RB Global Inc (RBA) 2016 Q1 法說會逐字稿

Good morning. My name is Kirk, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers first-quarter 2016 earnings results conference call.

(Operator Instructions)

Thank you. Ms. Jamie Kokoska, Director of Investor Relations, you may begin your conference.

Thank you, Kirk. Good morning, everyone, and thanks for joining us in our first-quarter FY16 results conference call. Discussing Ritchie Bros.' performance today are Ravi Saligram, Chief Executive Officer; and Sharon Driscoll, Chief Financial Officer. Joining us for the Q&A session following the formal remarks will be Jim Barr, Group President; Randy Wall, President, Canada; Terry Dolan, President, US and Latin America; Todd Wohler, Chief Human Resources Officer; and Doug Olive, SVP of Pricing and Valuations.

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, 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 our Investor Relations website at investor.ritchiebros.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 2016 results were made available earlier this morning before market opened. We encourage you to review our earnings release on Form 10-Q interim report, which includes our MD&A and financial statements, and are available on our website, as well as EDGAR and SEDAR.

On this call, we will discuss certain non-GAAP financial measures. For identification of non-GAAP financial measures, the most directly comparable GAAP financial measure, and a reconciliation between the two, see our earnings release and Form 10-Q.

Presentation slides accompany our commentary today. These slides can be viewed through the live or recorded webcast or downloaded from our website. All figures discussed on today's call are in US dollars, unless otherwise indicated. While we may use million or billion dollar figures for brevity in today's discussions, all percent changes have been calculated using full and rounded figures.

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

Thank you, Jamie, and thanks to everyone for joining us on our earnings call today.

We had a great quarter despite tough comps, and I'm very proud of our team. Our strategy is working, and our team is strongly focused on execution. Our first quarter results reflected the strong efforts of our global sales, valuation, marketing, and operations teams, and the growth of fee-based revenue streams.

Our first slide, which you will see have a lot of green arrows pointing up, and my team knows I only like green arrows that point up. And we've delivered for you in the first quarter. Compared to the first quarter last year, GAAP increased 7%; revenue increased 14%; operating income increased 19%; and diluted EPS attributable to stockholders increased 23%. As for recent quarters, these results were muted by translation of foreign exchange impact. On an organic basis, using the same exchange rates as Q1 last year, GAAP would have grown 9%; revenue 17%; and adjusting to remove FX gains, operating income would have grown 27%. Sharon will describe the impact of FX gains on our operating income margin later on today's call.

Our cash flow and returns also improved meaningfully on a 12-month rolling basis. Compared to the same period last year, cash flow increased 20%, again reinforcing that we are a great cash generator. Return on net assets, excluding a term loan reclass, increased more than 1,300 basis points, and return on invested capital increased 250 bps. Growth in our revenue rate helped contribute to our revenue increase. At 12.94%, the revenue rate was 84 basis points higher than 12.1% in first quarter last year. Total revenue during the first quarter was $132 million. While rate improvement drove 8% of the 17% increase in organic revenue, growth in auction volumes drove the remaining 9%. Foreign exchange translation impacts reduced the growth by 3%, to our reported 14% growth.

I'm going to take some time now to discuss the improvement in our revenue rate, and how various business components and drivers contributed to it. As a reminder, at 12.94%, the revenue rate during the first quarter of 2016 was 84 basis points higher than last year. First, our core auction business remains very strong. And the revenue rate achieved through straight commission contracts and the performance of underwritten contracts, drove 29 basis points of the total 84 basis-point improvement this quarter. Second, EquipmentOne continues to perform well, with the revenue rate of 13.96% during the first quarter, which contributed another basis point of the total Company revenue improvement. Finally and most significantly, growth from fee-based revenue streams contributed 54 basis points of improvement, from both pre-existing and new service platforms.

Our existing services, including fee revenue from Ritchie Bros. Financial Services, refurbishment, painting, and shipping provided 38 basis points of improvement. New fee revenue streams from our recent acquisitions of Mascus and Xcira generated another 16 bps of rate growth. So with fee-based revenue streams now meaningfully driving rate gains, we believe it's an important time to review our expected revenue rate range. Consistent with past disclosure, we still believe our core live auction business, Ritchie Bros. Auctioneers, will generate a revenue rate in the range of 11% to 12% on an annual basis. Our first quarter 2016 core auction rate was within this range, at 11.85%.

But obviously, our growing service-based businesses will continue bolstering the total revenue rate of the parent Company. We expect the annual revenue rate of the total Company will be about 12% or more going forward, including the fee-based revenue streams for our service businesses. We are not providing a defined range for our total Company revenue rate at this time, because we need to better understand our new businesses and how they can be scaled. Suffice to say, services will be an important part of our growth trajectory.

As I mentioned before, our core auction business continues to perform very well. Auction volumes supplied 9% of the revenue growth, while the core auction revenue rate increased 29 basis points. It is improvement from our straight commission rate that drove much of the improvement this quarter, along with growth in revenue from buyers' fees as a result of selling a greater proportion of lower-value lots.

