UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2019
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from______to______
Commission file number: 001-13425
Ritchie Bros. Auctioneers Incorporated
(Exact (Exact Name of Registrant as Specified in its Charter)
Canada | N/A | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
9500 Glenlyon Parkway | ||
Burnaby, British Columbia, Canada | V5J 0C6 | |
(Address of Principal Executive Offices) | (Zip Code) |
(778) 331-5500
(Registrant’s Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common shares | RBA | New York Stock Exchange |
Indicate by checkmark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the Registrantregistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)
Smaller reporting company ¨
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date: 107,769,787108,984,083 common shares, without par value, outstanding as of May 9, 2018.8, 2019.
RITCHIE BROS. AUCTIONEERS INCORPORATED
FORM 10-Q
For the quarter ended March 31, 20182019
INDEX
PART I – FINANCIAL INFORMATION
ITEM 1: | CONSOLIDATED FINANCIAL STATEMENTS |
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Income Statements
(Expressed in thousands of United States dollars, except share and per share data)
(Unaudited)
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Revenues: | ||||||||||||||||
Service revenues | $ | 176,016 | $ | 123,379 | ||||||||||||
Revenue from inventory sales | 84,162 | 76,048 | ||||||||||||||
Total revenues | 260,178 | 199,427 | ||||||||||||||
Revenue: | ||||||||||||||||
Service revenue | $ | 172,372 | $ | 176,016 | ||||||||||||
Inventory sales revenue | 131,057 | 84,162 | ||||||||||||||
Total revenue | 303,429 | 260,178 | ||||||||||||||
Operating expenses: | ||||||||||||||||
Costs of services | 36,657 | 24,340 | 36,069 | 36,657 | ||||||||||||
Cost of inventory sold | 75,791 | 63,401 | 120,475 | 75,791 | ||||||||||||
Selling, general and administrative expenses | 97,470 | 70,575 | 95,184 | 97,470 | ||||||||||||
Acquisition-related costs | 1,633 | 8,627 | 669 | 1,633 | ||||||||||||
Depreciation and amortization expenses | 16,191 | 10,338 | 17,115 | 16,191 | ||||||||||||
Gain on disposition of property, plant and equipment | (345 | ) | (721 | ) | (149 | ) | (345 | ) | ||||||||
Foreign exchange gain | (92 | ) | (730 | ) | ||||||||||||
Foreign exchange (gain) loss | 478 | (92 | ) | |||||||||||||
Total operating expenses | 227,305 | 175,830 | 269,841 | 227,305 | ||||||||||||
Operating income | 32,873 | 23,597 | 33,588 | 32,873 | ||||||||||||
Interest expense | (11,310 | ) | (8,133 | ) | (10,816 | ) | (11,310 | ) | ||||||||
Other income, net | 913 | 2,284 | 2,039 | 913 | ||||||||||||
Income before income taxes | 22,476 | 17,748 | 24,811 | 22,476 | ||||||||||||
Income tax expense (recovery): | ||||||||||||||||
Current income tax expense | 4,004 | 7,488 | ||||||||||||||
Deferred income tax expense (recovery) | 1,265 | (173 | ) | |||||||||||||
Income tax expense | 5,269 | 7,315 | 6,639 | 5,269 | ||||||||||||
Net income | $ | 17,207 | $ | 10,433 | $ | 18,172 | $ | 17,207 | ||||||||
Net income attributable to: | ||||||||||||||||
Stockholders | $ | 17,138 | $ | 10,377 | $ | 18,164 | $ | 17,138 | ||||||||
Non-controlling interests | 69 | 56 | 8 | 69 | ||||||||||||
Net income | $ | 17,207 | $ | 10,433 | $ | 18,172 | $ | 17,207 | ||||||||
Earnings per share attributable to stockholders: | ||||||||||||||||
Basic | $ | 0.16 | $ | 0.10 | $ | 0.17 | $ | 0.16 | ||||||||
Diluted | $ | 0.16 | $ | 0.10 | $ | 0.17 | $ | 0.16 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 107,355,381 | 106,851,595 | 108,765,489 | 107,355,381 | ||||||||||||
Diluted | 108,643,897 | 107,788,949 | 110,044,213 | 108,643,897 |
See accompanying notes to the condensed consolidated financial statements.
Ritchie Bros. | 1 |
Condensed Consolidated Statements of Comprehensive Income
(Expressed in thousands of United States dollars)
(Unaudited)
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Net income | $ | 17,207 | $ | 10,433 | $ | 18,172 | $ | 17,207 | ||||||||
Other comprehensive income, net of income tax: | ||||||||||||||||
Other comprehensive income (loss), net of income tax: | ||||||||||||||||
Foreign currency translation adjustment | 4,907 | 7,440 | (1,634 | ) | 4,907 | |||||||||||
Total comprehensive income | $ | 22,114 | $ | 17,873 | $ | 16,538 | $ | 22,114 | ||||||||
Total comprehensive income attributable to: | ||||||||||||||||
Stockholders | 22,033 | 17,813 | $ | 16,542 | $ | 22,033 | ||||||||||
Non-controlling interests | 81 | 60 | (4 | ) | 81 | |||||||||||
$ | 22,114 | $ | 17,873 | $ | 16,538 | $ | 22,114 |
See accompanying notes to the condensed consolidated financial statements.
Ritchie Bros. | 2 |
Condensed Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share data)
(Unaudited)
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 278,944 | $ | 267,910 | ||||
Restricted cash | 62,414 | 63,206 | ||||||
Trade and other receivables | 182,157 | 92,105 | ||||||
Inventory | 34,350 | 38,238 | ||||||
Other current assets | 30,657 | 27,026 | ||||||
Assets held for sale | 251 | 584 | ||||||
Income taxes receivable | 17,515 | 19,418 | ||||||
Total current assets | 606,288 | 508,487 | ||||||
Property, plant and equipment | 522,871 | 526,581 | ||||||
Equity-accounted investments | 6,915 | 7,408 | ||||||
Other non-current assets | 26,807 | 24,146 | ||||||
Intangible assets | 259,052 | 261,094 | ||||||
Goodwill | 674,097 | 670,922 | ||||||
Deferred tax assets | 19,934 | 18,674 | ||||||
Total assets | $ | 2,115,964 | $ | 2,017,312 | ||||
Liabilities and Equity | ||||||||
Auction proceeds payable | $ | 303,416 | $ | 199,245 | ||||
Trade and other payables | 170,777 | 164,553 | ||||||
Income taxes payable | 2,021 | 732 | ||||||
Short-term debt | 5,861 | 7,018 | ||||||
Current portion of long-term debt | 9,264 | 16,907 | ||||||
Total current liabilities | 491,339 | 388,455 | ||||||
Long-term debt | 771,030 | 795,985 | ||||||
Other non-current liabilities | 44,857 | 46,773 | ||||||
Deferred tax liabilities | 34,712 | 32,334 | ||||||
Total liabilities | 1,341,938 | 1,263,547 | ||||||
Contingencies | ||||||||
Contingently redeemable performance share units | 16,576 | 9,014 | ||||||
Stockholders' equity: | ||||||||
Share capital: | ||||||||
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 107,471,895 (December 31, 2017: 107,269,783) | 144,387 | 138,582 | ||||||
Additional paid-in capital | 44,327 | 41,005 | ||||||
Retained earnings | 601,205 | 602,609 | ||||||
Accumulated other comprehensive loss | (37,619 | ) | (42,514 | ) | ||||
Stockholders' equity | 752,300 | 739,682 | ||||||
Non-controlling interest | 5,150 | 5,069 | ||||||
Total shareholders' equity | 757,450 | 744,751 | ||||||
Total liabilities and equity | $ | 2,115,964 | $ | 2,017,312 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 266,491 | $ | 237,744 | ||||
Restricted cash | 56,743 | 67,823 | ||||||
Trade and other receivables | 220,452 | 129,257 | ||||||
Inventory | 75,529 | 113,294 | ||||||
Other current assets | 66,553 | 49,055 | ||||||
Income taxes receivable | 7,823 | 6,365 | ||||||
Total current assets | 693,591 | 603,538 | ||||||
Property, plant and equipment | 469,068 | 486,599 | ||||||
Other non-current assets | 127,079 | 29,395 | ||||||
Intangible assets | 241,968 | 245,622 | ||||||
Goodwill | 671,797 | 671,594 | ||||||
Deferred tax assets | 16,159 | 15,648 | ||||||
Total assets | $ | 2,219,662 | $ | 2,052,396 | ||||
Liabilities and Equity | ||||||||
Auction proceeds payable | $ | 322,358 | $ | 203,503 | ||||
Trade and other payables | 181,015 | 201,255 | ||||||
Income taxes payable | 3,838 | 2,312 | ||||||
Short-term debt | 8,687 | 19,896 | ||||||
Current portion of long-term debt | 15,648 | 13,126 | ||||||
Total current liabilities | 531,546 | 440,092 | ||||||
Long-term debt | 687,689 | 698,172 | ||||||
Other non-current liabilities | 129,205 | 41,980 | ||||||
Deferred tax liabilities | 37,109 | 35,519 | ||||||
Total liabilities | 1,385,549 | 1,215,763 | ||||||
Commitments | ||||||||
Contingencies | ||||||||
Contingently redeemable performance share units | 984 | 923 | ||||||
Stockholders' equity: | ||||||||
Share capital: | ||||||||
Common stock; no par value, unlimited shares authorized, issued and outstanding shares: 108,958,906 (December 31, 2018: 108,682,030) | 189,297 | 181,780 | ||||||
Additional paid-in capital | 50,054 | 56,885 | ||||||
Retained earnings | 646,614 | 648,255 | ||||||
Accumulated other comprehensive loss | (57,899 | ) | (56,277 | ) | ||||
Stockholders' equity | 828,066 | 830,643 | ||||||
Non-controlling interest | 5,063 | 5,067 | ||||||
Total stockholders' equity | 833,129 | 835,710 | ||||||
Total liabilities and equity | $ | 2,219,662 | $ | 2,052,396 |
See accompanying notes to the condensed consolidated financial statements.
