Yahoo Finance Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) Q1 2024 Earnings Call Transcript
Ritchie Bros. Auctioneers Incorporated (NYSE:RBA) Q1 2024 Earnings Call Transcript May 9, 2024
Ritchie Bros. Auctioneers Incorporated misses on earnings expectations. Reported EPS is $0.582 EPS, expectations were $0.73. RBA isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Brothers Auctioneers First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I'll now turn the call over to Mr. Sameer Rathod, Vice President of Investor Relations and Market Intelligence to open the conference call. Mr. Rathod, you may begin your conference.
Sameer Rathod: Hello, and good afternoon. Thank you for joining us today to discuss our first quarter results. Joining me today are Jim Kessler, our Chief Executive Officer, and Eric Guerin, our Chief Financial Officer. The following discussion will include forward-looking statements, which can be identified by such words as expect, believe, estimate, anticipate, plan, intend, opportunity and similar expressions. Comments that are not a statement of fact, including, but not limited to, projections of future earnings, revenue, gross transaction value, debt and other items, business and market trends and expectations regarding integration of IAA, including the anticipated cost synergies are considered forward-looking and involve risks and uncertainties.
The risks and uncertainties that could cause actual results to differ significantly from such forward-looking statements are detailed in our news release issued this afternoon as well as our most recent quarterly report and annual report on Form 10-K, which are available on the Investor Relations website and EDGAR and SEDAR. On this call, we will also discuss certain non-GAAP financial measures, including forward-looking non-GAAP financial measures. For the identification of non-GAAP financial measures, the most directly comparable GAAP financial measures and the applicable reconciliation of the two, see our news release, Form 10-K and Form 10-Q and investor presentation posted on our website. We are unable to present a quantitative reconciliation of forward-looking non-GAAP financial measures as management cannot predict all the necessary components of such measures.
Investors are cautioned not to place undue reliance on forward-looking non-GAAP financial measures. At this time, I would like to turn the call over to Jim. Jim?
James Kessler: Thank you, Sameer, and good afternoon to everyone. We are off to a solid start to the year with first quarter gross transactional value growth of 10% on a pro forma combined basis. I am proud of the team as they continue driving GTV growth. This strong performance directly reflects our ONE Team all in culture and our dedication to over delivering on our commitments to our customers. Furthermore, our focus on continuous improvement and drive operational efficiency throughout the organization translate into strong adjusted earnings per share growth of 58%. Let's start by discussing trends in our commercial construction and transportation sector. The equipment consignment market remains strong. However, we are beginning to see a normalization of equipment supply following the surge we experienced post pandemic.
Strategic accounts, specifically within the rental vertical, are carefully evaluating the cadence of their dispositions for the rest of the year as they access business conditions. Within the region's business, the higher interest rate environment, the higher replacement cost, and the upcoming U.S. election are leading some customers to postpone investments in new equipment, reducing their immediate need for transaction solutions. Growing our market share is a top priority and we're executing our growth algorithm by expanding sales coverage. In the first quarter, we actively recruited new talent to strengthen the Ritchie Brothers brand and to ensure we have the right coverage where we have identified the most significant growth opportunities.
Our physical presence in digital omnichannel platform remain a key differentiator making us the partner of choice. The Yellow Corporation bankruptcy demonstrates the power and versatility of our platform and how we over deliver for our partners. We complemented the broader logistical efforts of moving our assets to RB Global locations by utilizing VeriTread, a marketplace service on our platform to source competitively priced transportation services. Our extensive network of locations bolstered by IAA acquisition meant that 90% of Yellow's assets were within a 100 miles of one of our RB Global locations, enabling transportation cost savings and seamless care, custody and control of their equipment. At the end of the quarter, we had approximately 9,000 trucks and trailers at IAA locations, which were flexed as RB Global satellite storage yards.
Our ability to flex these yards eliminated potential incremental expenses to execute short term leases for storage. To be clear, even with this transaction, we have more than enough capacity in our yards to effectively service all of our partners. Our omnichannel platform's full potential is being deployed to optimize price realization. We began with strategic bulk sales late last year. As those continue, we are directing assets across various regions and channels and hosting yellow dedicated auctions. This dynamic approach ensures we are constantly matching the supply of these assets with the best buyers. All of this is a testament to our marketplace's ability to cater to business of all sizes with a robust offering of services and transaction solutions.
Moving to the automotive sector, we hosted IAA's 21st Industry Leadership Summit under RB Global, which shattered attendance records. The event attracted new and potential partners across North America's insurance, fleet, and remarketing sectors. This premier event served as a platform to introduce RB Global's leadership team, our culture, our unwavering commitment to exceeding customers' expectations through robust and consistent performance. As we maintain and grow our partnerships with those who share similar values and want to build long lasting partnerships based on trust and transparency, we hosted the inaugural session of the IAA Advisory Council in conjunction with the summit. It was a dynamic exchange between key insurance partners and our leadership team, yielding overwhelmingly positive feedback and actionable short- and long-term items.
