberance as our Fed Chairman in the US once remarked. Having said that, I didn't invent this model. This model was invented by many people, Dave Ritchie and Russ Cmolik and all of that, we've got an amazing model. This Company has grown for many years. It has been hugely successful. Five years after the recession, a lot of issues. So rather than, in any way disparaging what happened in the past, I think the important thing is to look forward.

I think the team, we've got a combination in the new team, new Management team, veterans like Randy and Rob and Karl, and my VPs in the field, and they are really the heart of the leadership. And we have to really give them credit, because they are in the cold face, interacting with customers, whether they are -- that's to me, that is the power of RSMs, our ROMs, our marketing people.

I think we're now beginning to coalesce; we've got a direction, and look, there will be some hiccups as we go forward. So, I want us to be careful not to get overly exuberant, but having said that, I just feel there is a buzz in this Company, the mojo is back, and that is what this business is about.

And thanks for elaborating on that, because I think that gives us all a little bit better sense of kind of what's really going on kind of behind-the-scenes. And then just second question, one of the nice things about the call is you gave us a lot of new stats and things to think about in terms of what really drives the business. And I recall at the Analyst Day you said that data was going to be a big part of this. Could you talk a little bit about how already your focus on the data and kind of extrapolating some of the important data points has kind of helped with some of these initial results?

I'm going to have Jim Barr give you some views on that.

As you know, Nate, we've got the largest buyer base in the world, which means we have the best customer database in the world. And all we're really doing in some of these marketing initiatives are the first steps towards really leveraging them more. And Ravi gave you a few examples of those, where we would do retargeting and find our customers wherever they are on the web, and target the messages there. Whether or not they are on our site or not.

We've looked at past inventory records, what our customers have bought, what they have bid on, and especially for items that maybe have a bit of a thinner market or very high-valued items, we're able to match up those buyers better than we have in the past. And we're starting to get a full 360-degree look at our customer, so we're seeing what they're doing in the various channels.

I say this is the first step, because I'll be honest and say we need to be able to do this on a more automated basis, and we'll be investing in IT systems and insights in our marketing team to be able to do it more consistently and efficiently. We know the data is there, we know we've got this amazing asset, both online and offline, and we're just trying to bring it all together and bring the best buyers to all our events.

Great, very helpful I appreciate the time and I'll pass it along.

Thanks, Nate.

Thanks, Nate.

Cherilyn Radbourne, TD Securities.

Thanks very much, and good morning.

Morning, Cherilyn.

You had GAP growth in both Canada and the US. I was just hoping if you could give us a bit of a regional flavor for how that broke down. So kind of East versus West in Canada, and East versus West versus South in the US.

We don't have -- I won't give you too many specifics, because we don't actually break it down publicly that way. But certainly in Canada there was growth in both the West and the East, but in terms of dollars, the West was going to have a bigger impact, just because it is that much bigger volume and bigger activity in the West, right now compared to the East.

And in the US we saw good growth in both -- in all West Central East, and also nice growth in our strategic accounts team, which is based in the US. And so, it was great to see the growth happening not just in one particular region, and it wasn't just because of the Casper, Wyoming sale for example, and so seeing that diversity of growth is tremendous. Particularly I think in the strategic accounts team, because there's tremendous opportunity right there.

So I'll just add to what Rob said, and then Randy, if you want to say anything about Canada. Rob mentioned strategic accounts. I think one of the best decisions we made was putting Mike Johnston as head of our strategic accounts team.

He is just providing outstanding leadership to that group. We've got some terrific RSMs in that group who are really, really driving the Business. I think that group is going to gain huge momentum.

But really, we're having Jake Lawson in the East, the East was a bit of a turnaround for us and Jake's now been there more than six -- I think almost a year, and he's getting that team solidified and really beginning to gain momentum. Our West guys, Richard Aldersley and Rob Giroux, just do an amazing job. So I just think, and David Hobbs, who's on an interim basis in central with Rick Vacha doing agricultural auctions.

