RB Global Inc (RBA) 2016 Q3 法說會逐字稿

Please stand by for realtime transcript. Good morning, my name is Scott and I will be your conference operator today. At this time I would like to welcome everyone to the Ritchie Brothers Auctioneers Q3 2016 earnings call.

(Operator Instructions)

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

Thank you, Scott. Good morning, everyone. Thanks for joining us on our fiscal third quarter 2016 results conference call. Discussing Ritchie Brothers performance 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 Bar, Group President; Randy Wall, President, Canada; and Terry Dolan, President of US and Latin America; and Doug Olive, SVP of Pricing and Valuations.

Following the discussion will include forward locking statements as defined by SEC and Canadian rules and regulations. Comments 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 actual result 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 website as well as our Investor Relations website at Investor. RitchieBros.com. Our definition of gross action 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 third quarter 2016 results were made available yesterday after market close. We encourage you to review our earnings release and form 10-Q interim report which include 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 the 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 do 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. Though we may use million or billion dollar figures for brevity in today's discussion all percent changes have been calculated using full [unrouted]figures. I'll now turn the call over to Ravi Saligram, Chief Executive Officer.

Thank you, Jamie. Good morning, everybody. Thanks, to everyone for joining us on our earnings call today. As you likely saw in our earnings release yesterday, our third quarter results were impacted by both an impairment charge related to EquipmentOne and acquisition related costs associated primarily with our announced acquisition of Iron Planet. While these costs sudden created some noise in the quarter and negatively impacted our reported results, overall, we are still really pleased with how our underlying business performed during the quarter. Our hope today is to provide you with some clarity on how the businesses performed on a truly comparative basis absent the impairment and acquisition related costs.

Let's start off today's call by reviewing our reported US GAAP results. Gross auction proceeds for the third quarter were $999 million up 12% relative to the same period last year. Revenue was $129 million an increase of 18% and SG&A expenses were $69 million or 19% increase. In addition, $4.7 million of acquisition related costs were booked during quarter, primarily due to due diligence, legal and other activities related to our impending acquisition of Iron Planet, but a small portion also was attributable to activities taken for the acquisition of Petrowsky Auctioneers, which closed during the quarter.

Including the impact of a $28.2 million non-cash impairment charge taken in connection with our EquipmentOne business and the acquisition related cost, operating income for the third quarter was $2.3 million and 92% decrease from the same quarter last year. Which resulted in operating income margin of 1.8%. After taxes our business generated a net loss per share of $0.05. While we clearly are not happy about the US GAAP results we reported for the quarter the impairment charge was necessary given the recent performance of EquipmentOne relative to our growth targets. We also view the acquisition related costs we incurred as a necessary investment in our future growth, given how meaningful we believe the Iron Planet acquisition will be to our growth trajectory.

As I stated earlier, our underlying business continued to perform very well during the quarter. I now want to take the opportunity to provide you with some non-GAAP metrics that are more illustrative of our operational performance. On an adjusted basis, only removing the impact of the impairment charges this quarter, diluted adjusted EPS was $0.20 per share, operating income was $30.5 million, and our operating income margin was 23.7%.

On a truly comparable basis, excluding both the impact of the impairment charge and acquisition related costs, our comparable diluted EPS would have been $0.24 during the third quarter with operating income of $35.2 million and an operating income margin of 27.3%. To demonstrate what these results mean relative to our third quarter performance last year, on an adjusted basis so again, only removing the impact of the impairment charge, diluted adjusted EPS increased 5%.

Our operating income grew 7% and given the impact of acquisition related expenses still being included, our adjusted operating margin declined 250 Bps. On a more illustrated comparative basis, excluding both the impairment and acquisition related costs, our diluted EPS grew 26%. Our operating income grew 23%. Diluted EPS grew 26%. Operating income grew 23% and our comparative operating income margin grew by 110 Bps relative to the same quarter last year. These results demonstrate the strength of our underlying business and this performance is something we're actually quite proud of considering the number of M & A announcements and projects our teams were processing during the quarter.

As mentioned, GAAP for the quarter was $999 million which is a new record for the third quarter and 12% higher than what we achieved in the same quarter last year. It also propelled our GAAP for 12 months trading September 30 to $4.43 billion, our new all-time high. Equipment pricing stabilized during the third quarter after particularly volatile June, as we discussed on our last earnings call. While overall equipment values did not recover to the levels they were before June, there was no continued deterioration across all asset classes. Construction assets met or exceeded our pricing expectation throughout the quarter with hydraulic excavators performing particularly well in the US, generating roughly 10% higher prices than we saw just last quarter, for the five year wheel loaders also saw strong pricing in the US.

Of all of the sectors we cover, transportation assets continued to face the most pricing pressure. As a result of the glut of over the road trucks, not only in our channels but in a variety of channels. On average, truck tractors were down about 5% in the US but new models were down more than 10% from last quarter. There seems to be increased pricing and pricing trends regarding agricultural assets. Agricultural equipment pricing has continued to be quite strong in our sales channels with the Canadian market generating the strongest pricing of all regions. Four to five year old combines sold in Canada, for instance show an 8% pricing increase relative to second quarter. And while Oil & Gas equipment has obviously seen meaningful price declines relative to recent years, the results we saw at our recent Columbus, Ohio auction in September showed resilience with very strong price realization especially on pipe layers.

Our Columbus auction was a bit unique, however, in that the size and sector specific target marketing of this auction attracted a greater amount of highly motivated and qualified buyers as to the complete disbursal of a very large and respected Oil & Gas Company. This also allowed us to build a very large sale and attract packages from other consignors, and so while we are very pleased with the results we generated for our customers to the sale, we are not sure that it's evident of [Green Shoots] or pricing recovery for specialized energy assets quite yet.

While our lot count for the quarter grew 6%, lower value lots did comprise a larger portion of our lot mix relative to the same quarter last year, which is consistent with what we've been seeing since the beginning of the year. This trend can be attributed to the growth of our timed auction lot sale solution which sell smaller value assets, such as buckets and generators, through digital auction process in conjunction with our live auction events. It may also be reflective of the overall lower equipment values relative to recent years.

As many of you will likely already know, our buyers fee schedule commands a higher buyers Commission per dollar sold for lower value assets so the increasing proportion of lower value assets is supplementing the fee revenue growth at our auctions. During the third quarter, 55.3% of the lots we sold were below $2400 in value, up from 53% -- 53.7% in the same period last year. Under equipment contracts comprised 27% of the gap during the third quarter which is relatively in line with past quarters. As you'll recall, a large under written package of energy assets was included in our September Columbus auction, when the performance of that package certainly supported our underwritten rate improvement. In fact, our quarterly underwritten revenue rate improved 110 Bps compared to the third quarter last year. We are pleased that our underwritten business is back on track and feel our same quarter performance, especially in June, was an aberration.