We're excited to keep the conversation going, tackle these initiatives, and solidify our industry wide partnerships. We also used this event to highlight our performance improvements in the accurate measure of our gains by launching our partner transparency program and dispelling any misconceptions. We laid out a framework and now communicate our service level agreement performance to the industry quarterly. The feedback from our partners, especially about our data driven operational improvements, have been very positive. Speaking of operational improvements, I am proud of the team and pleased that our continuous improvement program continues to drive meaningful SLA improvements in the first quarter. Our pickup compliance, an internal measure of our tow performance, continued to be strong at approximately 99% and our on time total performance, an internal measure of our ability to process vehicle titles that meet our customers' demands was approximately 98%.
We also continue to make excellent strides in attracting new international automotive buyers to our marketplace, partially driven by IAA leverage and historical Ritchie Brothers relationships in Europe. In the first quarter, the percentage of vehicles sold to international buyers hit an all-time high. These advancements combined with our focus on continuous process improvement and investment in technology continue to drive average sell on price higher with automotive ASPs climbing an industry leading 3.3% year-over-year. We're focused on continuous improvement because consistent strong performance is the critical lever in our growth algorithm to unlock market share in this industry, and the results speak for themselves. Our partners are noticing the positive shift a transformed culture built on trust, transparency, collaboration, and clear focus on consistently delivering exceptional results.
This momentum propels us forward and we're optimistic it will translate into market share gains in the coming quarters. Now, I will pass the call to Eric to review our financial performance and outlook.
Eric Guerin: Thank you, Jim. Before we jump into the details, please note that year-over-year comparisons for GTV and revenue refer to a comparison to the pro forma combined results of Ritchie Brothers and IAA for the prior year period. Total GTV increased by 10%, automotive GTV increased by 6%, benefiting from higher unit volumes and as Jim noted a 3.3% higher average selling price. The existing customer portfolio drove the growth in unit volumes as the salvage industry continues to benefit from a rebound in the total loss ratio. In the first quarter, CCC estimated that the loss ratio increased to approximately 21.1% compared to 19.6% in the same period last year. The previously announced customer loss partially offset organic growth.
Note that starting in the second quarter, we will see the full impact of the customer loss on GTV and unit volumes. GTV in the commercial construction and transportation sector increased 20% driven by increases in lot volumes partially offset by declines in average price per lot sold. The decline in average price per lot sold was due to asset mix as lot volume growth came from rental and transportation assets where asset values are intrinsically at lower ASPs and continued declines in pricing on an apples-to-apples basis. Note that GTV growth in commercial construction and transportation excluding the impact of the Yellow Bankruptcy, would have been approximately 13%. Moving to service revenue. Service revenue increased by 14% with our service revenue take rate expanding approximately 80 basis points to 20.8%.
Service revenue increased due to growth in GTV, a higher average buyer fee rate and growth in our marketplace services revenue. Marketplace service revenue growth was driven by higher ancillary revenue and a higher auction related fee structure. As you think about inflation or deflation asset values, it is essential to note that our revenue model has been demonstrated to be resilient to swings in asset values in our marketplace. Historically, we have seen unit volumes and price move in opposite directions. GTV growth expansion have allowed us to grow service revenue above broader economic inflation. Inventory revenue declined 12% with lower revenue contributions from the automotive, commercial construction and transportation sectors. Inventory rate for the quarter contracted 100 basis points year-over-year to approximately 8.8%.
The lower inventory rate was due to commercial construction and transportation and automotive, partially offset by strength in our government surplus business. As previously noted, we expect the environment for at risk deals to remain competitive in our commercial construction and transportation sector. Turning to earnings. Adjusted earnings per share increased 58% on strong operational performance and the full quarter impact of the IAA inclusion, partially offset by higher share count, higher net interest expense and the impact of the Series A senior preferred shares. At the end of the first quarter, our adjusted net debt to trailing 12 months adjusted EBITDA was approximately two times. This accomplishment comes nearly a year ahead of schedule, showcasing our commitment to over deliver, the strength of the strategy and our ability to execute.
We wanted to lay out our guiding principles for deploying our capital to maximize shareholder value. Let me walk you through our priorities. We see our target net leverage around two times. That said, we could flex either way for a period of time. In the near term, we plan on continuing to pay down Term Loan A for the remainder of the year. We will continue to invest in the business strategically and are not changing our 2024 CapEx guidance. Historically, the company has grown through acquisitions and as we advance we will continue to monitor opportunities to help us accelerate growth and unlock our strategic vision. For 2024, we are principally focused on integrating and driving returns for the recent acquisitions. Delivering superior returns to our shareholders is a core principle.
We believe in returning excess capital. This approach demonstrates our confidence in executing and exceeding expectations. Our financial strength assures our customers we can consistently over deliver on our commitments. Moving to the outlook. We are reiterating our full year GTV guidance as GTV growth in the first quarter broadly aligned with our expectations. As Jim noted in his remarks, we are starting to see a normalization of equipment supply in our construction and transportation sector. Additionally, we will see the full impact of the previously announced customer loss beginning the second quarter. Given these two factors, we anticipate that our year over year GTV growth for the remainder of the year will considerably moderate compared to the first quarter.
That said, we are increasing our adjusted EBITDA guidance to $1.2 billion to $1.26 billion based on strong flow through from the top line and continued operational excellence. We're also tightening our tax rate guidance to reflect the lower-than-expected tax rate in the first quarter. With that, let's open the call for questions.
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