I just think that this is -- the growth is not one thing, which is the important thing. It's about diversity of sectors and geographies, and I think geographies, not just countries, but going down into the regions served. I think the US, and now with Terry coming on board, the team has given him a real gift with a great first quarter, off to a great start, and he is only going to build on that. So Randy, you want to say a word about how Canada is looking?

Thank you, Ravi, I would love to.

The perspective that I would like to provide is one from a buyer's point of view, and what we've seen very consistently now for the year-to-date, is consistent strength across broad sectors. And Ravi what you mentioned about diversity I think is really, really important. We've seen, as everybody's been focused on the energy sector, and yes, it's cooled a little bit. But we've seen a lot of strength that's come from other parts of the country, whether it's BC or Saskatchewan or Ontario.

There's been a large redistribution geographically. But also by sector we've seen tremendous strength. Transportation has been good. Agriculture has been very strong, forestry is robust, and general construction is also quite good.

So when you layer both geographic and sector diversity on top of each other, it's really picked up the slack. And we've seen tremendous redistribution of assets at all of our sales, not just the Alberta events, it's been all of our auctions that have seen that same theme.

Thank you, Randy, our two -- Brian, Glenn, and Anna, our SVPs in Canada, I must say, just do an amazing job of leadership, supporting Randy and the rest of the team. And Warren, our Ops Head there, they are just a great, great team. Next question please?

If I could just ask one follow-up, one of the issues that the dealers in Canada have been struggling with is a bit of sticker shock in terms of the impact of the weaker Canadian dollar in new equipment prices. Just wondering how you sort of read that into your results for the quarter.

Randy?

Thank you. It actually creates somewhat of an opportunity for Ritchie Bros. because we're primarily dealing in the used equipment space. And when new become significantly more expensive, people do tend to look at used, and that will have been a positive dynamic in the results to date, where people are looking clearly at what are their alternatives? Can I go shopping for a late-model, good quality used piece of equipment or truck?

And that shows as well in a variety of our stats. That's been a positive dynamic.

Thank you. That's my two.

Thank you.

Bert Powell, BMO.

Thanks. Ravi, just curious, with the final merger of Iron Planet and Cat Auction Services in April, your target of $1 billion or better I think in gross market value. What does that mean for you guys on the competitive front? And I'm just trying to think about them in terms of targeting the underwritten as well.

Look, as I've said before we've competed with Iron Planet and Cat Auctions before. We have respect for all our competitors, and competitors always bring out the best in leaders because you never want to get complacent. But look, at this point, what our focus is really on our customers and finding every which way we can to delight our customers, and meet every one of their needs and look at different models.

I think they're trying to -- this is a huge market, where I think at $360 billion, there's plenty of room for us as Ritchie Bros. to grow, and there's different types of customers. It's an interesting thing, I think as one of our analysts wrote, that the coming together of those two companies is a validation once again of Ritchie Bros. model of -- we are the multichannel business, Ritchie Bros. And now with EquipmentOne beginning to go forward, I just think that we have what customers want.

Thank you for that. The next question I had, just back to the underwritten business and attribution. I'm just wondering, as we headed in this year, I think there was some caution about what price expectations would be. And I'm sure that had an impact in terms of how you were cautious in pricing the underwritten business, and I think pricing has generally come in better than expected.

So, I'm just trying to think about the auction revenue rate and how much is attribution to your strategy versus just we happen to be in that circumstance where you were cautious, the markets come in better, and that's been a big factor in terms of contributing to that underwritten business?

Bert, it's Rob. Great question, and I think in terms of pricing expectations, I think that cautiousness that you're referring to probably really relates particularly to Western Canada, Alberta. And obviously particularly to oil and gas unique assets, which there isn't a tremendous -- we don't sell a tremendous amount of that. And I think it is -- our strategy is really about bringing our competitive advantages to that underwritten proposal, and understanding the assets and understanding the marketplace.