We sold a record 90,400 lots during the third quarter which is meaningful growth given the difficult comp from third quarter last year when volumes grew 16% from 2014. Lot growth came largely from customers in the light construction, agriculture, and utility space compared to the same period last year. While it might not have proved a significant boost to our lot count increase for the quarter, it's worth noting that lots consigned from the finance and insurance sector more than doubled compared to the same period last year. It's indicative of more energy and mining sector assets being disbursed through bankruptcy or bank managed liquidations.

As I stated at the start of today's call, our underlying business performance was very solid during the quarter. In addition to our lot count growth, the number of consignors selling through our sales channels increased 18%. The number of registered bidders increased 14% and the number of buyers increased 16%. We continued to build our network effect. I'm also pleased to say that our territory Manager turnover, year-to-date through October, is at a record low of 13.55% down from 19.57% last year. This is the lowest turnover level recorded back to 2008. Sales productivity increased to $12.1 million per revenue producer on September 30, 2016 versus $11.9 million for revenue producer at September 30, 2015. In particular sales productivity improved from our strategic accounts team in the US as well as our US Canadian, Australian, and E-station revenue producers.

There was noteworthy auctions held during the third quarter we should highlight. On September 28 and 29, our operations and online auction operations teams were quite busy conducting both a record Toronto auction for 39 million Canadian dollars and the Columbus, Ohio auction where we achieved our largest ever two day auction in the US. More than $76 million for the equipment was sold at the sale including $61 million sold on the first day alone, making it the largest ever single auction day we've ever held in the US. We sold 178 pipe layers with strong pricing in this auction almost the same as we were typically in the entire year.

Our ability to drive strong value and price realization for customers with full disbursals was once again demonstrated in Columbus, just as we did in Wyoming last year. This is a testament to Ritchie Brothers network effect, our ability to drive strong demand generation, all driven by our sales, operations, and marketing teams. We also broke site records at auctions in Tipton, California in August where more than $21 million of assets sold in Lethbridge, Alberta, in July where [24 Canadian million dollars] of assets were sold. (sic - CAD24 million)

Our online capabilities continue to be a growing importance to our customer base. While 46% of GAAP transacted online during the third quarter through either online bidding or EquipmentOne, that trend has so far returned to 50% in October.

Turning to the performance of our other segment now. Collectively, EquipmentOne in Mascus generated $6.1 million of revenue. Mascus continues to performance as expected, generating $2 million of revenue and $1.7 million of operating expenses. The business contributed positively to our EBITDA during the quarter. We are looking to find ways of leveraging the 3.5 million unique visitors that go to the site to create growth opportunities for RBA. EquipmentOne generated $4.1 million, 5% growth compared to the same quarter last year. And total operating expenses excluding depreciation and amortization of $3.9 million. 9% expense growth from the year ago quarter, while this business has been generating growth and positive EBITDA contributions, its growth trajectory simply has not hit our projections. This business's recent performance was an indication of impairment that required a test the fair value of the goodwill and intangible assets related to this business. So Sharon will discuss further shortly, $28.2 million of write-downs associated with the EquipmentOne were required this quarter.

Due to the impending acquisition of Iron Planet we've also decided to drive a few important growth strategies including EquipmentOne's expansion into Europe, until we have better clarity on how our integration and growth strategies for IronPlanet will be executed. That said, we remain fully committed to the future success of this business line. Our sales team engagement has never been higher and this renewed interest in EquipmentOne is reflected in our sales pipeline. Gross transaction value for EquipmentOne was up 39% in the third quarter and up 28% today. During the third quarter we launched a new bidding engine to improve the user experience with had enhanced personalization merchandising. We also integrated the sales process for EquipmentOne on our existing sales auction platform, making it easier for territory managers to list, manage, and sell on EquipmentOne using the same tools they use for our live auction business. This is already beginning to have good dividends.

Our Marketing team has also expanded our digital marketing efforts and has made investments in improving buyer outreach to grow the buyer base for EquipmentOne. Bidding activity on the site has already seen a market entrance with new user sign ups increasing more than 30%. As you heard on our last earnings call, we completed our acquisition of the minority interest of Ritchie Brothers Financial Services in July. As a result our shareholders are now benefiting from the full earnings contribution of this business as we are no longer paying dividends to a minority interest. As RBFS has volumes still largely correlated with our auction volumes the third quarter is one of this businesses seasonally smaller quarters for the year. Net income from RBFS contributed $0.01 to EPS during the quarter. For clarity our purchase of the Minority Interest of Ritchie Brothers Financial Services was considered an equity purchase, rather than business acquisition from an accounting standpoint. As a result the costs associated with closing this equity acquisition, while relatively minor, are incorporated into SG&A rather than our acquisition costs related line.

RBFS continues to demonstrate great operational growth of 38% increase in credit applications compared to the third quarter of last year and a 27% increase in the value of total loans funded. And with that review of our Business Operations, I'll now turn the call over to Sharon for a more detailed review of our financial results this quarter. Sharon?

Thank you Ravi, and good morning, everyone. As you know, there was some noise in the third quarter that affected our reported third quarter results. I'd like to highlight what our reported US GAAP, our adjusted and our comparable results were so you can evaluate our performance more effectively.

As you are aware our reported US GAAP performance of 2.3 million of operating income includes the impact of both the non-cash impairment charges for EquipmentOne and acquisition related cost primarily associated with our announced acquisition of IronPlanet. The adjusted operating income of 30.5 million we reported in our Earnings Release yesterday and show on Slide 19 exclude the impact of the E1 impairment but still include the impact of acquisition related costs. As these acquisition costs are expected to continue into the future, they do not qualify as adjustable items. Although our reported and adjusted results provide the appropriate accounting and regulatory treatment, we have provided some additional comparable information to help give you a better indication of the health and performance of our underlying business.

First, we have added acquisition related cost as a separate line on the face of the financial statements and second, we are presenting comparable results on our call today which exclude these non-standard expense items. The reconciliation table provided on Slide 19 shows the calculation of comparable performance relative to our US GAAP and adjusted figures. Due to the non-deductible tax nature of both the impairment and acquisition costs, our effective tax rate is only meaningful on an adjusted and a comparable basis.