Ritchie Bros. | 3 |
Condensed Consolidated Statements of Changes in Equity
(Expressed in thousands of United States dollars, except where noted)
(Unaudited)
Attributable to stockholders | Contingently | |||||||||||||||||||||||||||||||
Additional | Accumulated | Non- | redeemable | |||||||||||||||||||||||||||||
Common stock | paid-In | other | controlling | performance | ||||||||||||||||||||||||||||
Number of | capital | Retained | comprehensive | interest | Total | share units | ||||||||||||||||||||||||||
shares | Amount | ("APIC") | earnings | income (loss) | ("NCI") | equity | ("PSUs") | |||||||||||||||||||||||||
Balance, December 31, 2017 | 107,269,783 | $ | 138,582 | $ | 41,005 | $ | 602,609 | $ | (42,514 | ) | $ | 5,069 | $ | 744,751 | $ | 9,014 | ||||||||||||||||
Net income | - | - | - | 17,138 | - | 69 | 17,207 | - | ||||||||||||||||||||||||
Other comprehensive income | - | - | - | - | 4,895 | 12 | 4,907 | - | ||||||||||||||||||||||||
- | - | - | 17,138 | 4,895 | 81 | 22,114 | - | |||||||||||||||||||||||||
Stock option exercises | 202,112 | 5,805 | (1,492 | ) | - | - | - | 4,313 | - | |||||||||||||||||||||||
Stock option compensation expense | - | - | 2,343 | - | - | - | 2,343 | - | ||||||||||||||||||||||||
Modification of PSUs | - | - | 703 | (134 | ) | - | - | 569 | 6,132 | |||||||||||||||||||||||
Equity-classified PSU expense | - | - | 1,678 | - | - | - | 1,678 | 1,357 | ||||||||||||||||||||||||
Equity-classified PSU dividend equivalents | - | - | 90 | (200 | ) | - | - | (110 | ) | 110 | ||||||||||||||||||||||
Change in fair value of contingently redeemable PSUs | - | - | - | 37 | - | - | 37 | (37 | ) | |||||||||||||||||||||||
Cash dividends paid | - | - | - | (18,245 | ) | - | - | (18,245 | ) | - | ||||||||||||||||||||||
Balance, March 31, 2018 | 107,471,895 | $ | 144,387 | $ | 44,327 | $ | 601,205 | $ | (37,619 | ) | $ | 5,150 | $ | 757,450 | $ | 16,576 |
Attributable to stockholders | Contingently | |||||||||||||||||||||||||||||||
Additional | Accumulated | Non- | redeemable | |||||||||||||||||||||||||||||
Common stock | paid-In | other | controlling | performance | ||||||||||||||||||||||||||||
Number of | capital | Retained | comprehensive | interest | Total | share units | ||||||||||||||||||||||||||
shares | Amount | ("APIC") | earnings | loss | ("NCI") | equity | ("PSUs") | |||||||||||||||||||||||||
Balance, December 31, 2017 | 107,269,783 | $ | 138,582 | $ | 41,005 | $ | 602,609 | $ | (42,514 | ) | $ | 5,069 | 744,751 | $ | 9,014 | |||||||||||||||||
Net income | ` | - | - | 17,138 | - | 69 | 17,207 | - | ||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | 4,895 | 12 | 4,907 | - | ||||||||||||||||||||||||
- | - | - | 17,138 | 4,895 | 81 | 22,114 | - | |||||||||||||||||||||||||
Stock option exercises | 202,112 | 5,805 | (1,492 | ) | - | - | - | 4,313 | - | |||||||||||||||||||||||
Stock option compensation expense | - | - | 2,343 | - | - | - | 2,343 | - | ||||||||||||||||||||||||
Modification of PSUs | - | - | 703 | (134 | ) | - | - | 569 | 6,132 | |||||||||||||||||||||||
Equity-classified PSU expense | - | - | 1,678 | - | - | - | 1,678 | 1,357 | ||||||||||||||||||||||||
Equity-classified PSU dividend equivalents | - | - | 90 | (200 | ) | - | - | (110 | ) | 110 | ||||||||||||||||||||||
Change in fair value of contingently redeemable PSUs | - | - | - | 37 | - | - | 37 | (37 | ) | |||||||||||||||||||||||
Cash dividends paid | - | - | - | (18,245 | ) | - | - | (18,245 | ) | - | ||||||||||||||||||||||
Balance, March 31, 2018 | 107,471,895 | $ | 144,387 | $ | 44,327 | $ | 601,205 | $ | (37,619 | ) | $ | 5,150 | $ | 757,450 | $ | 16,576 | ||||||||||||||||
Balance, December 31, 2018 | 108,682,030 | $ | 181,780 | $ | 56,885 | $ | 648,255 | $ | (56,277 | ) | $ | 5,067 | $ | 835,710 | $ | 923 | ||||||||||||||||
Net income | - | - | - | 18,164 | - | 8 | 18,172 | - | ||||||||||||||||||||||||
Other comprehensive loss | - | - | - | - | (1,622 | ) | (12 | ) | (1,634 | ) | - | |||||||||||||||||||||
- | - | - | 18,164 | (1,622 | ) | (4 | ) | 16,538 | - | |||||||||||||||||||||||
Stock option exercises | 82,926 | 2,478 | (850 | ) | - | - | - | 1,628 | - | |||||||||||||||||||||||
Issuance of common stock related to vesting of share units | 193,950 | 5,039 | (10,064 | ) | - | - | - | (5,025 | ) | - | ||||||||||||||||||||||
Stock option compensation expense | - | - | 1,539 | - | - | - | 1,539 | - | ||||||||||||||||||||||||
Equity-classified PSU expense | - | - | 2,322 | - | - | - | 2,322 | 46 | ||||||||||||||||||||||||
Equity-classified PSU dividend equivalents | - | - | 222 | (237 | ) | - | - | (15 | ) | 15 | ||||||||||||||||||||||
Cash dividends paid | - | - | - | (19,568 | ) | - | - | (19,568 | ) | - | ||||||||||||||||||||||
Balance, March 31, 2019 | 108,958,906 | $ | 189,297 | $ | 50,054 | $ | 646,614 | $ | (57,899 | ) | $ | 5,063 | $ | 833,129 | $ | 984 |
See accompanying notes to the condensed consolidated financial statements.