Our underwritten business performed extremely well, albeit there was a very slight decrease versus first-quarter of the prior year, which was a record. In fact, in Q1 of 2016, our underwritten rate was significantly higher than all three previous quarters. On a trailing 12-month basis, our underwritten rate was up over 100 basis points versus the prior year. You will likely have noticed that our underwritten business, as a proportion of total GAAP, declined to 23.2% in the first quarter from 31.9% in the first quarter last year. This comp was skewed by the $54 million Casper, Wyoming, auction that occurred last year. Removing it from the Q1 2015 volume would take it to 28.5%. As the chart on slide 8 shows, the proportion of underwritten business that occurred during first quarter of this year was actually very much in line with the proportion generated in the first quarter of 2013 and 2014.

In terms of how our business is performing geographically, our Canadian, Australian, and Middle East teams all contributed a larger portion of revenue during the first quarter of 2016 than they did in the year-ago quarter. You'll note that these regions are also noted as being lower-tax jurisdictions. The US team generated 57% of our first-quarter revenue, down from 63% in Q1 last year. However, this was again a result of a difficult comp, driven by last year's Casper, Wyoming, auction. This was also the reason behind the year-on-year decline in revenue from our US team. I do want to say that we still very proud of what our US team achieved during the first quarter. The sales teams and auctions in the US all performed well, as we had anticipated, given the auction calendar.

After a weak fourth quarter, we are also very pleased to see that Mexico and Panama -- what we describe as LatAm -- grew GAAP very significantly relative to first quarter last year, with revenues up 15% from the year-ago quarter. In our core auction businesses, the largest revenue growth rates were actually achieved by our teams in the Middle East, Australia, and Canada. In Dubai, they grew the size of their March auction by 54%, and in Australia, they are using our underwritten contracts very effectively; combined, they contributed to the other geographic segment, growing 78% on a local currency basis. In Canada, we not only added a $64 million auction in Canadian dollars in Grande Prairie during the first quarter, our Edmonton team continued to break auction records. This, combined with strong performance from across the country, generated revenue growth of a whopping 47% for Canada relative to last year on a local currency basis.

Our European team continues to contend with an economic environment not ideal for (inaudible) transaction activity. On a GAAP sold and revenue-recognized basis, their revenue declined 8% relative to Q1 last year. However, I do want to point out that through sourcing efforts of our European team, a tremendous amount of equipment was sold in other regions. And if we attributed the GAAP and revenue from the equipment sourced by this team, their revenue growth would've been slightly positive for the quarter.

Turning to what's driving auction volumes. As you likely saw through our monthly auction metrics disclosure, industrial auction lot count during the first quarter increased 28% over the first quarter last year. A large portion of this lot growth came from customers in both the heavy and light construction industries. Combined, these construction segments provided 3,780 of the incremental lots, additions that came into our auctions in the first quarter. It should also be noted that the sales, leasing, and rental channels also provided just over 3,000 more lots in the first quarter this year than last year. Some of this growth is coming from rental companies, or dealer rental business that had been downsizing due to softer demand, especially in the oil patch, or providing full dispersals as they close stores or businesses.

If we take a different approach to looking at what's driving lot growth, it's clear our sector specialization and growth strategies are generating results. The charts on slide 11 are based on asset category, not by customer sector. For example, a truck sold by a construction company would be noted as a transport asset in these charts, while allocated to a construction customer on the prior slide. As these charts demonstrate, lots in all three of our focus sectors have grown meaningfully relative to prior first quarters, especially in transportation. Construction assets grew 16%, agricultural assets grew 32%, and transportation assets grew 47% compared to Q1 last year. You can see that our efforts to diversify in agriculture and transportation are beginning to yield positive results.

As you likely saw through our news releases, we've broken many auction records during the first quarter. To highlight a few: on March 30th, we held our largest-ever on-the-farm agriculture auction in Bonanza, Alberta. We generated CAD24 million in GAAP. On March 17 and March 18, we held our largest-ever Denver, Colorado, auction, generating $46 million of GAAP. And in the last quarter call, I told you that Denver was now in the elite club of $200 million in GAAP. On March 14 and 15, we added a new auction -- Grande Prairie -- to the first quarter schedule, which resulted in the largest auction ever held at this site, generating CAD62 million in GAAP.

Operationally, our auction performance showed growth as well. Consignors during the first quarter grew 27% relative to the same quarter last year. Registered bidders grew 18%, and the number of buyers grew 26%. The age of equipment being sold at our auctions continued to trend better. In fact, so far in 2016, the proportion of equipment sold within the 3- to 5-year range is the highest it's been since 2011, demonstrating the equipment population coming to the auction is younger today than it has been in the past four years.

The growth of online buyers demonstrates the value of our best in class online simulcast bidding technology from Xcira, and the trust buyers have in our brand. Half of our buyers now participate in auctions online. During the first quarter, we attracted a record number of online bidder registrations and sold approximately $449 million of assets to online buyers during the quarter, an increase of 11%. This represents 44% of total Q1 GAAP. We're actively looking at ways to further differentiate our online offering. And as the leading multi-channel Company in our industry, we're always searching for new ways to help enhance our customers' experiences with innovative technology.