On Slide 20 of our presentation, I've outlined operating income, operating income margin, EBITDA, and diluted EPS for US GAAP, adjusted, and comparable performance. For the remainder of my discussion today, I'll focus on comparable results. Relative to the third quarter last year, our comparable operating income was 23% higher and our comparable operating income margin improved 110 basis points to 27.3%. Comparable EBITDA grew 16% to 45.9 million driven by revenue growth during the quarter. Comparable diluted EPS attributable to stockholders would have been $0.24 an increase of 26% relative to the $0.19 of diluted EPS generated in the year ago quarter.

The 18% revenue growth we achieved during the quarter was due to a combination of higher auction volumes and higher revenue rate. Volumes generated about 12% revenue growth while rate improvement generated 6%. For the first time in many quarters, foreign exchange fluctuations had minimal impact on our performance only reducing our constant currency revenue growth by 10 basis points. In fact, FX had negligible effects on all of our performance figures this quarter though have had an impact on our year-to-date results. This quarters 12.9% revenue rate was one of the highest quarterly rates Ritchie Brothers has ever achieved and a 68 basis point improvement compared to the 12.2% rate we generated in the year ago quarter.

In total fee based revenue streams added 50 basis points of improvement to the rate this quarter. More specifically, new fee-based revenue streams from [Ecerra] and Mascus generated 30 basis points of improvement. Fee based revenue growth from our Financial Services business generated 6 basis points of rate improvement, auction and EquipmentOne fee revenue comprised mostly of buyer fees and premiums and ancillary services contributed 14 basis points of improvement. Commission rate improvement enhanced the overall revenue rate by 18 basis points. Regionally both our US and Canadian operations generated a higher proportion of the quarters revenue than in the same quarter last year. In particular, the US proportion of revenue was bolstered by the September Columbus auction which was significantly larger than the equivalent auction last year, but this auction also shifted from being in the fourth quarter last year to the third quarter this year. The Canadian portion of revenue also benefited by the movement of the Montreal auction into September which occurred in October or the fourth quarter last year.

In terms of regional revenue growth rates, our Canadian and US teams achieved the most notable results with 32% and 24% increases respectively. Our European team continues to contend with the less than ideal market environment. As I mentioned earlier in my discussion foreign exchange has a negligible impact on our reported revenue for the third quarter.

Turning to expenses. SG&A rose 19% relative to SG&A expenses in the same quarter last year to $69 million. The $10.8 million increase includes $3.3 million of expenses of new business lines that were acquired since Q4 2015 of which over 70% of those costs relate to compensation costs and share based payments in those business units. In addition given the strength of our share price at the end of the quarter, we incurred a $1.6 million year on year mark-to-market impact for our stock based compensation. The remaining $6.2 million SG&A increase in our core business is primarily due to a $3.1 million increase in employee compensation expenses, driven by close to an 8% growth in our core business headcount which does include Ritchie Brothers Financial Services. As well, two C level executives who joined our executive team in Q1 this year were not on our payroll during the third quarter last year.

The remaining $3.1 million increase in costs are due to increases in expenses to support our value-added service offerings, technology software license fees, lease costs related to Company cards, and yard equipment, due to our preferred capital allocation decision to lease versus buy. As a reminder acquisition related costs were noted as separate expenses in addition to these SG&A costs.

To further illustrate our core business SG&A costs are in line with our expectations, our core business revenue growth of 14.8% has outpaced SG&A growth of 10.7% excluding mark-to-market and new business lines during the third quarter. As Ravi mentioned earlier on today's call, EquipmentOne's Q3 revenue growth of 5% and reduced forecast for the full year 2016 to well below our required 20% revenue target for 2016 impairment testing, triggered an indication of impairment during Q3. This required a detailed fair value assessment of the goodwill and assets of this business unit. The outcome of this analysis has resulted in a $28.2 million pretax or $26.4 million after-tax non-cash impairment charge during the quarter. $23.5 million of this write-down was associated with goodwill previously booked for the EquipmentOne business unit and $4.7 million or $2.9 million after-tax of the write-down was associated with intangible assets associated with customer relationships for EquipmentOne. EquipmentOne has generated growth in recent quarters and has become EBITDA positive and is continuing to strengthen its operating fundamentals.

I want to reiterate we are still fully committed to the success and growth of EquipmentOne and this business unit continues to be an exciting growth driver for RBA. The impairment charges booked during the third quarter are an accounting requirement and are non-cash charges. Our strategy for EquipmentOne may evolve as we consider integration efforts for IronPlanet however, our customers, our employees and our shareholders should all understand it is business as usual for EquipmentOne.

We have several growth strategies queued up, not the least of which is the expansion into Europe; however it is prudent for us to confirm integration strategies for IronPlanet's channels before initiating any EquipmentOne expansion plans.

Moving to net income. On an adjusted basis, excluding impairment charges, net income attributable to stockholders was $21.3 million for the third quarter. On a comparable basis also removing the impact of acquisition related costs, net income for the quarter would have been $26 million, a 25% increase from $20.8 million in the same quarter last year. Our balance sheet remains very strong, with 178 million of operating Free Cash Flow generated in the 12 months trailing September 30, 2016, well above our greater than 100% of net income expectations. Our return on invested capital for the trailing 12 month period was 15.4% down just slightly from 15.8% in the same period ending a year ago due primarily to our acquisition activity completed in 2016. Our debt to adjusted EBITDA for the 12 month trailing was 0.7 times up slightly from 0.5 times at the end of September 2015.

On October 27, we completed the syndication of our new $1 billion credit facility through a syndicate of 14 banks. $675 million of this is in the form of a multi-currency revolving Credit Facility to support operating cash flow needs and higher business volumes which is expected from both standalone growth and growth from the impending acquisition of IronPlanet. $325 million of debt is in the form of a delayed draw term loan A to fund a portion of the acquisition of IronPlanet. This Credit Facility is currently unsecured but will become secured at the time of our acquisition when our net debt to EBITDA ratio is expected to be near three times. We anticipate approximately $850 million of drawn debt at the date of the transaction close. We are also exploring a public bond offering to complete the financing of this acquisition and are currently in discussions with our credit rating agencies.

In association with the completion of the new syndicated credit facilities we have terminated approximately 600 million USD of pre-exiting revolving bilateral credit facilities and private notes. Approximately $6.8 million of charges related to the early termination of the private notes are expected to be booked in the fourth quarter. In conjunction with the closing of the credit agreement we terminated the entire $150 million revolving facility and $350 million of the $850 million bridge loan facility negotiated with GS Bank that was entered into at the time of our announcement of the IronPlanet acquisition.