Ritchie Bros. | 4 |
Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
(Unaudited)
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operating activities: | ||||||||||||||||
Net income | $ | 17,207 | $ | 10,433 | $ | 18,172 | $ | 17,207 | ||||||||
Adjustments for items not affecting cash: | ||||||||||||||||
Depreciation and amortization expenses | 16,191 | 10,338 | 17,115 | 16,191 | ||||||||||||
Stock option compensation expense | 2,343 | 1,311 | 1,539 | 2,343 | ||||||||||||
Equity-classified PSU expense | 3,035 | 1,012 | 2,368 | 3,035 | ||||||||||||
Deferred income tax expense | 1,057 | 1,265 | ||||||||||||||
Unrealized foreign exchange (gain) loss | (48 | ) | 263 | |||||||||||||
Gain on disposition of property, plant and equipment | (149 | ) | (345 | ) | ||||||||||||
Amortization of debt issuance costs | 1,066 | 445 | 934 | 1,066 | ||||||||||||
Other, net | 2,131 | (1,042 | ) | 3,510 | 948 | |||||||||||
Net changes in operating assets and liabilities | 25,265 | 112,045 | 27,405 | 25,265 | ||||||||||||
Net cash provided by operating activities | 67,238 | 134,542 | 71,903 | 67,238 | ||||||||||||
Investing activities: | ||||||||||||||||
Property, plant and equipment additions | (2,564 | ) | (1,863 | ) | (2,801 | ) | (2,564 | ) | ||||||||
Intangible asset additions | (7,034 | ) | (5,664 | ) | (5,625 | ) | (7,034 | ) | ||||||||
Proceeds on disposition of property, plant and equipment | 1,066 | 1,505 | 262 | 1,066 | ||||||||||||
Other, net | (4,674 | ) | - | - | (4,674 | ) | ||||||||||
Net cash used in investing activities | (13,206 | ) | (6,022 | ) | (8,164 | ) | (13,206 | ) | ||||||||
Financing activities: | ||||||||||||||||
Dividends paid to stockholders | (18,245 | ) | (18,160 | ) | (19,568 | ) | (18,245 | ) | ||||||||
Dividends paid to NCI | - | (41 | ) | |||||||||||||
Issuances of share capital | 4,313 | 3,412 | 1,628 | 4,313 | ||||||||||||
Payment of withholding taxes on issuance of shares | (2,047 | ) | - | |||||||||||||
Proceeds from short-term debt | 308 | 1,219 | 6,741 | 308 | ||||||||||||
Repayment of short-term debt | (1,754 | ) | (1,009 | ) | (17,946 | ) | (1,754 | ) | ||||||||
Repayment of long-term debt | (29,237 | ) | - | (12,235 | ) | (29,237 | ) | |||||||||
Repayment of finance lease obligations | (802 | ) | (438 | ) | (1,269 | ) | (802 | ) | ||||||||
Other, net | - | (48 | ) | |||||||||||||
Net cash used in financing activities | (45,417 | ) | (15,065 | ) | (44,696 | ) | (45,417 | ) | ||||||||
Effect of changes in foreign currency rates on cash, cash equivalents, and restricted cash | 1,627 | 3,336 | (1,376 | ) | 1,627 | |||||||||||
Increase | 10,242 | 116,791 | 17,667 | 10,242 | ||||||||||||
Beginning of period | 331,116 | 758,089 | 305,567 | 331,116 | ||||||||||||
Cash, cash equivalents, and restricted cash, end of period | $ | 341,358 | $ | 874,880 | $ | 323,234 | $ | 341,358 |
See accompanying notes to the condensed consolidated financial statements.
Ritchie Bros. | 5 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies |
Ritchie Bros. Auctioneers Incorporated and its subsidiaries (collectively referred to as the “Company”) provide global asset management and disposition services, offering customers end-to-end solutions for buying and selling used industrial equipment and other durable assets through its unreserved live unreservedon site auctions, online reserved and unreserved marketplaces, listing services, and private brokerage services. Ritchie Bros. Auctioneers Incorporated is a company incorporated in Canada under the Canada Business Corporations Act, whose shares are publicly traded on the Toronto Stock Exchange (“TSX”) and the New York Stock Exchange (“NYSE”).
(a) Basis of preparation
These unaudited condensed consolidated interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). They include the accounts of Ritchie Bros. Auctioneers Incorporated and its subsidiaries from their respective dates of formation or acquisition. All significant intercompany balances and transactions have been eliminated.
Certain information and footnote disclosure required by US GAAP for complete annual financial statements have been omitted and, therefore, these unaudited condensed consolidated interim financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2017,2018, included in the Company’s Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”). In the opinion of management, these unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in equity for the interim periods presented. The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
(b) Revenue recognition
Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) using the full retrospective method, which included restating prior years for comparative amounts. This new accounting policy resulted in a change in the financial statement presentation only on the income statement, as described in Note 1(i) New and amended accounting standards in this Quarterly Report on Form 10-Q.
Revenues are comprised of:
· | Service |
i. | Revenue from auction and marketplace (“A&M”) activities, including commissions earned at our live auctions, online marketplaces, and |
ii. | Other services |
· |
The Company recognizes revenue when control of the promised goods or services is transferred to our customers, or upon completion of the performance obligation, in an amount that reflects the consideration we expect to be entitled to in exchange for those goodgoods or services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For live event-based auctions or online auctions, revenue is recognized when the auction sale is complete and the Company has determined that the sale proceeds are collectible. Revenue is measured at the fair value of the consideration received or receivable and is shown net of value-added tax and duties.
Ritchie Bros. | 6 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(b) Revenue recognition (continued)
Service revenuesrevenue
Commissions from sales at the Company’s auctions represent the percentage earned by the Company on the gross proceeds from equipment and other assets sold at auction. The majority of the Company’s commissions are earned as a pre-negotiated fixed rate of the gross selling price. Other commissions from sales at the Company’s auctions are earned from underwritten commission contracts, when the Company guarantees a certain level of proceeds to a consignor.
The Company accepts equipment and other assets on consignment stimulating buyer interest through professional marketing techniques, and matches sellers (also known as consignors) to buyers through the auction or private sale process. Prior to offering an item for sale on its online marketplaces, the Company also performs inspections.
Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, collects payment from the buyer, and remits the proceeds to the seller, net of the seller commissions, applicable taxes, and applicable fees. Commissions are calculated as a percentage of the hammer price of the property sold at auction. Fees are also charged to sellers for listing and inspecting equipment. Other revenuesrevenue earned in the process of conducting the Company’s auctions include administrative, documentation, and advertising fees.
On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased and the seller is legally obligated to relinquish the property in exchange for the hammer price less any seller’s commissions. Commission and fee revenuesrevenue are recognized on the date of the auction sale upon the fall of the auctioneer’s hammer.
Under the standard terms and conditions of its auction sales, the Company is not obligated to pay a consignor for property that has not been paid for by the buyer, provided the property has not been released to the buyer. If the buyer defaults on its payment obligation, also referred to as a collapsed sale, the sale is cancelled in the period in which the determination is made, and the property is returned to the consignor or placed in a later event-based or online auction. Historically cancelled sales have not been material.
Online marketplace commission revenue is reduced by a provision for disputes, which is an estimate of disputed items that are expected to be settled at a cost to the Company, related to settlements of discrepancies under the Company’s equipment condition certification program. The equipment condition certification refers to a written inspection report provided to potential buyers that reflects the condition of a specific piece of equipment offered for sale, and includes ratings, comments, and photographs of the equipment following inspection by one of the Company’s equipment inspectors.
The equipment condition certification provides that a buyer may file a written dispute claim during an eligible dispute period for consideration and resolution at the sole determination of the Company if the purchased equipment is not substantially in the condition represented in the inspection report. Typically disputes under the equipment condition certification program are settled with minor repairs or additional services, such as washing or detailing the item; the estimated costs of such items or services are included in the provision for disputes.
Commission revenuesrevenue are recorded net of commissions owed to third parties, which are principally the result of situations when the commission is shared with a consignor or with the counterparty in an auction guarantee risk and reward sharing arrangement. Additionally, in certain situations, commissions are shared with third parties who introduce the Company to consignors who sell property at auction.
Ritchie Bros. | 7 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(b)
(b) | Revenue recognition (continued) |
Service revenue (continued)
Underwritten commission contracts can take the form of guarantee contracts. Guarantee contracts typically include a pre-negotiated percentage of the guaranteed gross proceeds plus a percentage of proceeds in excess of the guaranteed amount. If actual auction proceeds are less than the guaranteed amount, commission is reduced; if proceeds are sufficiently lower, the Company can incur a loss on the sale. Losses, if any, resulting from guarantee contracts are recorded in the period in which the relevant auction is completed. If a loss relating to a guarantee contract held at the period end to be sold after the period end is known or is probable and estimable at the financial statement reporting date, the loss is accrued in the financial statements for that period. The Company’s exposure from these guarantee contracts fluctuates over time.