So, if the marketplace is perceived to have a pricing -- a tough pricing environment or a very positive pricing environment, we have to build that into our proposals on that package of equipment. And so it's not -- I give ourselves credit for understanding the marketplace and reacting to it, because our competitors and our customers won't let us get away with being too conservative in what appears to be a challenging pricing environment.

They will respond to that as we will, so they won't let us get away with it very much. So it's again, I think it's really a reflection of our strategy and bringing our competencies to play.

I think Ralph put it well. Let me just add that there's no question this year continues to have challenges in terms of the macro environment, it's very tough to tell really, what's going to happen.

The whole -- in Western Canada in particular, now you've got a new element with the elections that happened and changes there, who knows what impact that will have. So, we can keep focusing on all of that, or we can focus on what we can control, and that's what I've asked our teams to do. Get focused on what we can control, and what we can control is really going back to our value proposition. And what is that? Bringing global buyers and global sellers together, and the more we do that, the more we can improve values for our customers.

Edmonton is a great example, and people thought they would get bargains, but there were no bargains to be had, and in fact some people complained. They thought they would get away, but the pricing was very strong. And why was that? Because again, very targeted marketing. You saw all the stats on bidders, that didn't happen by accident.

These things never happen by accident. There was a lot of proactive effort to counter some of these external factors, and we'll continue to do that. And that doesn't mean that the external factors don't have an impact. Clearly the recession has showed that we're not impervious to economic cycles, but what we need to do is just focus on what we can control and keep driving that and bringing all our competitive advantages to bear.

Thank you.

Thanks, Bert.

One last question, I think two more?

Nick Coppola, Thompson Research.

Good morning.

Hi, Nick.

I want to follow-up on that regional GAP commentary and really specifically ask to what extent you think you are benefiting from reduced kind of knock-on construction activity in oil and gas specific markets? And then maybe, is it feeding disposals and sales in other geographies?

Net, I think I caught your first part of your question, but you were kind of cutting out on your second one. Do you mind repeating the second part of your question?

Yes, so just trying to understand to what extent your benefiting from reduced activity in oil and gas specific markets and disposals?

I'll have Randy answer that.

So, Nick, the best way to look at this is, April of last year in Edmonton, CAD146 million, and I believe this year CAD215 million. That Delta is not just the change in the energy market, it is the change in our brand, and it's the fact that we're having momentum in a variety of spaces. There's no question that pressure in the energy sector is loosening supply to a degree. But what we're also seeing is people that are very adept at managing their fleets and fleet management is top of mind, and has been already for a number of months.

In fact, an anecdotal story perhaps can say it well. One of our very, very large construction clients in Canada has been selling for the last 14 months. and they got themselves in a position where they were in a buy mode, and they were shopping in Edmonton and in other auctions, specifically because they had managed their fleets down already before, and they came to that event looking to buy. As an alternative to buying just new, and they spent several million dollars in that event.

So there is some upward impact because of the supply loosening from energy, but that may also be the opposite elsewhere, where those other sectors are strong, which means it's challenging to secure the supply. And so it's very difficult to isolate and provide you a clear answer, or as clear as you would like me to give you.

That's helpful. And then, I guess just on the last question, if you can add a little bit more color on the used pricing environment, and what kind of expectations you have going forward?

We've seen consistent, stable pricing in most sectors. I think that we're taking that forward with cautious optimism, I think is the right terminology. We continue to be somewhat cautious of the future, and if there's an opening in a big way, we don't believe we've seen that real massive opening of any floodgates in that energy space. I believe that there's a lot of work still there, and there's people making investment decisions.

People are still careful and managing in a prudent way. And so we're going to do the same thing with our approach to pricing.

And one of the earlier questions talking about replacement cost of new and the effect of currencies, that's a dynamic that's Canada only, and we're not the biggest sector or regional marketplace within Ritchie Bros. So, what we have seen in the United States is stable, generally stable pricing, so we're encouraged by all that.