As many of you are aware our business has quite unique cash generating capabilities, as our cash flows are associated with the amount of gross auction proceeds we generate, not simply our revenue. As a result of this, and our proven ability to generate free cash flows in excess of net income, we expect to pay down our debt levels fairly rapidly following the close of the IronPlanet acquisition, ultimately we want to reduce our net debt to EBITDA levels to below 2.5 times.

In terms of our first nine months of 2016 cash generation and allocations, cash generating from operating activities was $163 million, nearly $76 million has been spent on acquisitions that have closed since January. This includes Mascus, RBFS, and Petrowski Auctioneers, as well as close to $89 million has been returned to our shareholders via the use of quarterly cash dividends and share repurchases. Our cash flow characteristics of our business model remains strong and our new Credit Facilities prepare us for the acquisition of IronPlanet.

Our capital allocation priorities will change slightly after this acquisition closes given the debt we will have added to our balance sheet. We remain committed to our dividends and growing them in line with earnings as our first priority. As we recognize this is an important return for our shareholders. Paying down debt levels will become our second priority following the IP acquisition. And acquisitions, although still a key component of our future growth strategy, is the third of our capital allocation priorities, however they will be very targeted going forward as we digest an acquisition as large as IronPlanet. And with that overview of our financial performance, I'll now return the call back to Ravi for his closing remarks.

Thank you, Sharon. I'm very proud of Sharon for her leadership on the financing effort and the over subscription just shows the strength of the Ritchie Brothers model. So let me turn to our year-to-date reported results. Year-to-date reported results are impacted by the impairment loss we booked in the quarter. However, our operating performance, absent noise from impairment charges and acquisition cost is still quite robust, and a better indication of the strength of our underlying business. GAAP has grown 6%, revenue has grown 10%, but our reported operating income declined 24%.

On an adjusted basis operating income in the first nine months of 2016 declined 1% but grew 3% on a comparable basis. While reported diluted EPS is down 24% relative to the first nine months last year, on an adjusted basis it was up 1% and on a comparable basis it was up 7%. Our business also remains a great cash generator, as Sharon alluded to, with $163.4 million in net cash from operating activities up 3% from the first nine months of 2015.

We're confident that the investments we made to enhance the strength of our executive team, our platform, and IT systems over the past year will provide a solid foundation for the future integration of IronPlanet. These are strategic investments to elevate the capability and scalability of our business even though they've grown our cost base so far this year.

As you likely saw earlier this week we disclosed our October GAAP. As many of you expected auction timing differences relative to last years auction schedule, were responsible for the same year-over-year differences. Both Columbus and Montreal auctions that occurred in September this year occurred in October last year and our upcoming Orlando auction in November was also held in October last year. These auction timing differences caused all of the 15% GAAP decline relative to October last year.

In terms of our Fourth Quarter, there are a few considerations we want to draw your attention to. First, the macro environment is facing uncertainty at the moment. It is difficult to predict how sectors markets our customers are going to react to Tuesdays election results over the short-term. We've also seen some subsidizing of auction volumes in GAAP in several oil & gas, sorry subsiding of auction volumes in GAAP in several oil & gas regions in recent months. In a few of the regions we operate in are facing headwinds, such as Mexico. You probably saw the very sharp currency decline related to the election that just happened in the US in Mexico. So, as I just discussed there's also auction timing differences due to the two auctions being brought forward into our third quarter from the fourth quarter last year.

As many of you already know, there are a few expense impacts built into our models including the cost of ongoing acquisition related work for integration planning with IronPlanet. The $7 million penalty for terminating a private note early, and a relatively easy bonus accrual comp given the top up that occurred in the fourth quarter last year. As you'll recall in the fourth quarter last year the results were $8.4 million of revenue, associated with the sale of excess land in Edmonton and $7.9 million of tax savings generated by tax loss utilization.

On the growth front, I am exceptionally pleased with the progress we made in building out our multi-channel strategy and executing on the kinds of acquisitions we've consistently stated we will pursue. As you'll recall there were three buckets of acquisition activity we were interested engaging in. Bolt-on, to add scale and key regions and sectors; opportunities that would enhance our sales channel and customer solutions; and needle moving acquisitions. As you can guess, IronPlanet fits the last bucket and will take some time to properly integrate and digest following regulatory approval of the transaction.

Going forward, we may continue to pursue selective opportunistic bolt-on acquisitions outside of the US, to bolster our presence in key sectors or regions but these will not distract from our integration efforts related to IronPlanet in the year ahead. To provide you with an update on IronPlanet transaction. The US regulatory process is now well under way. As you may know, US regulators signed acquisition review to either the FTC or Department of Justice. Our file has been assigned to the Department of Justice. Who the file gets assigned to is indifferent to the outcome as they both follow the same evaluation process.

In terms of expected closing date it is really in the hands of the US regulators. If everything moves swiftly, the earliest acquisition could close at this point would be January 2017. Should the Department of Justice require more time to complete the evaluation, we expect the transaction could close in the second quarter of 2017.

In the meanwhile our companies are allowed to actively plan for the integration of our businesses. Although we continue to remain competitors on a day to day basis we've already established an integration Management office with designated team members from both companies. Jim Bar is leading the integration planning from the Ritchie Brothers side and the steering committee for the merger which includes Greg Owens, CEO of IronPlanet, and other members of our teams. The planning process is well under way.

As Sharon discussed earlier, a portion of the financing to fund the transaction has already been secured. We're in the process of evaluating our best options to fund the remaining portion. Needless to say, our credit facilities for [grakio] was subscribed and bond markets appear quite interested a potential offering so we are highly confident in our ability to finance and close the transaction. We also have been getting requests from the market to provide more historical performance information for IronPlanet. We'll be releasing performance history for the last several years once the acquisition closes. Given we are considering a bond offering the market may be provided with historical data sooner though our financing options are still in discussion. As you may have seen from IronPlanet's disclosure they had a tremendous September and generated more than $99 million in January.

Before we open the call for questions, I'd like to take this opportunity to congratulate our Board Chair, Bev Briscoe, on her recent selection to the National Association of Corporate Directors Directorship 100, which recognizes the most influential boardroom leaders each year. I speak on be half of all of Ritchie Bothers employees when I say we're proud of her receiving this remarkable distinction as she has always demonstrated a focus on continuously improving our corporate governance, driving long term shareholder value, as well as big heart for our employees. And with that, we would welcome questions from analysts and institutional investors. Given the level of participation on today's call we ask you limit yourself to one question before requeueing to provide time for others on today's call. Thank you, onwards and upwards.