This quarter marked the completion of version one of the Ritchie Bros. mobile app, featuring live mobile bidding, enabling customers to experience any of our sales, anywhere in the world, and place bids using their smartphones. This extends the desktop and tablet experiences to mobile. In this version, customers can view any RB live auction, complete with live sound and the ability to bid from anywhere they happen to be. In addition, version one offers several features, and you can see the list on the slide, including equipment search and details and multi-ring participation and navigation. We are currently beta-testing the RB app at our auctions for selected customers, and had our first smartphone transaction at the recent Sacramento auction. We also tested it in Edmonton.

Following progressive stages of testing with customers and device types, we plan to make ioS and Android versions available to all customers late in the second quarter or early third quarter. Version one is in English only, and does not include timed auction lots, but several more languages and tiles will be available in version 2 later this year. We plan to add new features to our RB app over time to make it our flagship app. We are excited to launch our flagship RB app, and can't wait to bring the power of Ritchie Bros. technology and our events into the hands of any customer with a mobile phone.

Turning to our online-only sales channels. You may have noticed that EquipmentOne and Mascus are now being reported together under the business segment named Other. We have decided to group Mascus and EquipmentOne together in our reporting, as both are online-only models and are selling on different platforms. Combined, these businesses produced $4.6 million in revenue during the quarter and were both EBITDA-positive. For EquipmentOne specifically, the business generated $23.7 million of gross transaction value during in the first quarter, a 9% increase compared to the year-ago quarter. Revenue for the business also grew 12% to $3.3 million. As we mentioned on our fourth-quarter call, we expanded EquipmentOne's reach into Canada, and this took effect during the first quarter. The site now offers Canadian dollar pricing and transaction services, and we're actively training our Canadian team on selling EquipmentOne alongside our auction services.

For Mascus, it is important to consider that our reported figures only capture a partial quarter for this business, as the Mascus acquisition closed partway through the period on February 19. Its contribution to our overall first-quarter results included $1.3 million of revenue; $100,000 to cost of services; and $700,000 to our SG&A. The business did positively contribute to earnings, though a small amount. Mascus will continue to be operated as a stand-alone advertising and listing services brand, but with strong collaboration with Ritchie Bros. In particular, Mascus will help Ritchie Bros. open doors to new customer segments in Europe, while Ritchie Bros. will help Mascus strengthen its presence in the US.

Ritchie Bros. Financial Services continues to demonstrate very strong growth, with revenue up 55% compared to the first quarter last year. Much of this growth has come from increased penetration, which the business defined as addressable GAAP at our auctions. The penetration of addressable GAAP improved 83% relative to the first quarter last year. Credit applications to RBFS grew 63% relative to the first quarter last year, while demand for loans actually funded grew 71%. All of these metrics showcase a meaningful growth trajectory for this important part of our business, especially when you consider the margins for RBFS are similar to what we achieve in our core auction business. I will discuss our future plans with RBFS in my concluding remarks.

So with that, I will pass the call on to Sharon.

Thanks, Ravi, and good morning, everyone.

As we disclosed with our March monthly auction metrics, gross auction proceeds for the first quarter surpassed $1 billion for the very first time, an increase of 7% over the year-ago period. On a 12-month trailing basis ended April 30, GAAP was $4.31 billion. Net income attributable to stockholders during in the first quarter increased 24% to $29.4 million, up from $23.8 million in the first quarter of 2015, primarily due to the revenue-driven increase in operating income over the same comparative period.

As Ravi discussed in detail, we achieved a very strong revenue rate during the quarter of 12.94%, which was 84 basis points higher than Q1 last year. Operating income for the quarter grew 19%; however, this includes the impact of unusually large transactional foreign-exchange gains of $3.2 million in the first quarter of 2015, which now, under US GAAP, are now recorded within operating income. Removing the impact of transactional foreign exchange gains for both years for comparative purposes, operating income would have increased 29% for the first quarter of 2016. Diluted EPS attributable to stockholders was $0.27, up from $0.22 in the year-ago quarter, which represents a 23% increase.

As with prior quarters, changes in foreign exchange rates did impact our reported figures, as our business operates in many countries, but reports in US dollars. On an organic basis, removing translational FX impacts, GAAP grew 9% during the quarter but was reduced 2%, to 7% growth, as a result of reporting in US dollars. Revenue grew 17% on an organic basis, but was reduced to 3%, to 14% growth, as a result of this FX translation. Operating expenses grew 16% on an organic basis, but were reduced 4%, to 12% reported growth. And operating income grew 17% on an organic basis, but benefited 2%, to 19% growth due to the positive FX impact on expenses this quarter. Importantly, the operating income growth noted on slide 26 does not adjust for the year-over-year transactional FX gains I spoke about previously. If both transactional and translational FX were removed from reported figures, operating income growth would have been 27% during the first quarter of 2016, as noted on our financial highlights slide earlier in this presentation.

Including the positive impact of FX on our expense lines, revenue grew at twice the rate of SG&A expenses during the quarter. But to provide a truly comparative view of SG&A growth, we have normalized for the impact of FX and the following non-comparable amounts. For those of you familiar with our first-quarter results last year, you'll remember that there were $2.1 million of termination benefits paid to our former Chief Sales Officer under a separation agreement, which, for a true SG&A comparison, we have removed from the year-ago quarter. There were also approximately $700,000 of acquisition-related professional fees incurred in Q1 of 2016, which we view as nonrecurring costs for comparative purposes. Removing these two expense items from SG&A, in addition to the FX translational impacts, first-quarter organic comparable expense growth was 14% relative to the first quarter last year, while organic revenue growth was 17%.

