RB GLOBAL, INC. Cautionary Note Regarding Forward-Looking Statements
Forward-looking statements may appear throughout this report, including the following section "Management's Discussion and Analysis of Financial Condition and Results of Operations". Forward-looking statements are typically identified by such words as "aim", "anticipate", "believe", "could", "continue", "estimate", "expect", "intend", "may", "ongoing", "plan", "potential", "predict", "will", "should", "would", "could", "likely", "generally", "future", "long-term", or the negative of these terms, and similar expressions intended to identify forward-looking statements. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties that may cause actual results to differ materially.
While we have not described all potential risks related to our business and
owning our common shares, the important factors discussed in "Part II, Item 1A:
Risk Factors" of this Quarterly Report on Form 10-Q and in "Part I, Item 1A:
Risk Factors" of our Annual Report on Form 10-K for the year ended
We prepare our consolidated financial statements in accordance with
In the accompanying analysis of financial information, we sometimes use
information derived from consolidated financial data but not presented in our
financial statements prepared in accordance with US GAAP. Certain of these data
are considered "non-GAAP financial measures" under the
Overview
Through our unreserved auctions, online marketplaces, and private brokerage services, we sell a broad range of used and unused equipment, including earthmoving equipment, truck trailers, government surplus, oil and gas equipment and other industrial assets. Construction and heavy machinery comprise the majority of the equipment sold. Customers selling equipment through our sales channels include end users (such as construction companies), equipment dealers, original equipment manufacturers ("OEMs") and other equipment owners (such as rental companies). Our customers participate in a variety of sectors, including heavy construction, transportation, agriculture, energy, and mining.
We operate globally with locations in more than 12 countries, including the
1 GTV represents total proceeds from all items sold at our live on site auctions and online marketplaces. GTV is not a measure of financial performance, liquidity, or revenue, and is not presented in our consolidated financial statements.
Ritchie Bros. 23 Table of Contents
Impact of COVID-19 to our Business
In
As part of the response from local governments, a number of countries, cities,
states, provinces and municipalities issued orders requiring persons who were
not engaged in essential activities and businesses to remain at home. Other
jurisdictions without stay-at-home orders required non-essential businesses to
close. We have seen variation in how the respective regions have been affected
and have subsequently responded to protect the general public's well being.
Regions such as
Our priority with regard to the COVID-19 pandemic is the health and welfare of our employees, customers, suppliers and others with whom we partner to run our business activities. Subject to that and through the use of appropriate risk mitigation and safety practices, we have acted swiftly and deliberately to safeguard our employees and business operations as we proactively support our customers and continue operating in this unprecedented business environment in which we find ourselves. We have implemented our business continuity plans and our incident steering team is in place to respond to changes in our environment quickly and effectively. As a result of the COVID-19 pandemic, we instructed employees at many of our offices across the globe (including our corporate headquarters) to work from home on a temporary basis and have implemented travel restrictions.
In the face of the unfolding situation, our Company was able to largely continue
our operations and serve our customers' equipment and immediate liquidity needs
through our platform of auction technology solutions and online auction
capabilities. In addition to running our
In response to these rapidly changing market conditions, we are taking all
appropriate steps to be prudent on expenses and other cash outflows. Our
priority is to support our employees during this time, and we continue to
actively monitor the situation and changing dynamics in each of our respective
regions and will adjust our operations as necessary. To this date, layoffs or
furlough activities have been limited in scope. While we have a solid balance
sheet and strong liquidity position as of
The extent of the impact of the COVID-19 pandemic on our operational and financial performance, including our ability to execute our business strategies and initiatives, will depend on future developments, including the duration and spread of the pandemic and related restrictions placed by oversight bodies and respective global governments, as well as supply and demand impacts driven by our consignor and buyer base, all of which are uncertain and cannot be easily predicted. Although at the time of this filing, we have been permitted to continue operating our modified live site operations in nearly all of the jurisdictions in which we operate, there is no assurance that we will be permitted to operate our live sites under every future government order or other restriction and in every location. If we were to be subject to government orders or other restrictions on the operation of our business, we may be required to limit our operations at, or temporarily close, certain live site locations in the future. Any such limitations or closures could have an adverse impact on our ability to service our customers and on our business, and results of operations.