(Operator Instructions)

Your first question comes from the line of Sara O'Brien from RBC.

Hi, good morning. You commented that the revenue rate was sort of the highest historically and just wondering as we look forward post IronPlanet what's the opportunity to improve that both given the underwritten business performing better now but maybe also with the Cat strategic deal involved, just wondering if the expectation in targets could go up from that level.

Sara, at this point look, I think we need to let's first get the close IP, we talked about they also have comparable revenue rates, so at this point the whole purpose of this acquisition is not about trying to raise prices or margin expansion. It's really about providing unprecedented choice for our customers, and to me the more we satisfy customers the more we can drive volume and really have an integrated business. And the beauty of this is really the ability to go past just sort of a auction on marketplace [boarders] to really go and get to the 360 billion, that has been our real goal and I think having options for customers where we provide solutions based on their needs in one house is the one stop shop is the beauty of this acquisition.

Okay great. Just a quick one on the flow of goods US Canada and US international. Just wondering post the election results in the US how much of your business would you expect could be impacted by flows diminishing or changing under new trade agreements?

Sara, this is Randy Wall. You know, it's very early days so it's difficult to have any certainty there and I can tell you that the largest impactor however in international flow of goods tends to be currencies and there's a lot of arbitrage that has performed globally, and depending upon how things fare for global currencies and the posture of the US towards international trade they will affect some of those things but very early days to effect that. And I can tell you at least from a Canadian perspective it's very, very small despite perceptions of a lot of equipment flowing from the North to the South is actually in the single-digits and has been fairly stable over the last 24 months.

I think just to build on what Randy said. Most of our auctions 90% or so of the gap in our Canadian auctions remain in Canada and if you look at Alberta auctions, even 50% stays within Alberta, so I think that is -- I doubt at this point anyway it's really difficult to predict what is going to happen with NAFTA and so on but we think that it's unlikely to is have a huge impact.

Okay and most of the US buyers buy US equipment, they aren't buying from international regions typically?

I think again its been because of also consideration of tier 4 and a lot of those pretty much it's the same. You don't see a lot of, you'd see some international but the currency -- I think Randy was absolutely right, and the currency plays a big impact and given that's why we have auction sites in these major markets so that it's really these driving domestic businesses. The international is an important one but where it gets affected is more prices like Mexico and some of these markets, but clearly, US and Canada are domestic drivers. Randy do you want to add something?

I just want to underline what you said Ravi, and that was tier 4. It is engine emission requirements and regulations that differ globally, that really create the ability for goods to either be able to flow internationally or not and that I don't expect will be changed under any trade regulation.

And Randy even within US and Canada, there's some of the specifications and models are quite different US versus Canada on certain things, certain equipment.

They are, that's correct.

Maybe just because of IronPlanet coming in is there any significant international flow through IronPlanet?

Look, IronPlanet just like us is a global brand and they have a lot of reach which we like about their model and they get buyers and bidders from several countries and that, in combination with our brand, only extends our reach. What we like about their model, is that you don't have to move the equipment and that plays into a great strength because there are many places like Africa and so on that right now, our models at least RBA auctions is about moving equipment inventory out so this will extend our reach. And then the CAT alliance certainly is a very big positive because with the CAT alliance we'll be able to go internationally and do auctions on their yards but also have those relationships and it extends our reach. So, I think all of those are really positive.

Okay, I'll circle back, thanks.

Your next question comes from the line of Craig Kennison from Baird.

Good morning thanks for taking my question here. I wanted to focus on IronPlanet. You've had some time to consider what your top priorities should be knowing that you've looked at all of the opportunities, there were just a ton of great projects, but what are your top two or three priorities that you think you'll focus on in the next few months as you prepare for a close? Thank you.

Thanks Craig. Clearly we've got our integration planning under way. We are very pleased to reiterate that we have been able to secure all of the key executives from IronPlanet, but through these planning sessions, we have work streams for each important area. So whether that's technology, whether it's sales, HR, et cetera, and so we're getting to know more of their people; their people, more to us. It's really creating good bonding.

Of course it is a very interesting one to compartmentalize because you meet in the conference room here and we plan for the future, but then you have to go back and compete. And I just had a nice call this morning with Darren, one of their key sales leaders, and he teased me and said I'm working on a deal to take away from you and that's the beauty of this, and so but clearly for us, the key priorities, to answer your question, sales integration is pivotal. We see that as our number one priority because it realizes the vision if you get that right, it realizes the vision of providing unprecedented choice to customers.

This is all about customers. It's a very pro customer, customer friendly acquisition and really, we have to think about how soon can we get customer their benefits, and so we put some very heavyweight intellectual power behind this from both sides and we also engaged a top notch external firm to help us with some expertise in integration planning for sales, but also for our overall integration. So the sales piece is definitely very important. The technology piece is very important because that really -- again what we love about the IP model is the customer facing, but we have a lot of things, including E1, where we have done some very interesting things they can benefit and what we realize is look, their platform is really great for online but we still have to use our legacy systems for driving our live auction business but there are things we add to them on CAT auctions and crews et cetera.

So, clearly technology and sales are the two top things, sales and I'd say sales/customer. Then to me the whole, the running thread out of here is cultures because we've got to make sure that the cultures work well together and it fuses into one new culture but the tie that binds for both companies is the passion for customers. Both companies are very passionate about that and so I think Todd and his team are working very hard on looking at all of the issues of comp system benefits, culture, so I think -- and then Sharon is looking at how do we make sure that being a public Company -- they're private -- how do we integrate their financial systems, and move on to that.

So all of this is under way but I'd reiterate the integration of the salesforce is really at the top of our list and one that we're paying a lot of attention to and I think the beauty here is we've got great salespeople on their side and great salespeople on our side. We're also lucky that we have many who used to work at Ritchie Brothers that over time went elsewhere and joined IronPlanet and they know both systems so this helps on accelerating a multi-channel experience and solution is selling and they are one of our most valuable assets and Darren is an example, the gentleman I spoke about this morning.

Your next question comes from the line of Joe Box from KeyBanc.

Hi, good morning everybody.

Hi, Joe.

So ex the acquisition cost looked like a pretty nice job on SG&A control in the face of that 8% headcount increase and the [3 million] from share payments. Last quarter you'd talked about it taking a couple quarters to get SG&A under control. As we're maybe looking at a more normalized revenue growth rate in Q4 should we start to think about maybe getting solid SG&A leverage on a year-over-year basis or is it still too soon given the headcount increase and the stock price?