While our revenue growth did outpace SG&A growth during the quarter, consistent with our Evergreen model targets, there were clearly some SG&A increases compared to the year-ago quarter. Let me elaborate. Mascus and Xcira, the new service businesses we have acquired over the past two quarters, added approximately $1.8 million in SG&A, including accruals for performance-based deferred payments related to the acquisitions. In addition, and as previously mentioned, professional fees related to these acquisitions added $700,000 of expenses in the quarter. Employee compensation, excluding acquired businesses, added approximately $2.5 million of expenses on an organic basis due to both planned staffing increases and variable pay accruals for incentive compensation based on performance during the quarter. As well, technology software licenses for our CRM system, which was deployed at the end of 2015, added $1 million to our SG&A costs. And finally, stock-based payments, including mark-to-market adjustments related to the increasing stock price, added about $700,000 to SG&A during the quarter.

As you have likely noticed in our financial report, we've made a slight change to what was previously named our direct expenses line, which is now named costs of services. We have made this adjustment, as we believe the new definition better reflects the costs associated with providing our broader service offering. As you know, Mascus and Xcira both generate revenue and cost not associated with core auction activities. In addition to what was previously included under direct expenses, costs of services also includes the costs associated with earning other fee revenues, including direct labor, software maintenance fees, and materials. To help you with modeling the cost of services line going forward, we have broken down the various components of this expense line on slide 28. Again, it is important to note that Mascus costs only reflect a partial quarter in Q1.

As you can see, the vast majority of cost of services are still generated by our core auction business. The growth in core auction costs of services, compared to Q1 last year, relates to variable costs for growth of auction volumes, such as labor costs, due to the increased number of auctions in the quarter and the increasing number of frontier market and agriculture sales. We also experienced significant growth in small lots relative to Q1 last year, which in turn increases variable site sales costs. In addition, we have invested in marketing and promotion expenditures to drive demand at all auctions, with particular emphasis in Q1 towards our large and successful auctions in Orlando and Edmonton.

As a result of US GAAP reporting, we now forecast an anticipated annual tax rate for the year and apply that estimate to our quarter tax rate. We estimate our 2016 tax rate will be approximately 26%. This is lower than prior years due to our expectation that a larger proportion of earnings will be generated in lower-cost jurisdictions this year. As well, new arrangements within our business that we discussed in the fourth quarter have resulted in reliable projections of future taxable profits in regions with tax loss carry-forwards.

Our balance sheet remains very strong, with year-over-year improvements in virtually all of our balance sheet metrics. On a 12 month trailing basis, operating free cash flow improved 20% to $206 million. Return on invested capital improved 250 basis points to 16.7%, and return on net assets improved 1,000 basis points, excluding the term loan reclassification. And CapEx intensity was an unusually low 2.7%. In 2016 as a whole, we expect our CapEx intensity to be closer to our Evergreen model target and higher than 2015, as we catch up on technology expenditures as well as site maintenance projects.

As we've stated in past quarters, our capital allocation priorities remain unchanged. During the first quarter, we executed $36.7 million worth of stock repurchases, repurchasing and canceling 1.46 million shares, which we forecast were needed to offset share dilution from equity incentive compensation in 2016. The share repurchases occurred through both the New York Stock Exchange and the Toronto Stock Exchange in March. We have also actively been deploying capital to acquisitions, with the purchase of Mascus in February for cash consideration of $29.6 million. As well, there will be capital deployed in the second quarter, which Ravi will speak about now.

So with that financial overview, I will pass the call back to Ravi.

Thank you, Sharon.

As we mentioned earlier on today's call, our financing business unit, Ritchie Bros. Financial Services, has exhibited tremendous growth over the past several quarters. It's a business we believe has significant run rate to continue growing and strongly help our revenue growth. While Ritchie Bros., as a public company, owns 51% of this business, this past April we were provided with the opportunity to acquire the remaining minority interest through the call and put options in our shareholders' agreement.

I'm very pleased to tell you that over the weekend, we entered into a binding letter of intent to purchase the remaining 49% of RBFS. We will provide more information about the acquisition terms upon closing of the transaction, which we expect in the next month or so. We have, however, disclosed our valuation of the RBFS business in our Q1 filings and the minority interest portion currently stands at US $41.4 million. That said, the final purchase price may differ from the fair value estimates contained in our filings. This means that shareholders will benefit through the retention of 100% of the earnings generated by RBFS once the transaction closes. But for modeling purposes, it is important to remind you that RBFS is currently accounted for on a fully consolidated basis, so this acquisition will not affect any revenue rate, revenue expense, or operating income lines going forward.

We are very pleased that Jim Case, CEO of RBFS and our current JV partner, will continue to stay on the Board of RBFS for at least the next three years, and will remain as CEO through this transaction and for the next few years. Jim's leadership, drive, and strategic vision for RBFS have been a key driver of its success.