Other services revenue also includes fees for refurbishment, logistical services, financing, appraisal fees and other ancillary service fees. Fees are recognized in the period in which the service is provided to the customer.customer.
Revenue on inventoryInventory sales revenue
Underwritten commission contracts can take the form of inventory contracts. RevenuesRevenue related to inventory contracts areis recognized in the period in which the sale is completed, title to the property passes to the purchaser and the Company has fulfilled any other obligations that may be relevant to the transaction. In its role as auctioneer, the Company auctions its inventory to equipment buyers through the auction process. Following the sale of the item, the Company invoices the buyer for the purchase price of the asset, taxes, and, if applicable, the buyer transaction fee, and collects payment from the buyer.
On the fall of the auctioneer’s hammer, the highest bidder becomes legally obligated to pay the full purchase price, which is the hammer price of the property purchased. Title to the property is transferred in exchange for the hammer price, and if applicable, the buyer transaction fee plus applicable taxes.
(c) CostCosts of services
Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenues,revenue, and earning other fee revenues.revenue. Direct expenses include direct labour, buildings and facilities charges, and travel, advertising and promotion costs.
Costs of services incurred to earn online marketplace revenuesrevenue in addition to the costs listed above also include inspection costs. Inspections are generally performed at the seller’s physical location. The cost of inspections includes payroll costs and related benefits for the Company’s employees that perform and manage field inspection services, the related inspection report preparation and quality assurance costs, fees paid to contractors who perform field inspections, related travel and incidental costs for the Company’s inspection service organization, and office and occupancy costs for its inspection services personnel. Costs of earning online marketplace revenuesrevenue also include costs for the Company’s customer support, online marketplace operations, logistics, title and lien investigation functions, and lease and operations costs related to the Company’s third-party data centers at which its websites are hosted.functions.
Costs of services incurred in earning other fee revenuesrevenue include ancillary and logistical service expenses, direct labour (including commissions on sales), software maintenance fees, and materials. Costs of services exclude depreciation and amortization expenses.
(d) Cost of inventory sold
Cost of inventory sold representsincludes the purchase price of assets sold for the Company’s own account and is determined using a specific identification basis.
Ritchie Bros. | 8 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(e) Share-based payments
The Company classifies a share-based payment award as an equity or liability payment based on the substantive terms of the award and any related arrangement.
Equity-classified share-based payments
Share unit plans
The Company has three stock option compensation plans that provide for the award of stock options to selected employees, directors and officers of the Company. The cost of options granted is measured at the fair value of the underlying option at the grant date using the Black-Scholes option pricing model. The Company also has a senior executive PSUperformance share unit (“PSU”) plan and an employee PSU plan that provides for the award of PSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle them in shares. The cost of PSUs granted is measured at the fair value of the underlying PSUs at the grant date usingdate. PSUs vest based on the passage of time and achievement of performance criteria.
The Company also has a binomial model.senior executive restricted share unit (“RSU”) plan and an employee RSU plan that provides for the award of RSUs to certain senior executives and employees, respectively, of the Company. The Company has the option to settle certain share unit awards in cash or shares and expects to settle all grants on and after 2017 in shares. The cost of RSUs granted is measured at the fair value based on the fair value of the Company’s common shares at the grant date. RSUs vest based on the passage of time and include restrictions related to employment.
This fair value of awards expected to vest under these plans is expensed over the respective remaining service period of the individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognized in earnings, such that the consolidated expense reflects the revised estimate, with a corresponding adjustment to equity.
Any consideration paid on exercise of the stock options is credited to the common shares. Dividend equivalents on the equity-classified PSUs and RSUs are recognized as a reduction to retained earnings over the service period.
PSUs awarded underStock option plans
The Company has three stock option compensation plans that provide for the senior executiveaward of stock options to selected employees, directors and employee PSU plans (described in note 17) are contingently redeemable in cash in the event of deathofficers of the participant.Company. The contingently redeemable portioncost of options granted is measured at the fair value of the senior executive and employee PSU awards, which represents the amount that would be redeemable based on the conditionsunderlying option at the grant date using the Black-Scholes option pricing model. The fair value of grant,options expected to the extent attributable to prior service,vest under these plans is recognized as temporary equity. The balance reported in temporary equity increases on the same basis as the related compensation expenseexpensed over the respective remaining service period of the award,individual awards, on an accelerated recognition basis, with the corresponding increase to APIC recorded in equity. Upon exercise, any excessconsideration paid on exercise of the temporary equity value overstock options and amounts fully amortized in APIC are credited to the amount recognized in compensation expense charged against retained earnings. In the event it becomes probable an award is going to become eligible for redemption by the holder, the award would be reclassified to a liability award.common shares.
Liability-classified share-based payments
The Company maintains other share unit compensation plans that vest over a period of up to fivethree years after grant. Under those plans, the Company is either required or expects to settle vested awards on a cash basis or by providing cash to acquire shares on the open market on the employee’s behalf, where the settlement amount is determined usingbased on the volume weighted average price of the Company’s common shares for the twenty days prior to the vesting date or, in the case of deferred share unit (“DSU”) recipients, following cessation of service on the Board of Directors.
These awards are classified as liability awards, measured at fair value at the date of grant and re-measured at fair value at each reporting date up to and including the settlement date. The determination of the fair value of the share units under these plans is described in note 17.16. The fair value of the awards is expensed over the respective vesting period of the individual awards with recognition of a corresponding liability. Changes in fair value after vesting are recognized through compensation expense. Compensation expense reflects estimates of the number of instruments expected to vest.
Ritchie Bros. | 9 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(e) Share-based payments (continued)
Liability-classified share-based payments (continued)
The impact of forfeitures and fair value revisions, if any, are recognized in earnings such that the cumulative expense reflects the revisions, with a corresponding adjustment to the settlement liability. Liability-classified share unit liabilities due within 12 months of the reporting date are presented in trade and other payables while settlements due beyond 12 months of the reporting date are presented in other non-current liabilities.
(f) Leases
The Company determines if an arrangement is a lease at inception. The Company may have lease agreements with lease and non-lease components, which are generally accounted for separately. Additionally, for certain vehicle and equipment leases, management applies a portfolio approach to account for the right-of-use (“ROU”) assets and liabilities for assets leased with similar lease terms.
Operating leases
Operating leases are included in other non-current assets, trade and other payables, and other non-current liabilities in our consolidated balance sheets if the initial lease term is greater than 12 months. For leases with an initial term of 12 months or less the Company recognizes those lease payments on a straight-line basis over the lease term.
ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Lease expense for lease payments is recognized on a straight-line basis over the lease term and are included in Costs of services or Selling, general, and administrative (“SG&A”) expenses.
Finance leases
Finance lease ROU assets are included in property, plant and equipment, trade and other non-current, and other non-current liabilities in our consolidated balance sheets.
Finance lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of the Company’s leases do not provide an implicit rate, management uses the incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Management uses the implicit rate when readily determinable. The Company includes lease payments for renewal, purchase options, or termination options in its determination of lease term, ROU asset, and lease liability when it is reasonably certain that the Company will exercise these options. Finance lease ROU assets are generally amortized over the lease term and are included in depreciation expense. The interest on the finance lease liabilities is included in interest expense.
Ritchie Bros. | 10 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(g) Inventories
Inventory consists of equipment and other assets purchased for resale in an upcoming live on site auction or online marketplace event. The Company typically purchases inventory for resale through a competitive process where the consignor or vendor has determined this to be the preferred method of disposition through the auction process. In addition, certain jurisdictions require auctioneers to hold title to assets and facilitate title transfer on sale. Inventory is valued at the lower of cost and net realizable value where net realizable value represents the expected sale price upon disposition less make-ready costs and the costs of disposal and transportation. As part of its government business, the Company purchases inventory for resale as part of its commitment to purchase certain surplus government property (note 18). The significant elements of cost include the acquisition price of the inventory and make-ready costs to prepare the inventory for sale that are not selling expenses.expenses and in-bound transportation costs. Write-downs to the carrying value of inventory are recorded in cost of inventory sold on the consolidated income statement.