I'll take that, it's Sharon, Joe. So I think you will see a little bit more leverage in Q4 and simply because we did take a sizeable true-up in our bonus accruals in 2015 in Q4 so you'll get that natural benefit. We still do have some costs that we're cycling over so we did call out the two executives that came into the business in Q1. I'd probably say we won't see, we'll still see elevated SG&A growth until we lap that in Q1 or Q2 of next year.

I'll just add something there to what Sharon said, which is reminder on the Edmonton property sale which was an offset so keep that in mind. But also, look, the SG&A we were not talking about crashing and burning and because we made very deliberate SG&A investments for the future of the Company and they are beginning to pay off. I think you'll see more of the effect because I think most of the major hires are in place now and we've got a solid executive team and this is even without the IP side I'm just talking about RB. So I think that it was more about just a little bit of a warning, but as we have dug into it a lot of things have influenced things like the mark-to-market et cetera. But I think I'd look at more next year, to really completely agree with Sharon.

Thank you.

Your next question comes from the line of Ben Cherniavsky from Raymond James.

Good morning guys.

Hi, Ben.

Good morning, Ben.

I would just like to ask a little more about EquipmentOne. First of all, if I read this right maybe misunderstood it, but sounds like there was 39% increase in the gross transaction value but only a 5% increase in the revenues?

I think Jim Barr can explain that a little more Ben, and some of the things we're doing to bring clarity.

The difference there Ben, thanks for the question, is related to a new product. There's a lot of progress despite the not reaching our goal of revenue growth objectives. There's a lot of good work going on in EquipmentOne, one of those things we call ESS, which is Enterprise Software Solutions which is a [SaaS] model where we help customers manage their overall portfolio.

And in that model with dealers in particular, in OEM and dealer networks in particular, we help them keep track of all of their assets and move their assets. Part of that is a new stream of revenue we've not had before which is dealer to dealer which helps us penetrate further into the $360 billion market because we weren't touching that before but essentially we help facilitate for a much lower revenue rate, the transfer of equipment from one dealer of that OEM network to the other and that's going to be a continuing trend. I'm very happy we have that product because as you get to see the full portfolio of what our customers have, you can really begin to become what we call a trusted advisor to help them know when to sell, which channels to sell, those types of things. But that gap grows quite a bit relative to the revenue rate on that model and as we mix into that, it's all good because it's a new revenue stream but it does in the short-term affect some of the compare ability of the revenue rates.

So Ben, let me just add a little bit to what Jim said which is, this is really part of a strategy. Historically Ritchie Brothers was primarily focused on end-users and God bless us, we do that amazingly well. As you know in the past we talked about how our business was 85% end-users and 15% dealers.

One of the things if you want to go beyond what is thought of to get out of the last resort business to really be first choice and go to the full extend of getting to the 360, the vital element has to be building relationships with OEMs and dealers. And so versus the transactional basis because when you just do underwritten pieces with dealers, that puts a pressure on margins versus how do you get to more strategic relationship with dealers where they start looking at you in a different light because historically we'll sort of view dealers as competitors and they viewed us as competitors so there's a tension.

So we made a proactive effort to say, how do we go after this business, how do we create this as a key strategy? That resulted, for instance, in the purchase of Mascus. Why? Because 99% of customers on Mascus are dealers, who are advertising them.

Second, we created this whole ESS thing Jim just talked about. Interesting the IronPlanet has a similar product called Asset Management portal, so when we bring ourselves together that will be quite powerful. But this one when you do it, one of the things that OEMs want is dealer to dealer business when they can't sell it directly. We are now enabling this. Now, we do it at a fairly very low margin but this helps this a long term thing that enables us to really build sticky relationships that will flow into hopefully more transactional stuff over time, but it gets us into their DNA, so therefore what you see is the big boost on the GMV, but you don't see the corresponding revenue, hence the different relationship.

And it does, one other thing I'll add, I think Ravi was eluding to it, is it doesn't go dealer to dealer, the next priority is it sells on EquipmentOne or in our core auction with the check of a box and so we're there where those decisions of asset disposition can be made and we're in multiple revenue flows.

Okay that's helpful. And Ravi, since you brought it up, I wonder if you could elaborate a little more. I think we talked about this on the IronPlanet acquisition, but on the call when you announced that, but I'm still -- I think that it would still be helpful to get more clarity on, at least from what you can say, the joint venture with Caterpillar as part of that acquisition how that plays into, as you said, your strategic goal of getting closer to the manufacturers, because on the surface what it looks like to me is that they got, they are getting a pretty good deal from you guys or very valuable service by cooperating with the digitalization of their fleet. But there's not, as far as I can see, any sort of firm commitment that they will -- to see exactly what you guys get out of it.

There's no commercial arrangement from what I understand about how much equipment they will guarantee to give you. It almost sounds like a gentleman's agreement where they say we'll send you some equipment if you do this for us and I just wonder what you can speak to about how that enhances that relationship, what kind of visibility you've got on that, beyond maybe just getting back the business that they took from you in the first place through the creation of IronPlanet. Like how incremental, how offensive is this versus a defensive move?

That's great. Clearly we are both gentlemen, but we are gentlemen and we're both commercial, so this is, it's a very mutually rewarding relationship. There's clearly commercial arrangements on if we provide them data feeds on who bought Caterpillar equipment, that the reciprocity in terms of equipment being consigned. We'll just not disclose the specifics because of some confidentiality agreements right now in place. That doesn't mean they aren't there. We just haven't disclosed it. So I would not look at that as sort of a wish and a prayer and hope that people will be gentlemen.

We have enormous respect for Caterpillar and we're just very thrilled. I was just invited to speak at the Caterpillar used equipment manager's conference along with Greg and we got a very, very positive response. We cannot wait for the closing of this transaction because once it really comes to play, clearly as I'll continue to reiterate we're going to continue to, because one of the UMs at Caterpillar asked me about, will we have strategic relationships with others, and the relationship with CAT is very special clearly but we are going to continue to look at relationships with other OEMs as well down the road. Let's get this one done first and done right.

But no, this is going to be very, this is a huge long term incremental benefit we absolutely did not look at it as a defensive move. We just have not chosen for mutual reasons to not give specifics of that at this stage, and at this stage, we are not going to. It doesn't mean that at some point we will not.

That's helpful.

Once the transaction closes we may actually do that.

Good to know. Can you say anything about how you would expect to -- like where the equipment would come from, did some of this come from CAT Financial or the rental fleet or direct from the dealers? Like what, can you elaborate a little bit?

All of the above.

Okay that's helpful, thanks.