Right now, it's sort of tough, because what will happen in the second half in Canada and that's been sort of the issue. We're very pleased with what happened of February, pleased with what happened in April, both surpassed our expectations, so we need to wait and see, but again that's why I focus on what's the control.

Right now, US economy at least from everything we see is softening, though we're not seeing that in our own business. So it's tough to tell, that's why we keep coming back to what is it we can drive? Thank you very much.

That makes sense, thanks.

Thanks, Nick.

Scott Schneeberger, Oppenheimer.

Thanks very much. Just following up on the Edmonton theme, and specifically oil and gas.

It sounds like you had some big buyers there? Clearly, and Ravi, you addressed you're not sure what to see in the back half, but does it feel like there is an excessive amount of oil and gas for sale? Was that part of what boosted Edmonton? Just curious on that, and market specifically, thanks.

Scott, no we wouldn't say there is an excessive amount. First thing comment about the buyers, yes there's big buyers, but we had 14,000 people registered, and I think 3,200 actual buyers. So they range from $100 pallet of parts to multi-million dollar buyers, so I don't think the dynamic or the mix of the buyers really was different than what we've seen.

I do think that, as Ravi pointed out earlier, kudos definitely goes to some of our execution elements. In particular, marketing. I think that's a strong one.

The deal execution we've talked on a lot. One we haven't mentioned yet is RBFS and the continuing penetration of that value added service, I think, is helping to build some momentum and attract buyers.

The oil and gas specific asset categories are very small that Ritchie Bros. deals with. And you can lift heavy objects or you can push dirt in the oil patch or in Ontario or in Dubai or in California, so that's the beauty of many of the things that we sell. They can be moved to different geographies or different sectors when one is regionally down or strong.

So I don't think that the impact is as significant as perhaps people were predicting, and certainly that's the feedback we got from many of our customers that attended in Edmonton, as Ravi said earlier. People were hoping for some bargains and that is the nature of the unreserved auction business, and we like that psychology, because it attracts people. And lo and behold, they come with their checkbook and their regional strengths, and they all have to bid competitively, and result in strong transcended market pricing results.

Thank you, Randy. So one, I think as I mentioned in my prepared remarks, the lots -- the increase in lots and oil and gas was actually very small compared to the overall. I think I said something like 500 lots or so compared to the overall 10,000, so you can see how small. Now, recognize there is a lot of equipment that can go in different sectors, but I think this pricing thing, if you can -- this is why the Ritchie model works.

If you can bring a lot of bidders, create a competitive environment, that's the beauty of the unreserved model. It truly reflects market pricing of that day. And I think this was Ritchie Bros. model beautiful at work. I want Jim to just take it, because you mentioned RBFS, just say a word or two about how that is doing, Jim, because I didn't have that in my prepared remarks.

Yes, absolutely. They had, RBFS, as many of you know is our financial services arm, and really it's designed to enable more buyers to bid with the power of cash. So as Randy mentioned, we start with our world-class largest buyer database in the world.

And then we arm that database with more ways to buy, and in this case, the ability to apply ahead of time and bid with the power of cash. And that supports the prices, and it supports the volume.

In the first quarter, I'm not going to give you exact numbers, but I will just say both our -- all of our application statistics and KPIs were up -- are way up. Our revenue was way up on doing this and the number of buyers that we enabled through the financing facility was way up as well. So really, one of those, again as I mentioned at Investor Day, one of the really good points of evidence that we can create some really nice adjacent businesses that attach to our ecosystem and enable our customers to deal with us in even more ways.

So I'll end there with, we talked about diversification sectors, services, and geographies. So all beginning to converge.

So with that I think, Jamie, are we are going to close the call out? Thank you very much. I think, again, kudos to our team for doing a great job, appreciate your patience and thank you.

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