The Ritchie Bros. group of companies is now a truly multi-channel business, and we have created an excellent platform for future growth. This platform will serve as a strong foundation, as we continue to drive acquisitions in both established sales channels, including live auctions, as well as new channels; and further penetrating geographies and sectors. You can see we're off to a great start. The record-breaking auction results in Edmonton in April, where we sold CAD240 million versus CAD215 million in the prior year, is extremely impressive, and I'm awed by this team.

I would like to take this opportunity to express our solidarity and support to all our customers and our two employees who reside in Fort McMurray, where the fires continue to rage. We pray for their safety and well-being and let them know that we are behind them and their families.

I would like to clarify some auction timing impacts that bolstered our April auction metrics, which we disclosed on Friday after market close. April GAAP benefited from the $191 million Edmonton auction -- converted the Canadian CAD240 million; it's $191 million in US -- that occurred on April 26 through 30. The comparable Edmonton auction last year ended on May 1, and was therefore attributed to May's GAAP and auction metrics in 2015. To gain a better apples-to-apples comparison for April and year-to-date GAAP, we suggest you account for last year's Edmonton sale in April 2015. On a year-to-date basis ended April 30, GAAP was $1.42 billion, representing 3% growth relative to GAAP of $1.3 billion in the same adjusted period last year. I recognize other auction timing changes also impacted GAAP performance in April; however the most significant moment related to the allocation of GAAP from the Edmonton auction. I'll again once again caution you that month by month GAAP results, given the lumpy nature of our business, that you need to use caution about either getting overly exuberant or pessimistic based on one month's results.

We are excited by the tremendous year-to-date results in Edmonton and Grande Prairie, how agriculture has done in Western Canada, and performance in Eastern Canada. This bodes well for overall Canadian performance in 2016. Also, Australia and Middle East are turning into strong growth drivers as well.

We remain concerned about tough comps in the US, given uncertainty in an election year, and continued competitive intensity. However, we are encouraged by the solid performance of the US East and US West, improving performance in Mexico and Panama, and excellent momentum in the transportation sector. These factors, combined with growth of our global services businesses and our commitment to being multi-channel, makes us feel good about the year ahead and reinforces our confidence in the validity of the Evergreen model.

Let me conclude by saying we occasionally hear concerns from specific financial market participants that our growth in 2015 was somehow a fluke and driven by the oil and gas dislocation. Who knows? Quarter 1, 2016, they may say the same. Now, I make no bones about the fact that we are in the dislocation business. But dislocations happen every day, in many different sectors and geographies. But our teams happen to be laser-focused on execution, proactively pursuing these opportunities, and converting them into assignments, which is why our business model is unique. We do extremely well in favorable economic conditions, but we also have the capability to do very well in not-so-favorable economic conditions, as Q1 2016 demonstrates. This is the ultimate strength of our business model and why we are a powerful cash generator.

And with that, we would like to welcome questions from analysts and institutional investors. Given the level of participation on today's call, we would ask that you please limit yourself to one question, or two at max, before re-queuing to provide time for others on today's call.

Operator?

(Operator Instructions)

Nate Brochmann, William Blair.

Congrats on a great quarter, Ravi.

Thank you, Nate.

Just kind of in your last comment in terms of the dislocation, and obviously what's going on in the oil and gas markets. How much do you think that has influenced your numbers? Versus a lot of the other positive things that are going on, including positive growth in construction and markets, and everything that you're doing to expand the different sales categories?

Nate, great. Let's just take that head-on because that's why I ended with this. Somehow the feeling that the oil and gas sector is raining down equipment on us, and it's all just a fluke, is slightly bothersome to us, because our teams put blood, sweat, and tears into chasing equipment.

When you look at it, the US construction market, the regular construction market, as I mentioned in the last call, about the Dodge Report, is quite good. And we are chasing a lot of construction assets. Oil and gas specific-assets are a very small percent.

Now, do these dislocations in oil and gas bring about other dispersals? And what we're very clever about, or at least my teams are, is that they can identify what can be repurposed into construction and go after it.

We have been very careful about very specific oil and gas assets because of pricing volatility. The other thing to mention is I think you saw in my slide on the lot size, that transportation has had the highest growth. I think on the last call or so I mentioned that transportation was almost 19% of our GAAP, so it's becoming, getting closer and closer to $1 billion in GAAP business.

That's where there's been a lot of thrust. I don't think transportation has anything to do with oil and gas dislocation. Clearly, look -- in Edmonton, and I will let Randy comment on it -- has that rental companies, have they brought about stuff? Yes.

But so what? That's the business we are in. Our model is to go chase dislocations.

And today it may be oil and gas, tomorrow it may be agriculture, the day after it may be transportation. That's our whole strategy, is diversification, so that we can really be there whenever of these happen.

Thanks, Ravi. This is Randy. That was a great summary. The other thing we should emphasize is the growth in our agricultural business, which has seen significant growth as well.

Layering these different industries upon each other is really what gives our pricing stability and the relocation of assets that have come out of the energy space. That has been a driver for some of our business for sure, particularly here in Western Canada.