And international as well.

Great.

Your next question comes from the line of Cherilyn Radbourne from TD Securities.

Thanks very much, and good morning. I'd like to ask a question on EquipmentOne as well. Just curious how you communicated the impairment internally to ensure you didn't lose the level of salesforce engagement on that product offering.

Absolutely, a great concern for us because we have to separate what turns out to be an accounting decision, and that's what we said is, guys this is an accounting decision based on where we are and this in no way impacts our view of the future. We are reiterating our commitment to our multi-channel strategy which has had great progress over the last year to 18 months with our acquisitions and our reinvestment in EquipmentOne after an early stage really not integrating it very well so we're saying that we're absolutely committed to it and we are. We aren't just saying that. We need people to focus on this.

There's been a lot of good progress. We've had headwinds in transportation pricing and energy pricing like the rest of our business at times and at this stage we haven't overcome those headwinds, and so the growth hasn't been where we wanted, but going forward as we look, there's never been stronger engagement with the salesforce. There's never been better bidding activity.

As Ravi mentioned, we now have enabled the TMs just in the last few weeks to use the same tool they use to sell auctions, our core auction business, to also sell E1. So we're focusing on the progress, we're focusing on the future, and we're saying to put this accounting issue that in many cases preceded many of the people on the team, to rest and you can only look forward. And our commitment going forward whether or not we do IronPlanet is this is a very, very important part of our strategy and we'll stress that again at our town hall today.

Great, thank you.

I'll just add one thing to that which is it's a little bit -- the unfortunate thing here is timing is everything and we need to do, being a very high integrity Company, we're going to do the right things from an accounting standpoint. It's just the business was acquired four years ago. I've been very candid that the first two years, there was complete organ rejection and we kind of really made the brand go backwards.

And after I got in and Jim got in we really it took us almost a year of change creating paradigm shifts, getting people to believe in a multi-channel strategy, and finally, I think organ rejection became a thing of the past and our strategic accounts team was already using it but we got it to the other TMs, we also launched it in Canada. But as the people started using it, we started realizing that we had a complete different sales process for our regular Ritchie Brothers Auctions versus for EquipmentOne and that created lots of issues. They are also not used to that process and so there was a lot of it was really sort of this year has been really the first year or real usage of EquipmentOne, and so it's ironic when the brand is best poised to take off we had to do it, but that's the right thing to do, but it has nothing to do with the trajectory.

Right now just since we made the change, one of our executives, [Frank Roth], has done a marvelous job working with IT to get now the same process using salesforce.com and just since that, what we've seen in November is a surge of listings from our TMs, so and we listed in the prepared remarks a lot of things we are doing. Clearly, we have to make tough decisions holding off on the expansion to Europe but we are ready to go, so that's what resulted in the decision but we have a town hall right after this and Jim and I and Sharon are very much planning to rev up the troops on EquipmentOne. So trust me on this, Ravi Saligram and Jim Barr will be at their evangelical best.

There is some pressure. One thing I will add though, is as we go forward assuming we close the IronPlanet transaction, I believe this, I'll call it training wheels on multi-channel selling for our entire organization will put us in a much better spot than we've ever been to be able to do this because that is the dream that on the other side of this transaction is that we sell multiple channels. We do solution selling effectively and we really learned a lot through this process. We don't have it down perfectly but we learned a lot that will carry through to IronPlanet.

And one thing to add is EquipmentOne is analogous to The Daily Marketplace on IronPlanet and recognize IronPlanet has been doing this for 15 years and have got very good at it. The EquipmentOne size is not too distant from the IP1 and in a combination there will be great scale of The Daily Marketplace and EquipmentOne and we'll have to figure out how best to integrate those and how we go forward, but it all says there is EquipmentOne and The Daily Marketplace in a combination will do even better than where they are today. And today we don't, we do not have a weekly auction on reserved format which is just the strength of IronPlanet. So this is where we are on this journey and hence why the IronPlanet acquisition makes so much sense.

Thank you that's my one question.

Your next question comes from the line of Scott Schneeberger from Oppenheimer.

This is Daniel in for Scott. Thanks for squeezing me in. I'm curious on the sectors, if you can help us think about from a volume and pricing perspective going forward what you'd expect on a customer sector basis? Thank you.

Sure, Daniel. The one that -- let's start with our sweet spot, construction. I would say construction right now is what we're excited about and notwithstanding in the US which sort of side of the aisle you are, the one thing that both contenders agreed on was infrastructure and Donald Trump I think talked about $600 billion to spend on infrastructure. I think that excludes the Wall. So it is very exciting. If he really makes that come true, I think this is going to be amazingly good.

So it all remains to be seen whether that will happen but even without that, Dodge predicted which is one of the foremost forecasters of this business of jobs and new projects, saw in 2017 and 2018 continuing good construction performance in the US. On the other side Prime Minister Trudeau has also talked about infrastructure, in fact instead of lowering interest rates and going to negative interest rates his whole strategy has been infrastructure. So now we need to see where all of these come to play, but I think if they do come to play over the next several years, construction which is, we're proud to be the yellow iron Company, is going to be positive. So that bodes well, but it all depends on whether -- words are very easy, actions speaks louder, but if it's going to happen that will be good. And last year the Highway Bill, the bridges, they were all passed so that's also positive.

On transportation right now the demand side, forgive my vulgarity, is sucking canal water, hence the prices have really -- because there's so much supply and freight business has come down, so I think it will be a couple of years so right now there's a lot of is supply. Just implication for us, we are being very judicious about unwritten contracts, not doing large ones where we get several hundred trucks and once the first one falls it's a domino effect. So my dear friend Doug Olive is holding a big stick over our teams to say [go and] send me two, three, four, 500 packages of trucks but straight Commission business still makes sense and we're being smarter about it and using EquipmentOne and so on and so forth. Agriculture, I think maybe Randy can talk, he's more of an expert on that. It's more of a Canadian business.

The agricultural space is quite different North and South of the border. In Canada things have been fairly strong, as lots of challenges with weather and late harvest that are affecting buying behavior and as I mentioned earlier currency is a really big issue and it's making the replacement cost of new equipment in Canada very high right now which is turning lots of buyers to good quality use. So that's benefiting ourselves at the moment. But there is excess supply and demand issues in the US for that same equipment.

Randy, maybe since you also dove into this talk for a minute about mining and some of the things seen there?