(g)Impairment(h) Impairment of long-lived and indefinite-lived assets
Long-lived assets, comprised of property, plant and equipment and intangible assets subject to amortization, are assessed for impairment whenever events or circumstances indicate that their carrying value may not be recoverable. For the purpose of impairment testing, long-lived assets are grouped and tested for recoverability at the lowest level that generates independent cash flows. An impairment loss is recognized when the carrying value of the assets or asset groups is greater than the future projected undiscounted cash flows. The impairment loss is calculated as the excess of the carrying value over the fair value of the asset or asset group. Fair value is based on valuation techniques or third-partythird party appraisals. Significant estimates and judgments are applied in determining these cash flows and fair values.
Indefinite-lived intangible assets are tested annually for impairment as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the indefinite-lived intangible asset is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the carrying amount is less than its fair value, a quantitative impairment test is not required. Where a quantitative impairment test is required, the procedure is to compare the indefinite-lived intangible asset’s fair value with its carrying amount. An impairment loss is recognized as the difference between the indefinite-lived intangible asset’s carrying amount and its fair value.
(h)(i) Goodwill
Goodwill represents the excess of the purchase price of an acquired enterprise over the fair value assigned to the assets acquired and liabilities assumed in a business combination.
Goodwill is not amortized, but it is tested annually for impairment at the reporting unit level as of December 31, and between annual tests if indicators of potential impairment exist. The Company has the option of performing a qualitative assessment of a reporting unit to first determine whether the quantitative impairment test is necessary. This involves an assessment of qualitative factors to determine the existence of events or circumstances that would indicate whether it is more likely than not that the carrying amount of the reporting unit to which goodwill belongs is less than its fair value. If the qualitative assessment indicates it is not more likely than not that the reporting unit’s carrying amount is less than its fair value, a quantitative impairment test is not required.
Ritchie Bros. | 11 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
1. | Summary of significant accounting policies (continued) |
(i) Goodwill (continued)
If a quantitative impairment test is required, the procedure is to identify potential impairment by comparing the reporting unit’s fair value with its carrying amount, including goodwill. The reporting unit’s fair value is determined using various valuation approaches and techniques that involve assumptions based on what the Company believes a hypothetical marketplace participant would use in estimating fair value on the measurement date. An impairment loss is recognized as the difference between the reporting unit’s carrying amount and its fair value. If the difference between the reporting unit’s carrying amount and fair value is greater than the amount of goodwill allocated to the reporting unit, the impairment loss is restricted by the amount of the goodwill allocated to the reporting unit.
(i)(j) New and amended accounting standards
Effective January 1, 2019, the Company adopted ASU 2016-02,Leases (Topic 842). The Company adopted |
The primary impact of the adoption of ASU 2014-09 is the change in the presentation of revenue from inventory, ancillary service, and logistical services contracts on a gross basis as a principal versus net as an agent. This is due to the new standard requiring an entityutilizing the “optional transition method”, which permits the Company to apply the new lease standard at the adoption date. As the optional transition method is being utilized, the Company’s reporting for the comparative periods presented in the financial statements in which it adopts Topic 842 will continue to be reported pursuant to Topic 840.
On adoption, the Company elected to utilize the package of practical expedients permitted within the new standard, which among other things, allows the Company to carryforward the historical lease classification. In addition, the Company elected to utilize the hindsight practical expedient to determine whether the entity controls the specified good or service before transfer to the customer, with the entity being principalreasonably certain lease term for existing leases. While lease classification will remain unchanged, hindsight will result in these transactions. Prior to adopting ASU 2014-09, an entity evaluated indicators to determine if it was a principal or agent. Asgenerally longer accounting lease terms where the Company has determined that it controlsis reasonably certain to exercise certain renewal options and thereby increasing the inventoryuseful lives of the corresponding leasehold improvements. The Company also elected not to recognize the lease assets and provisionliabilities for leases with an initial term of ancillary12 months or less and logistical services before transfer to its customers,will recognize those lease payments on a straight-line basis over the Company concluded that it was acting as a principal rather than an agent. As a result oflease term.
On adoption of the new accounting standard therethe Company recognized ROU assets of $103,897,000 with a corresponding increase in operating lease liability. Offsetting the increase in ROU assets recognized was the reclassification of prepaid rent and deferred rent liabilities to ROU assets of $5,752,000. There was no impact on the timing of recognition of revenue, operating income, net income,retained earnings or on the consolidated balance sheet or consolidated statement of cash flows.
Presenting revenue from inventory sale on a gross basis as a principal selling a tangible product versus net as an agent providing a service significantly changes the faceThe adoption of the Company’s consolidated income statement in two primary ways:standard had no impact on our debt-covenant compliance under our current agreements.
Ritchie Bros. |
Notes to the Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) |
Impact to reported results
The new presentation based on ASU 2014-09 results in an increase the amount of revenue reported but there is no change in the operating income compared to the prior presentation:
Three months ended March 31, 2017 | ||||||||||||||
Consolidated income statement line item | As reported | New Revenue Standard Adjustment | Consolidated income statement line item | As Adjusted | ||||||||||
$ | 76,048 | Revenue from inventory sales | $ | 76,048 | ||||||||||
Revenues | $ | 124,499 | (1,120 | ) | Service revenues | 123,379 | ||||||||
74,928 | Total revenues | 199,427 | ||||||||||||
(63,401 | ) | Cost of inventory sold | (63,401 | ) | ||||||||||
Costs of services | (12,813 | ) | (11,527 | ) | Costs of services | (24,340 | ) | |||||||
$ | 111,686 | $ | - | $ | 111,686 |
In February 2016, the FASB issued ASU 2016-02,Leases (Topic 842), which requires lessees to recognize almost all leases, including operating leases, on the balance sheet through a right-of-use asset and a corresponding lease liability. For short-term leases, defined as those with a term of 12 months or less, the lessee is permitted to make an accounting policy election not to recognize the lease assets and liabilities, and instead recognize the lease expense generally on a straight-line basis over the lease term. The accounting treatment under this election is consistent with current operating lease accounting. No extensive amendments were made to lessor accounting, but amendments of note include changes to the definition of initial direct costs and accounting for collectability uncertainties in a lease.
ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. Both lessees and lessors must apply ASU 2016-02 using a “modified retrospective transition”, which reflects the new guidance from the beginning of the earliest period presented in the financial statements. However, lessees and lessors can elect to apply certain practical expedients on transition.
Management continues to perform a detailed inventory and analysis of all the Company’s leases, of which there are approximately 480 operating and 115 finance leases for which the Company is a lessee at the reporting date. The most significant operating leases in terms of the amount of rental charges and duration of the contract are for various auction sites and offices located in North America, Europe, the Middle East, and Asia. However, in terms of the number of leases, the majority consist of leases for computer, automotive, and yard equipment.
The Company continues to evaluate the new guidance to determine the impact it will have on its consolidated financial statements. Under the expectation that the majority, if not all, of the operating leases will be brought onto the Company’s balance sheet on adoption of ASU 2016-02, management is currently investigating the functionality within the Company’s financial system to automate the lease accounting process and is evaluating alternative software solutions to facilitate adoption.
The adoption of ASU 2016-02 is expected to add complexity to the accounting for leases, as well as require extensive system and process changes to manage the large number of operating leases that the Company anticipates will be brought onto its balance sheet. As a result, management has determined that the Company will not early adopt ASU 2016-02, and will continue to evaluate the elections available to the Company involving the application of practical expedients on transition.
2. | Significant judgments, estimates and assumptions |
The preparation of financial statements in conformity with US GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Future differences arising between actual results and the judgments, estimates and assumptions made by the Company at the reporting date, or future changes to estimates and assumptions, could necessitate adjustments to the underlying reported amounts of assets, liabilities, revenues and expenses in future reporting periods.
Judgments, estimates and underlying assumptions are evaluated on an ongoing basis by management, and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. ExistingHowever, existing circumstances and assumptions about future developments however, may change due to market changes or circumstancecircumstances and such changes are reflected in the assumptions when they occur. Significant items subject to estimates include purchase price allocations, the carrying amounts of goodwill, the useful lives of long-lived assets, share based compensation, the determination of lease term and lease liabilities, deferred income taxes, reserves for tax uncertainties, and other contingencies.
3. | Seasonality |
The Company’s operations are both seasonal and event driven. Revenues tend to be the highest during the second and fourth calendar quarters. The Company generally conducts more live, on site auctions during these quarters than during the first and third calendar quarters. Late December through mid-February and mid-July through August are traditionally less active periods. Online volumes are similarly affected as supply of used equipment is lower in the third quarter as it is actively being used and not available for sale.