Ritchie Bros. 24 Table of Contents
We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state, provincial and local public health authorities and may take additional actions based on their recommendations. We will continuously review and assess the pandemic's impacts on our customers, our suppliers and our business so that we can seek to address the effect on our business and service our customers. In these circumstances, there may be developments outside our control requiring us to further adjust our operating plan and auction schedule. There are no reliable estimates of how long the pandemic will last, how many people are likely to be affected by it and the long-term implications to local or global economies. It is not easily discernable at this time to understand the real effects of the COVID-19 pandemic on equipment supply, buyer demand and potential pricing volatility, nor do we understand the potential impact on our buyers' ability to pay or secure financing. Additionally, there is a level of uncertainty on the impact COVID-19 may have on our third party vendors, partners and the service providers we currently do business with today. Their ability to partner with us may be temporarily or permanently constrained and for some, the business terms under which they continue to partner with us could change as they manage their business through these unprecedented times. As such, given the dynamic nature of this situation, the Company cannot reasonably estimate the future impacts of the COVID-19 pandemic on our business operations, results of operations, cash flows, financial performance or the ability to pay dividends.
Service Offerings
We offer our equipment seller and buyer customers multiple distinct,
complementary, multi-channel brand solutions that address the range of their
needs. Our global customer base has a variety of transaction options, breadth of
services, and the widest selection of used equipment available to them. For a
complete listing of channels and brand solutions available under our Auctions &
Marketplace ("A&M") segment, as well as our Other services segment, please refer
to our Annual Report on Form 10-K for the year ended
Contract options
We offer consignors several contract options to meet their individual needs and sale objectives. Through our A&M business, options include:
? Straight commission contracts, where the consignor receives the gross proceeds
from the sale less a pre-negotiated commission rate;
? Guarantee contracts, where the consignor receives a guaranteed minimum amount
plus an additional amount if proceeds exceed a specified level; and
? Inventory contracts, where we purchase, take custody, and hold used equipment
and other assets before they are resold in the ordinary course of business.
We collectively refer to guarantee and inventory contracts as underwritten or "at-risk" contracts.
Value-added services
We also provide a wide array of value-added services to make the process of selling and buying equipment convenient for our customers, including repair and refurbishment services, financial services through Ritchie Bros. Financial Services ("RBFS"), logistical services, and appraisals.
Seasonality
Our GTV and associated A&M segment revenues are affected by the seasonal nature of our business. GTV and A&M segment revenues tend to increase during the second and fourth calendar quarters, during which time we generally conduct more business than in the first and third calendar quarters. Given the operating leverage inherent in our business model, the second and fourth quarter also tend to produce higher operating margins, given the higher volume and revenue generated in those quarters.
The restrictions imposed and effects of the overall economic environment as a result of the COVID-19 pandemic may continue to impact these trends.
Revenue Mix Fluctuations
Our revenue is comprised of service revenue and inventory sales revenue. Service revenue from A&M segment activities include commissions earned at our live auctions, online marketplaces, and private brokerage services, and various auction-related fees, including listing and buyer transaction fees. We also recognize revenues from our Other Services activities as service revenue. Inventory sales revenue is recognized as part of our A&M activities, and relates to revenues earned through our inventory contracts.
Inventory sales revenue can fluctuate significantly, as it changes based on whether our customers sell using a straight or guarantee commission contract, or an inventory contract at time of selling. Straight or guarantee commission contracts will result in the commission being recognized as service revenue, while inventory contracts will result in the gross transaction value of the equipment sold being recorded as inventory sales revenue with the related cost recognized in cost of inventory sold. As a result, a change in the revenue mix between service revenues and revenue from inventory sales can have a significant impact on revenue growth percentages.
Ritchie Bros. 25 Table of Contents Performance Overview
Net income attributable to stockholders increased 26% to
Consolidated results:
? Total revenue in Q1 2020 decreased 10% to
o Service revenue in Q1 2020 increased 6% to
2019
o Inventory sales revenue in Q1 2020 decreased 31% to
to Q1 2019
? Total selling, general and administrative expenses ("SG&A") in Q1 2020
increased 3% to
? Operating income in Q1 2020 increased 1% to
2019
? Cash provided by operating activities was
months of 2020
? Cash on hand at Q1 2020 was
unrestricted
Auctions & Marketplaces segment results:
? GTV in Q1 2020 decreased 2% to