Eastern Canada continues to grow very nicely as well, and we continue to see fully 45% to 60% of everything acquired through our sales in Alberta stays in Alberta, demonstrating continued strength of the economy there. It is a massive economy, so we're pleased with the results and really the multi-channel, multi-sector, as well as geographic, support we are getting from around the world that is really helping to drive the business.

If you looked at the slide before, on a basis of customers, right? While the percentage was high on the oil and gas side, the lot was only 490 but look at where it's heavy construction, 2,340 lots; light construction, 1,440 lots, up sort of in the 17%, 21%.

I can understand from an analyst point of view or an investor point of view, is this growth sustainable? Dislocations continue to happen. We had a period of stagnancy for many years.

We were not executing. Today, the teams are executing, which is why we're getting the growth.

Great, thanks for that, Ravi. Appreciate it.

Sara O'Brien, RBC.

Can you comment a little bit on the dynamics of Canada versus US? We saw a big revenue rate jump in Canada, as well as the GAAP growth. And the US also saw revenue rate growth.

Just wondering how much is related to better underwritten business, and how much is related to your core auction services and the core commission rates? Just wondering how that is holding in so well in a competitive environment.

I will let both Randy and Terry make quick comments, and then I will come back to wrap it.

I will start. This is Randy. We've actually focused, as a strategic initiative this year, to really help to drive our straight commission rates on the core business as well.

We performed very, very well in 2015 on our underwritten business, and that's an area that we want to continue to use as a strategic driver of business. And from time to time it may come under competitive pressure, depending upon the competition we have regionally, and on each and every deal. But one of the things that were very pleased about is an incremental improvement in our straight commission business so far in 2016.

Terry, any comment from you?

Like Randy, we've also been focused on rate heavily, but also on the at-risk rate. I think Ravi talked about this during our Q4 earnings call, about making sure we were out there, not only doing more and getting more aggressive with the at-risk business, but doing smart deals. I think our team has done an amazing job of doing very smart deals when comes to the at-risk business.

Additionally, the services side of the business, with the paint and refurbishing, those types of services that we can offer customers that really no one else can. It's also a great way for us to connect with those customers, and that's another reason why you're seeing some of the improvement.

Sara, last year the big focus was underwritten, and this year we're continuing to do that, but making sure there is optimal balance between making sure we get to the right underwritten business as we do GAAP, and it seems to be working. We are also focusing on some straight commission, looking at where is it that we can improve that, and as the brand strength. I think we're just looking at all the levers that can drive revenue.

Great. Just a follow-up for Sharon. Just on the minority interest repurchase.

How much of your -- first of all, where do we find the minority interest caption? It's below the operating earnings, but I'm just wondering how much of that can we add back, assuming the transaction goes ahead in Q2?

It shows up on your equity statements. That's where you see the line. Certainly, if you can't find it there, you can certainly call us, and we'll guide you through it.

Okay. As an amount of add-back, though, if we look on an annualized basis. What can we assume for that?

The total amount for the quarter, including others was $588,000 in 2016; the majority of that would be RBFS-related.

Nick Coppola, Thompson Research.

I guess to follow up on the Ritchie Brothers Financial Services agreement, and congrats on that front. Can you just talk more about your expectations for that business, and clearly you have a positive view on it, and the performance has been excellence. Where do see that going, and maybe talk more about how it fits in strategically.

Look, Nick let me just clarify what you're talking about. RBFS?

Yes, right.

Thank you. I used very deliberately the word platform.

We have said our vision of our Company is to really go from being the best in auction business and continuing to be that but to really become the full-service, multi-channel for all asset management disposition, and part of that is really a one-stop shop and leveraging the brand equity. Ritchie Brothers, the Company, is more than just auctions. It's a brand that people trust.

And when they trust, how do you leverage that equity? How do you take the platform to serve all of our customers' needs. And financing is a big part of it.

We've got a captive -- of a lot of customers, and we, under the very dynamic leadership of Jim Case and oversight from Jim Barr, we have really built that business, and now it's a matter of scaling it, continuing to improve penetration. The penetration is double digits right now. There's still a long way to go.

It's a long way to go in the US. We're getting good traction in Canada. There's growth opportunities there.

There's longer-term international, and there are a lot of financial products over time that we can offer. To me, it is about serving our customers, being a one-stop shop, and it's a very lucrative business, and so it allows us to continue to improve.

For every dollar of equipment we sell, if we sell that also in RBFS, we significantly increase our margins. So I think it's a great business, it fits very well with what we're doing, so it's got a good growth trajectory.

That makes sense. Just going back to the quarter here, can you talk about how it used prices trended, and maybe any distinctions between general construction-type equipment versus specialty equipment.

I will let my pricing guru, Doug Olive, opine on this.

Thank you, Ravi. Good morning, Nick. Nick, I would say that early on in Q1 here, we saw a bit of an uptick of values, compared to Q4 and even Q3, obviously still not back to the levels it was early on in Q1 and Q2 of 2015.

But across the board, there's still some pressure on certain sectors pertaining to oil and gas, mining-related assets, but on smaller assets that are tied to construction spend and housing and residential spend, are performing very well. So we're optimistic throughout Q1, and we're moving into Q2, and it looks like the pricing levels are holding.