Ritchie Bros. | 13 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
4. |
The Company’s principal business activity is the management and disposition of used industrial equipment and other durable assets. The Company’s operations are comprised of one reportable segment and other business activities that are not reportable as follows:
· | Auctions and Marketplaces – This is the Company’s only reportable segment, which consists of the Company’s live on site auctions, its online auctions and marketplaces, and its brokerage service; |
· | Other includes the results of Ritchie Bros. Financial Services (“RBFS”), Mascus online services, and the results from various value-added services and make-ready activities, including the Company’s equipment refurbishment services, |
Three months ended March 31, 2018 | Three months ended March 31, 2019 | |||||||||||||||||||||||
A&M | Other | Consolidated | A&M | Other | Consolidated | |||||||||||||||||||
Service revenues | $ | 148,405 | $ | 27,611 | $ | 176,016 | ||||||||||||||||||
Revenue from inventory sales | 84,162 | - | 84,162 | |||||||||||||||||||||
Total revenues | 232,567 | 27,611 | 260,178 | |||||||||||||||||||||
Service revenue | $ | 143,437 | $ | 28,935 | $ | 172,372 | ||||||||||||||||||
Inventory sales revenue | 131,057 | - | 131,057 | |||||||||||||||||||||
Total revenue | $ | 274,494 | $ | 28,935 | $ | 303,429 | ||||||||||||||||||
Costs of services | 21,448 | 15,209 | 36,657 | 20,817 | 15,252 | 36,069 | ||||||||||||||||||
Cost of inventory sold | 75,791 | - | 75,791 | 120,475 | - | 120,475 | ||||||||||||||||||
Selling, general and administrative expenses ("SG&A") | 93,002 | 4,468 | 97,470 | |||||||||||||||||||||
SG&A expenses | 89,182 | 6,002 | 95,184 | |||||||||||||||||||||
Segment profit | $ | 42,326 | $ | 7,934 | $ | 50,260 | $ | 44,020 | $ | 7,681 | $ | 51,701 | ||||||||||||
Acquisition-related costs | 1,633 | 669 | ||||||||||||||||||||||
D&A expenses | 16,191 | |||||||||||||||||||||||
Depreciation and amortization expenses ("D&A") | 17,115 | |||||||||||||||||||||||
Gain on disposition of property, plant and equipment ("PPE") | (345 | ) | (149 | ) | ||||||||||||||||||||
Foreign exchange gain | (92 | ) | ||||||||||||||||||||||
Foreign exchange loss | 478 | |||||||||||||||||||||||
Operating income | $ | 32,873 | $ | 33,588 | ||||||||||||||||||||
Interest expense | (11,310 | ) | (10,816 | ) | ||||||||||||||||||||
Other income, net | 913 | 2,039 | ||||||||||||||||||||||
Income tax expense | (5,269 | ) | (6,639 | ) | ||||||||||||||||||||
Net income | $ | 17,207 | $ | 18,172 |
Ritchie Bros. | 14 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
4. |
Three months ended March 31, 2017 | Three months ended March 31, 2018 | |||||||||||||||||||||||
A&M | Other | Consolidated | A&M | Other | Consolidated | |||||||||||||||||||
Service revenues | $ | 103,030 | $ | 20,349 | $ | 123,379 | ||||||||||||||||||
Revenue from inventory sales | 76,048 | - | 76,048 | |||||||||||||||||||||
Total revenues | 179,078 | 20,349 | 199,427 | |||||||||||||||||||||
Service revenue | $ | 148,405 | $ | 27,611 | $ | 176,016 | ||||||||||||||||||
Inventory sales revenue | 84,162 | - | 84,162 | |||||||||||||||||||||
Total revenue | $ | 232,567 | $ | 27,611 | 260,178 | |||||||||||||||||||
Costs of services | 12,587 | 11,753 | 24,340 | 21,448 | 15,209 | 36,657 | ||||||||||||||||||
Cost of inventory sold | 63,401 | - | 63,401 | 75,791 | - | 75,791 | ||||||||||||||||||
SG&A expenses | 67,111 | 3,464 | 70,575 | 93,002 | 4,468 | 97,470 | ||||||||||||||||||
Segment profit | $ | 35,979 | $ | 5,132 | $ | 41,111 | $ | 42,326 | $ | 7,934 | $ | 50,260 | ||||||||||||
Acquisition-related costs | 8,627 | 1,633 | ||||||||||||||||||||||
D&A expenses | 10,338 | 16,191 | ||||||||||||||||||||||
Gain on disposition of PPE | (721 | ) | (345 | ) | ||||||||||||||||||||
Foreign exchange gain | (730 | ) | (92 | ) | ||||||||||||||||||||
Operating income | $ | 23,597 | $ | 32,873 | ||||||||||||||||||||
Interest expense | (8,133 | ) | (11,310 | ) | ||||||||||||||||||||
Other income, net | 2,284 | 913 | ||||||||||||||||||||||
Income tax expense | (7,315 | ) | (5,269 | ) | ||||||||||||||||||||
Net income | $ | 10,433 | $ | 17,207 |
The Company‘s geographic breakdown of total revenue as determined by the revenue and location of assets, which represents property, plant and equipment is as follows:
United States | Canada | Europe | Other | Consolidated | ||||||||||||||||
Total revenues for the three months ended: | ||||||||||||||||||||
March 31, 2018 | $ | 135,563 | $ | 65,809 | $ | 34,574 | $ | 24,232 | $ | 260,178 | ||||||||||
March 31, 2017 | 112,083 | 41,492 | 18,267 | 27,585 | 199,427 |
United States | Canada | Europe | Other | Consolidated | ||||||||||||||||
Total revenue for the three months ended: | ||||||||||||||||||||
March 31, 2019 | $ | 183,573 | $ | 31,531 | $ | 54,785 | $ | 33,540 | $ | 303,429 | ||||||||||
March 31, 2018 | 135,563 | 65,809 | 34,574 | 24,232 | 260,178 |
5. |
Three months ended March 31, | 2018 | 2017 | ||||||
Service revenues: | ||||||||
Commissions | $ | 101,294 | $ | 79,297 | ||||
Fees | 74,722 | 44,082 | ||||||
176,016 | 123,379 | |||||||
Revenue from inventory sales | 84,162 | 76,048 | ||||||
Total revenues | $ | 260,178 | $ | 199,427 |
The Company’s revenue from the rendering of services is as follows:
Three months ended March 31, | 2019 | 2018 | ||||||
Service revenue: | ||||||||
Commissions | $ | 92,280 | $ | 101,294 | ||||
Fees | 80,092 | 74,722 | ||||||
172,372 | 176,016 | |||||||
Inventory sales revenue | 131,057 | 84,162 | ||||||
$ | 303,429 | $ | 260,178 |
Ritchie Bros. | 15 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
6. | Operating expenses |
Costs of services
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Ancillary and logistical service expenses | $ | 14,580 | $ | 11,527 | $ | 13,759 | $ | 14,580 | ||||||||
Employee compensation expenses | 9,019 | 5,476 | 10,807 | 9,019 | ||||||||||||
Buildings, facilities and technology expenses | 2,627 | 1,546 | 2,134 | 2,627 | ||||||||||||
Travel, advertising and promotion expenses | 6,808 | 4,656 | 5,868 | 6,808 | ||||||||||||
Other costs of services | 3,623 | 1,135 | 3,501 | 3,623 | ||||||||||||
$ | 36,657 | $ | 24,340 | $ | 36,069 | $ | 36,657 |
SG&A expenses
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Employee compensation expenses | $ | 63,293 | $ | 44,455 | $ | 61,464 | 63,293 | |||||||||
Buildings, facilities and technology expenses | 15,273 | 12,270 | 15,915 | 15,273 | ||||||||||||
Travel, advertising and promotion expenses | 9,719 | 6,586 | 9,142 | 9,719 | ||||||||||||
Professional fees | 4,267 | 3,100 | 4,075 | 4,267 | ||||||||||||
Other SG&A expenses | 4,918 | 4,164 | 4,588 | 4,918 | ||||||||||||
$ | 97,470 | $ | 70,575 | $ | 95,184 | $ | 97,470 |
Acquisition-related costs
Three months ended March 31, | 2018 | 2017 | ||||||
IronPlanet: (note 19) | $ | 639 | $ | 7,691 | ||||
Other acquisitions: | ||||||||
Continuing employment costs | 968 | 864 | ||||||
Other acquisition-related costs | 26 | 72 | ||||||
$ | 1,633 | $ | 8,627 |
Acquisition-related costs consist of operating expenses directly incurred as part of a business combination, due diligence and integration planning related to the IronPlanet acquisition, and continuing employment costs that are recognized separately from our business combinations.