The mining sector is still at a low point but we believe that it's bottomed out. MINExpo a couple of months ago in Las Vegas was very well attended and some new technological innovations. And what the predictions are is that we'll see some return to demand but not a lot yet in the new asset purchases companies. What we're seeing is they are starting to turn again to what's a little bit more affordable and that is good quality used equipment, so we've become active that we have a new fledging mining division and that's pursuing this space with some early success and we are seeing some areas of demand improvement, as some of the sectors coal prices are better and gold of course is the winner these days so that's helping to drive some demand as well.

And the mining we are driving primarily through private treaty because of the high value of the assets. Doug is there anything in the macro you want?

Maybe just the Oil & Gas sector. We talked about the Columbus sale and at the sale it was nice to see a lot of the people there thinking long term and there's optimism about the pipeline markets coming back 2017-2018, so depending on how Mr. Trump handles the infrastructure work going North/South, or East/West of certain pipelines could drive a lot more business in those sectors as well.

One last question, Jamie? Two quick? Okay.

Your next question comes from the line of Nick Coppola from Thompson Research Group.

Hi good morning.

Hi, Nick.

Back on volumes, how much equipment are you seeing from dealers where leases are being returned? Has that moved higher for you and how is that impacting your business?

Doug, Randy one of should answer it and Terry, if he is on the line?

We aren't seeing significant flows from that in Canada anyway.

Doug? Anything globally?

No.

Terry do you have anything?

Yes, I'd say the same thing. We aren't seeing a significant amount of that coming from dealers. We have seen from OEMs that we work with lease returns, but not a significant buy coming from dealers.

Okay. That's helpful and then revenues in Europe were down year-over-year. You called out headwinds. Any color on trends there and what you expect going forward?

One issue to keep in mind there, Nick, is the exchange rate of the British pound that has one place where there has been as you know with the Brexit there's been a little impact, but also southern Europe has really because the economies there, Spain and Italy having a really tough time, so that's been one of the issues. UK, if you don't look at exchange rates the UK has actually done well, our teams are doing quite well in the UK, so but just the macro headwinds. It's a tough business and unlike US or Canada, it's a big part of it is rentals and there's a lot of margin pressure in Europe so we're careful about how we go about it and we've got some competitors there who would love for a race to the bottom so we tend to be a bit more cautious.

Okay, that's helpful thanks for taking my questions.

Your next question comes from the line of Bert Powell from BMO Capital Markets.

Thanks, just want to quickly go back to E1, Ravi. Gross transaction values have actually or in terms of those bookings, those have grown quite well, it's the revenue that hasn't. So has it really been the fee formula you haven't been able to crack around EquipmentOne that's causing this? And also just I just want to make sure in terms of thinking about the impairment. Is there redundancy that you'll see with IronPlanet that causes you to say well these things are going to merge so we have to look at what we've got on the books for this?

I'll have the is second part of your question answered by Sharon and then we'll go back to Jim for the first.

Okay.

So Bert, that's a good question. From an accounting standpoint the impairment is a discussion based on this moment in time, so the IronPlanet component really has not been taken into account, albeit certainly we do not have plans that we foresee that we would have any further impairment, hence we did show it in the adjusted category, so that would say that we don't see future impairment for the next two years. However, it is we are really looking at the future value of those assets based on how the business exists today and its trajectory as a standalone business without the IronPlanet acquisition.

In an indirect way but we have to do the accounting by the book, but in an indirect way we made some decisions like delaying launch into Europe anticipating the merger and stuff so. Jim do you want to reiterate what you said earlier?

Sure and I'll pick up a little bit on what Sharon said. Actually as you look forward to an integration, possible integration with IronPlanet, I believe that the book of business in EquipmentOne could be more valuable because you have a buyer, more online buyer base to leverage as one point and the inspection services are very interesting to apply to the EquipmentOne. The collection of equipment information is always a challenge in an online format and they seem to do that pretty well, so when once we are able to merge if we are able to merge these together, I think the actual GTV is actually going to be more valuable which is ironic that we're taking this accounting right now, but I believe that is true.

And then I'll just reiterate what I said about ESS on it's really the mix to this sort of I'll call it Asset Management business where we don't really market make when we do dealer to dealer business, we're providing the software that enables dealers to trade with each other. Therefore we take a very low piece of the revenue there and that allows us to drive GTV in a very high way but it doesn't result in revenue. Still it's plus business and it helps us so again, it's a good business to be in.

Clearly it doesn't transact dealer to dealer, the option is it will go to auction or to EquipmentOne. But these are all these are the positive things for the long term we are doing and so--

I hear you prospectively but I was just wondering to date, what hasn't worked that you thought was going to work to get to convert some of that growth into revenue. That's kind of -- when you came in Ravi, you had -- this was a big focus for you and the organ rejection and what not. So you've got the sales I'm just trying to figure out was there a fee problem, structure? Just what didn't work the way you thought it would work?

I'd separate out I think if you -- I don't know what the numbers are if you extract out the ESS portion. And I think it's important not to look at us, we aren't getting the rate because if you look at true EquipmentOne revenue with [GAAP or GMA], without this ESS, I don't know what the numbers are. I don't know if you know off hand Jim, but it will be substantially lower than the 35 or whatever we are talking about because that portion is really a flow through business [that we're accounting]. So it's not the issue that we're having a rate structure problem on EquipmentOne. The issue has been more all the things we talked about the delayed start, the organ rejection, finally this year we're getting people used to it. We had two sales systems and our people just RPMs couldn't understand it or they didn't know how to do it because it's so different from auctions.

We don't have the inspection service which is a very vital thing because in RB Auctions you'll see the product and that's a big part of it whereas we don't have the inspection system to give assurance so I think all of these contributed to it. We also have had to make improvements to the website. I think all of that we're learning and getting that fixed, so and last year, our growth was 15.5% on revenue. This year its fallen off. There's also two specific reasons for that.

One was transportation was a very big part of E1 and you talked about how the pricing has deteriorated quite a bit in transportation Canada, a major negative effect. Second, energy was a big part and I think with the Oil & Gas business having its issues and we lost some expertise with some people that left, so that had a downward drag. But I think we know what issues are and fixing it which is why we have a more bullish view operationally of E1.

I would just sort of separate out, I know it's tough, the impairment because this was pro forma is done we did the acquisition and they were revised, whatever. We had said in the MD&A this year it had to get to 20%. It didn't, so Sharon did the right thing and said look we just need to take the impairment but it would have been a very different story had we felt the brand was in trouble and we in fact now think it's now at the place where there's so many nifty things happening. So it's one of those confluence of events and we're just being very transparent about it.

Okay thank you.

Is that a wrap? Onwards and upwards, thank you very much everybody.

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