? A&M total revenue in Q1 2020 decreased 11% to
2019
o Service revenue in Q1 2020 increased 8% to
2019
o Inventory sales revenue in Q1 2020 decreased 31% to
to Q1 2019
Other Services segment results:
? Other Services total revenue in Q1 2020 decreased 2% to
compared to Q1 2019
? RBFS revenue in Q1 2020 increased 16% to
Other Company developments:
? On
Chief Human Resources Officer, effective
? On
Chief Information Officer, effective
Ritchie Bros. 26
Table of Contents
Results of Operations
Financial overview
Three months ended March 31,
% Change
(in U.S. $000 's, except EPS and percentages) 2020 2019 2020 over 2019
Service revenue:
Commissions $ 93,484 $ 92,280 1 %
Fees 89,639 80,092 12 %
Total service revenue 183,123 172,372 6 %
Inventory sales revenue 90,132 131,057 (31) %
Total revenue 273,255 303,429 (10) %
Service revenue as a % of total revenue 67.0 % 56.8 % 1,020 bps
Inventory sales revenue as a % of total
revenue 33.0 % 43.2 % (1,020) bps
Costs of services 39,355 36,069 9 %
Cost of inventory sold 81,585 120,475 (32) %
Selling, general and administrative expenses 98,385 95,184 3 %
Operating expenses 239,173 269,841 (11) %
Cost of inventory sold as a % of operating
expenses 34.1 % 44.6 % (1,050) bps
Operating income 34,082 33,588 1 %
Operating income margin 12.5 % 11.1 % 140 bps
Net income attributable to stockholders 22,809 18,164 26 %
Diluted earnings per share attributable to
stockholders $ 0.21 $ 0.17 24 %
Effective tax rate 19.8 % 26.8 % (700) bps
Total GTV 1,147,025 1,174,681 (2) %
Service revenue as a % of total GTV- Rate 16.0 % 14.7 % 130 bps
Inventory sales revenue as a % of total
GTV-Mix 7.9 % 11.2 % (330) bps
Total revenue
Total revenue decreased 10% to
In Q1 2020, total service revenue increased 6% with commissions revenue increasing 1% and fee revenue increasing 12%. The increase in commissions revenue was in line with higher Service GTV. The increase in fee revenue was driven primarily by the full harmonization of buyer fees, higher volume and fee rates at our Leake auction and GovPlanet platform, greater proportion of small value lots and continued growth in RBFS fee revenue. This increase was partially offset by lower RB Logistics revenue earned due to lower activity in the International region during the quarter.
Inventory sales revenue as a percent of total GTV decreased to 7.9% in Q1 2020 compared to 11.2% in prior quarter.
In Q1 2020, inventory sales revenue decreased 31% primarily related to selling
through certain non-repeating large inventory deals from
Income tax expense and effective tax rate
At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. The estimate reflects, among other items, management's best estimate of operating results. It does not include the estimated impact of foreign exchange rates or unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.
For Q1 2020, income tax expense decreased 15% to
Ritchie Bros. 27 Table of Contents
Accounting for the Tax Cuts and Jobs Act ("TCJA") incorporates assumptions made based on our current enacted interpretations of the TCJA. The accounting may change as we receive additional clarification and implementation guidance of these regulations. In addition, changes in interpretations, assumptions, and guidance regarding the new tax legislation, as well as the potential for technical corrections to the TCJA, could have an impact to our effective tax rate in future periods.
On
Net income
Net income attributable to stockholders increased 26% to
Diluted EPS
Diluted EPS attributable to stockholders increased 24% to
We conduct global operations in many different currencies, with our presentation
currency being the
% Change
Value of one local currency to U.S dollar 2020 2019 2020 over 2019
Period-end exchange rate
Canadian dollar 0.7097 0.7491 (5) %
Euro 1.1025 1.1218 (2) %
Australian dollar 0.6118 0.7096 (14) %
Average exchange rate -Three months ended March 31 ,
Canadian dollar 0.7453 0.7524 (1) %
Euro 1.1031 1.1355 (3) %
Australian dollar 0.6575 0.7124 (8) %
For Q1 2020, foreign exchange had an unfavourable impact on total revenue and a
favourable impact on expenses. These impacts were primarily due to the
fluctuations in the Euro, Canadian dollar, and Australian dollar exchange rates
relative to the
Non-GAAP Measures
As part of management's non-GAAP measures, we may eliminate the financial impact of adjusting items which are after-tax effects of significant non-recurring items that we do not consider to be part of our normal operating results, such as acquisition-related costs, management reorganization costs, severance, retention, gains/losses on sale of an equity accounted for investment, plant and equipment, impairment losses, and certain other items, which we refer to as 'adjusting items'. There were no adjusting items in Q1 2020 or Q1 2019.
Adjusted net income attributed to stockholders (non-GAAP measure) increased 26%
to
Diluted Adjusted EPS attributable to stockholders (non-GAAP measure) increased
24% to
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
("EBITDA") (non-GAAP measure) increased 8% to
Debt at the end of Q1 2020, represented 4.3 times net income as at and for the
12 months ended
Ritchie Bros. 28 Table of Contents Segment Performance
We provide our customers with a wide array of services. The following table
presents a breakdown of our consolidated results between the A&M segment and
Other services segment. A complete listing of channels and brand solutions under
the A&M segment, as well as our Other services segment, is available in our
Annual Report on Form 10-K for the year ended
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