Three months ended March 31, | 2019 | 2018 | ||||||
IronPlanet: | ||||||||
Other acquisition-related costs | $ | 82 | $ | 639 | ||||
Other acquisitions: | ||||||||
Continuing employment costs | 87 | 968 | ||||||
Other acquisition-related costs | 500 | 26 | ||||||
$ | 669 | $ | 1,633 |
Depreciation and amortization expenses
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Depreciation expense | $ | 6,916 | $ | 6,792 | $ | 7,168 | $ | 6,916 | ||||||||
Amortization expense | 9,275 | 3,546 | 9,947 | 9,275 | ||||||||||||
$ | 16,191 | $ | 10,338 | $ | 17,115 | $ | 16,191 |
Ritchie Bros. | 16 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
7. | Income taxes |
At the end of each interim period, the Company estimates 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 the three months ended March 31, 2018,2019, income tax expense was $5,269,000,$6,639,000, compared to an income tax expense of $7,315,000$5,269,000 for the same period in 2017.2018. Our effective tax rate was 27% in the first quarter of 2019, compared to 23% in the first quarter of 2018, compared to 41% in the first quarter of 2017. The effective tax rate decreased in the first quarter of 2018 compared to the first quarter of 2017 primarily due to a greater proportion of income taxed in jurisdictions with lower tax rates and partially offset by our estimated Base Erosion Anti-Abuse Tax (“BEAT”). Additionally, in 2017 a $2,290,000 expense relating to an increase in uncertain tax positions was recognized and an increase in annual non-deductible acquisition costs was estimated.
Recent Tax Legislation
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. The Tax Act makes broad and complex changes to the U.S. tax code that impacted our quarter ended March 31, 2018, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and (2) imposing BEAT - a tax on certain deductible payments from our U.S. subsidiary to any of its foreign-related parties.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. For the three months ended March 31, 2018, we have not made any adjustments to the provisional amounts recorded at December 31, 2017. Additional work is still necessary for a more detailed analysis of our deferred tax assets and liabilities, our historical foreign earnings subject to the one-time transition tax, and potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to tax expense in the corresponding quarter of 2018 when the analysis is complete.2018.
8. | Earnings per share attributable to stockholders |
Basic earnings per share (“EPS”) attributable to stockholders was calculated by dividing the net income attributable to stockholders by the weighted average (“WA”) number of common shares outstanding.outstanding during the period. Diluted EPS attributable to stockholders was calculated by dividing the net income attributable to stockholders after giving effect to outstanding dilutive stock options and PSUs by the WA number of shares of common stock outstanding adjusted for allif the potentially dilutive securities had been issued. Potentially dilutive securities include unvested PSUs, RSUs, and outstanding stock options. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.
Net income | WA | Three months ended | ||||||||||||||||||||||
attributable to | number | Per share | March 31, 2019 | |||||||||||||||||||||
Three months ended March 31, 2018 | stockholders | of shares | amount | |||||||||||||||||||||
Net income | WA | |||||||||||||||||||||||
attributable to | number | Per share | ||||||||||||||||||||||
stockholders | of shares | amount | ||||||||||||||||||||||
Basic | 17,138 | 107,355,381 | $ | 0.16 | $ | 18,164 | 108,765,489 | $ | 0.17 | |||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Share units | - | 358,087 | - | - | 486,626 | - | ||||||||||||||||||
Stock options | - | 930,429 | - | - | 792,098 | - | ||||||||||||||||||
Diluted | 17,138 | 108,643,897 | $ | 0.16 | $ | 18,164 | 110,044,213 | $ | 0.17 |
Three months ended | ||||||||||||
March 31, 2018 | ||||||||||||
Net income | WA | |||||||||||
attributable to | number | Per share | ||||||||||
stockholders | of shares | amount | ||||||||||
Basic | $ | 17,138 | 107,355,381 | $ | 0.16 | |||||||
Effect of dilutive securities: | ||||||||||||
Share units | - | 358,087 | - | |||||||||
Stock options | - | 930,429 | - | |||||||||
Diluted | $ | 17,138 | 108,643,897 | $ | 0.16 |
Ritchie Bros. | 17 |
Notes to the Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) |
Net income | WA | |||||||||||
attributable to | number | Per share | ||||||||||
Three months ended March 31, 2017 | stockholders | of shares | amount | |||||||||
Basic | 10,377 | 106,851,595 | $ | 0.10 | ||||||||
Effect of dilutive securities: | ||||||||||||
Share units | 27 | 263,557 | - | |||||||||
Stock options | - | 673,797 | - | |||||||||
Diluted | 10,404 | 107,788,949 | $ | 0.10 |
In respect of PSUs awarded, performance and market conditions, depending on their outcome at the end of the contingency period, can reduce the number of vested awards to nil or to a maximum of 200% of the number of outstanding PSUs. For the three months ended March 31, 2018, 13,528 share units to purchase common shares were outstanding but excluded from the calculation of diluted EPS attributable to stockholders as they were anti-dilutive (2017: nil). For the three months ended March 31, 2018, stock options to purchase 1,619,141 common shares were outstanding but excluded from the calculation of diluted EPS attributable to stockholders as they were anti-dilutive (2017: nil).
9. | Supplemental cash flow information |
Three months ended March 31, | 2018 | 2017 | ||||||
Trade and other receivables | $ | (90,077 | ) | $ | (58,839 | ) | ||
Inventory | 3,090 | 7,813 | ||||||
Advances against auction contracts | (223 | ) | (1,806 | ) | ||||
Prepaid expenses and deposits | (3,443 | ) | 4,010 | |||||
Income taxes receivable | 1,903 | (1,910 | ) | |||||
Auction proceeds payable | 103,390 | 178,655 | ||||||
Trade and other payables | 8,202 | (11,402 | ) | |||||
Income taxes payable | 920 | (4,052 | ) | |||||
Share unit liabilities | 1,192 | (408 | ) | |||||
Other | 311 | (16 | ) | |||||
Net changes in operating assets and liabilities | $ | 25,265 | $ | 112,045 |
Three months ended March 31, | 2019 | 2018 | ||||||
Trade and other receivables | $ | (91,605 | ) | $ | (90,077 | ) | ||
Inventory | 37,135 | 3,090 | ||||||
Advances against auction contracts | (1,041 | ) | (223 | ) | ||||
Prepaid expenses and deposits | (492 | ) | (3,443 | ) | ||||
Income taxes receivable | (1,458 | ) | 1,903 | |||||
Auction proceeds payable | 120,036 | 103,390 | ||||||
Trade and other payables | (36,887 | ) | 8,202 | |||||
Income taxes payable | 1,496 | 920 | ||||||
Share unit liabilities | - | 1,192 | ||||||
Other | 221 | 311 | ||||||
Net changes in operating assets and liabilities | $ | 27,405 | $ | 25,265 |
Three months ended March 31, | 2018 | 2017 | ||||||
Interest paid, net of interest capitalized | $ | 16,877 | $ | 903 | ||||
Interest received | 392 | 956 | ||||||
Net income taxes paid | 1,265 | 14,756 | ||||||
Non-cash transactions: | ||||||||
Non-cash purchase of property, plant and equipment under capital lease | 573 | 207 |
Three months ended March 31, | 2019 | 2018 | ||||||
Interest paid, net of interest capitalized | $ | 16,521 | $ | 16,877 | ||||
Interest received | 855 | 392 | ||||||
Net income taxes paid | 6,339 | 1,265 | ||||||
Non-cash purchase of property, plant and equipment under capital lease | $ | 2,564 | $ | 573 |
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Cash and cash equivalents | $ | 266,491 | $ | 237,744 | ||||
Restricted cash | 56,743 | 67,823 | ||||||
Cash, cash equivalents, and restricted cash | $ | 323,234 | $ | 305,567 |
Ritchie Bros. | 18 |
Notes to the Condensed Consolidated Financial Statements (Tabular amounts expressed in thousands of United States dollars, except where noted) |
9. Supplemental cash flow information (continued)
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
Cash and cash equivalents | $ | 278,944 | $ | 267,910 | ||||
Restricted cash | 62,414 | 63,206 | ||||||
Cash, cash equivalents, and restricted cash | $ | 341,358 | $ | 331,116 |
10. | Fair value measurement |
All assets and liabilities for which fair value is measured or disclosed in the condensed consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement or disclosure:
● | Level 1: | Unadjusted quoted prices in active markets for identical assets or liabilities that the entity can access at measurement date; |
● | Level 2: | Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; and |
● | Level 3: | Unobservable inputs for the asset or liability. |
March 31, 2018 | December 31, 2017 | |||||||||||||||||
Category | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||
Fair values disclosed, recurring: | ||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 278,944 | $ | 278,944 | $ | 267,910 | $ | 267,910 | |||||||||
Restricted cash | Level 1 | 62,414 | 62,414 | 63,206 | 63,206 | |||||||||||||
Short-term debt (note 14) | Level 2 | 5,861 | 5,861 | 7,018 | 7,018 | |||||||||||||
Long-term debt (note 14) | ||||||||||||||||||
Senior unsecured notes | Level 1 | 487,782 | 498,125 | 487,339 | 520,000 | |||||||||||||
Term loans | Level 2 | 292,512 | 296,026 | 325,553 | 329,687 |
March 31, 2019 | December 31, 2018 | |||||||||||||||||
Category | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||
Fair values disclosed: | ||||||||||||||||||
Cash and cash equivalents | Level 1 | $ | 266,491 | $ | 266,491 | $ | 237,744 | $ | 237,744 | |||||||||
Restricted cash | Level 1 | 56,743 | 56,743 | 67,823 | 67,823 | |||||||||||||
Short-term debt | Level 2 | 8,687 | 8,687 | 19,896 | 19,896 | |||||||||||||
Long-term debt | ||||||||||||||||||
Senior unsecured notes | Level 1 | 489,579 | 510,938 | 489,136 | 487,813 | |||||||||||||
Term loans | Level 2 | 213,758 | 215,879 | 222,162 | 224,582 |
The carrying value of the Company‘s cash and cash equivalents, restricted cash, trade and other receivables, advances against auction contracts, auction proceeds payable, trade and other payables, and short term debt and revolving loans approximate their fair values due to their short terms to maturity. The carrying value of the term loans, before deduction of deferred debt issue costs, approximates itstheir fair value as the interest rates on the loans were short-term in nature. The fair value of the senior unsecured notes is determined by reference to a quoted market price.