I think I will add a little, and maybe Randy can add some stuff, too. Their specific oil and gas assets -- you've got to be very careful, because prices could plummet, so we are very cautious. And the pricing peak appeared to be, as Doug mentioned, Q1 of last year.

It's different by sector, and this is where the Ritchie Brothers knowledge and years and years of doing this, we look at it sector by sector, and we don't want to go into too much detail, because we don't want to educate our competitors as well. Randy, anything to add?

Thanks, Ravi. We've had a lot of volume in Western Canada through the first four months of the year, and lots of data points, and what Doug and Ravi are saying is, of course, correct. We have seen some -- we are very encouraged by the strength that we are seeing in the assets that are being repurposed into other sectors, and we've focused specific efforts there to generate demand by marketing and promotion across the country and internationally.

That is really helping to stabilize these values. I don't want to sound like a broken record, but this multi-channel, multi-sector approach that we have really also helps to create stability and support for the pricing, and assets have always moved, for decades and decades, from weaker areas to stronger areas, from weaker industries to stronger industries. That's no different today.

But I do think we're getting better at reaching those other sectors, and therefore driving net new buyers, and our bidder accounts are significantly up and some very impressive gains made there, and you've seen those in all the press releases. I think that we are encouraged by the pricing stability, as long as we're not talking about specific assets tied only to the energy space, which, as a percentage, are very, very small.

That's very helpful, thanks for taking my questions.

Cherilyn Radbourne, TD Securities.

Thanks very much, and good morning. One of the things we've heard anecdotally is that there is more complete dispersals going to auction, and that certain equipment dealers of being more aggressive about inventory reduction, including the use of auctions, whereas they were not turning to auctions previously. Can you just comment on whether that's consistent with what you're seeing in the marketplace?

Sure. Let me headline it, and give it to Randy and Terry to comment on it. And even Doug.

One of the things I think we've really started -- we've always been good at this, but we're marketing this and the proof is in the pudding, the Wyoming auction clearly demonstrated what we could do, and the scope.

We are really, without any hubris, the best at complete dispersals. Owners trust us. Some of them even put us in their wills, that we should be the ones to do it, and we don't disappoint.

Every year we're continuing to see increases in full dispersals. And at times like this, when there are dislocations, one of the keys is -- and what we're seeing in Edmonton and Randy can comment on this -- in Western Canada in particular, We -- I think, reached the state of nirvana, where people don't think of Ritchie Brothers Auction, or the auction business as a last resort; in fact they think -- many of them think of it as a first resort, that it is really a regular channel.

And they keep seeing the success, and a lot of them are saying, I'd rather get out before there is panic, and let me get good prices. And given that we always get better prices than our competition. So full dispersals, very key for us and we keep growing it.

Randy, any thoughts on it?

Totally right. Complete dispersals or major realignments are really a strategic advantage of our business and our Company. Everybody knows, our good customers know, we can handle the large, expensive items all the way down to the small parts and pieces, and together it creates a very compelling business solution for them.

And I would not say that our tendency of having complete dispersals today is any different than it has been for a number of years. It's a very regular part of our business, and changes in economic factors drive decision-making, whether those changes are trending upwards or downwards.

And in all those kind of environments, we see people taking decisions to liquidate their fleets, to retire, to change their business focus, to get into a different line of business that perhaps they think is more lucrative. And those factors continue to be at play today. And they have been a major part of our growth here in Canada this year, as they have been in basically all years in recent times.

Terry, why don't you comment on that? Maybe just illustrate with the auction you recently did in Hazard, Kentucky, which is a good illustration of that.

Yes, the Hazard, Kentucky was not a full dispersal. It was actually one of the major sellers, it was really one company buying another company, and then right-sizing the inventory for their current needs. And that's actually what a lot of the other ones were.

There was one that was a full dispersal, but we're not seeing anything different than our normal course of business. Similar to what Randy and Ravi had spoken about. Really, what we've seen a lot, is continuing growth of our customers and our consignors, and that focus of continuing to expand the customer base as really the channel of choice, as the way they are going to sell product before they acquire new, or again, right-size in inventories.

I think one of the things, Terry, I think that did occur, was one of our consignors wanted to do a partial dispersal; that attracted others, and we were able to put a whole sale in the mining side, which created some excitement, and so it's a good catalyst. Randy?

One further example would be the Grande Prairie sale in March. It was really precipitated by two large complete dispersals in that area, and then it created -- we more than doubled the sale after that. So these things are catalysts for growth, and they just continue to be a really strategic lever for the business.

If I could ask a quick one on the acquisition of the minority interest in RBFS? The minority interest in the 2015 financial statements was just under $2.5 million. That would imply a PE multiple of about 16.5 times on the $41 million acquisition price. Is that a fair way of thinking about it?

First of all, we should not -- we just said that's what it's valued that. We have not finished the transaction. We are going to close it in the next 30, 45 days.

We didn't say that was the purchase price, it was just what it's valued at. I would, at this time, like us to wait until we actually disclose -- finish the transaction, we just wanted to say there's a binding letter of intent. We are very excited about it, and at the time of actually closing, we will talk more about the dynamics of the overall price, and we can also then go into the terms of how it was done.

Thank you for that clarification. That's all for me.

Scott Schneeberger, Oppenheimer.

This is [Daniel] on for Scott. You alluded earlier about the competition intensity. Can you discuss how you've seen that trended recently?

I think one of the things is that this is a fragmented business, that competitors -- we have regional competitors in different parts of the world, and in different nature, and in the US in particular, we continue to see increasing levels of competition, and we respect our competitors. It keeps us on our toes, which is why we want to keep innovating. I don't know what else to say on that.

Okay, thank you.

Neil Frohnapple, Longbow Research.

Congrats on a great quarter.

Thanks, Neil.

Maybe a follow-up to an earlier question. Fee-based revenue increased 43%, I believe, in Q1, and even excluding the two acquisitions that contributed I think $2.6 million in revenue. You guys would have still -- grew your fee-based revenue by over 30%, compared to high single-digit growth you guys have seen over the last couple of years.

Clearly, financial services revenue was a big driver to this, but RBFS has been growing at a high rate the last several quarters. Mix also seemed to be a positive driver, but is there anything else you can point to that contributed to the large increase in fee-based revenue in the quarter?

And just as a follow-up, how sustainable that is because clearly, I think ARR performance was the big upside, surprise driver in the quarter. Thank you.

I will respond to that. I think first, look at our small lots, so you actually generate buyer fees, higher proportion due to those small lot sales. And then the other piece would be our ancillary auction services, like paint, refurb, that we would offer to the consignors at the auction sites.

I would just say, look, I would be concerned if you looked at first quarter's revenue rate and said that's the ongoing rate, which is why I think we were specific to say on the auction business. And you might think I'm a bit obdurate that I keep hanging on to the 11[%] to 12[%], but that, we feel, is a good range for us for the auction business.

And I think this quarter we are 11.85[%], or something like that. But for the total Company, we did say our starting point is12[%]. Difficult for us to really give a very accurate view right now on where that will be, but I think for the total Company, 12[%] seems to be a good starting point and foundational.

Very helpful, Ravi. Maybe a follow-up for Sharon.

How should we think about SG&A over the next few quarters, with all the moving pieces and a few one-timers in Q1? Any granularity you can provide, at least directionally, versus the little over the $68 million reported in Q1.

The comparative analysis that we provided, again our commitment is to grow our SG&A costs at a lower rate than our revenue growth. The Q1, when you normalize for the various factors, we ended up with a 14% growth compared to the 17% revenue growth

On an organic basis.

On an organic basis. We do start to cycle over some of those cost investments, but we know we are continuing to leverage our marketing and promotional expenditures to really drive up our revenue rates, so you should expect that investment to continue. The IT costs are an incremental, added cost line to our SG&A costs going forward.

You do have my commitment is that the Evergreen model where we say that revenues will grow higher than SG&A, and Sharon just mentioned that both she and I, and Todd our head of HR, very committed to that, because we just want to make sure that the cost line doesn't go out of hand. You will have some quality fluctuations, so recognize that's on an annual basis, but that is something that we take seriously.

At the same time, we want to make the investments where they should be, because we are under-invested in marketing, historically, and we want to continue to make those investments, because the growth of this Company, it's all about not saving our way to prosperity but driving a revenue growth line, while being prudent about costs.

Okay, thanks very much.

Kwame Webb, Morningstar

Thanks for taking my call today. I just wanted to circle back to one of the statements that was made in the press release, talking about expanding the business into the new sectors and geographies. Just wanted to one, understand if that's anything beyond your current construction, or I guess more agriculture/transportation, which are a little more nascent. Also with regards to geographies, I recall when you first started, Japan was a market that was really on the watch list, so I did want to get a little bit of an update there, as well.

Sure. I think when we -- new may not be the best word for the sectors, because agriculture and transportation is not new, but it is, since we've always been thought of as a yellow iron company, we're trying to change that, and put a lot more emphasis on transportation. And in the US, in particular, agriculture is relatively new, because it's a very embryonic business. So really, the thrust is those.

We also have always dabbled in mining and oil and gas. Oil and gas, albeit at a small level. I think at this point, there's no change in strategy. That's what we meant.

And then geographies. It's really, we are going to be continuing to be -- I'm a big believer in depth, rather than breadth. We're not looking to put a lot of flags on maps, and we may do in frontier markets some off-sites to test the market if there are opportunities.

So for instance, in our Dubai site, it's not just Dubai, we work all of the Middle East to try and get -- or at least much of the Middle East, we don't do business in Iran -- but that's the stuff on geographies and sectors. On Japan, yes, it is very much on the watch-list. Kieran has now been there for nearly a year, and he has sort of defined his -- he's looking at some very interesting ideas.

Our current model, I can tell you, doesn't work very well, so we're trying to adapt and tailor the model. And the same goes for China, so we're looking at what do we do, and we are trying to be careful about the investments there. We also think Australia is a far bigger opportunity than China or Japan.

And so we're actually redeploying investments from China and Japan to Australia, and that's why you're seeing the growth you're seeing in Australia, because that has more potential and we have a strong foundation.

Great, thanks so much.

One last question, I think?

We have no further questions in queue at this time.

Thank you, all. Appreciate your support. Onwards and upwards.

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