11. | Other current assets |
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2018 | 2017 | 2019 | 2018 | |||||||||||||
Advances against auction contracts | $ | 7,569 | $ | 7,336 | $ | 16,573 | $ | 15,558 | ||||||||
Assets held for sale | 31,221 | 15,051 | ||||||||||||||
Prepaid expenses and deposits | 23,088 | 19,690 | 18,759 | 18,446 | ||||||||||||
$ | 30,657 | $ | 27,026 | $ | 66,553 | $ | 49,055 |
Assets held for sale
Balance, December 31, 2018 | 15,051 | |||
Reclassified from property, plant and equipment | 16,170 | |||
Balance, March 31, 2019 | $ | 31,221 |
Ritchie Bros. | 19 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
Assets held for sale (continued)
As at March 31, 2019, the Company’s assets held for sale consisted of five excess properties located in the United States. Management made the strategic decision to sell these properties to maximize the Company’s return on invested capital. The estimated sales proceeds are expected to be in excess of the current book value. The properties have been actively marketed for sale, and management expects the sales to be completed within 12 months of March 31, 2019. This property belongs to the A&M reportable segment.
12. | Other non-current assets |
March 31, 2019 | December 31, 2018 | |||||||
Right-of-use assets | $ | 96,805 | $ | - | ||||
Tax receivable | 13,234 | 12,705 | ||||||
Equity-accounted investments | 4,235 | 4,010 | ||||||
Deferred debt issue costs | 1,884 | 2,017 | ||||||
Other | 10,921 | 10,663 | ||||||
$ | 127,079 | $ | 29,395 |
Included
13. | Debt |
Carrying amount | ||||||||
March 31, | December 31, | |||||||
2019 | 2018 | |||||||
Short-term debt | $ | 8,687 | $ | 19,896 | ||||
Long-term debt: | ||||||||
Term loans: | ||||||||
Denominated in Canadian dollars, secured, bearing interest at a weighted average rate of 4.342%, due in monthly installments of interest only and quarterly installments of principal, maturing in October 2021 | 163,189 | 161,891 | ||||||
Denominated in United States dollars, secured, bearing interest at a weighted average rate of 4.606%, due in weekly installments of interest only and quarterly installments of principal, maturing in October 2021 | 52,690 | 62,690 | ||||||
Less: unamortized debt issue costs | (2,121 | ) | (2,419 | ) | ||||
Senior unsecured notes: | ||||||||
Bearing interest at 5.375% due in semi-annual installments, with the full amount of principal due in January 2025 | 500,000 | 500,000 | ||||||
Less: unamortized debt issue costs | (10,421 | ) | (10,864 | ) | ||||
Total long-term debt | 703,337 | 711,298 | ||||||
Total debt | $ | 712,024 | $ | 731,194 | ||||
Long-term debt: | ||||||||
Current portion | $ | 15,648 | $ | 13,126 | ||||
Non-current portion | 687,689 | 698,172 | ||||||
Total long-term debt | 703,337 | $ | 711,298 |
Ritchie Bros. | 20 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in other non-current assets is a tax receivable amountthousands of $13,419,000 (December 31, 2017: $12,851,000)United States dollars, except where noted)
13. |
Balance, December 31, 2017 | $ | 670,922 | ||
Additions | 3,242 | |||
Foreign exchange movement | (67 | ) | ||
Balance, March 31, 2018 | $ | 674,097 |
Carrying amount | ||||||||
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
Short-term debt | $ | 5,861 | $ | 7,018 | ||||
Long-term debt: | ||||||||
Term Loans (previously referred to as Delayed draw term loans): | ||||||||
Denominated in Canadian dollars, secured, bearing interest at a weighted average rate of 4.014%, due in monthly installments of interest only and quarterly installments of principal, maturing in October 2021 | 178,335 | 185,143 | ||||||
Denominated in United States dollars, secured, bearing interest at a weighted average rate of 4.064%, due in weekly installments of interest only and quarterly installments of principal, maturing in October 2021 | 117,691 | 144,544 | ||||||
Less: unamortized debt issue costs | (3,514 | ) | (4,134 | ) | ||||
Senior unsecured notes: | ||||||||
Bearing interest at 5.375% due in semi-annual installments, with the full amount of principal due in January 2025 | 500,000 | 500,000 | ||||||
Less: unamortized debt issue costs | (12,218 | ) | (12,661 | ) | ||||
Total Long-term debt | 780,294 | 812,892 | ||||||
Total debt | $ | 786,155 | $ | 819,910 | ||||
Long-term debt: | ||||||||
Current portion | $ | 9,264 | $ | 16,907 | ||||
Non-current portion | 771,030 | 795,985 | ||||||
Total Long-term debt | $ | 780,294 | $ | 812,892 |
Short-term debt at March 31, 2018 is comprised of drawings in different currencies on the Company’s committed revolving credit facilities and have a weighted average interest rate of 2.9% (December 31, 2017: 2.7%).
During the quarter, the companyCompany made voluntary prepayments totalling $25,000,000$10,000,000 (2018 - $25,000,000) on the term loan denominated in United States dollars. Prepayments are applied against future scheduled mandatory payments. The amount available pursuant to the term loan facility was only available to finance the acquisition of IronPlanet and will not be available for other corporate purposes upon repayment of amounts borrowed under that facility.
Short-term debt is comprised of drawings in different currencies on the Company’s committed revolving credit facilities, and for the three months ended March 31, 2019, have a weighted average interest rate of 3.6% (December 31, 2018: 2.3%).
As at March 31, 2018,2019, the Company had availableunused committed revolving credit facilities aggregating $655,600,000$485,366,000 of which $651,761,000$480,962,000 is available until October 27, 2021.
Other non-current liabilities |
March 31, | December 31, | |||||||
2018 | 2017 | |||||||
Tax payable | $ | 26,698 | $ | 25,958 | ||||
Finance lease obligation - non-current | 7,130 | 7,875 | ||||||
Share unit liabilities | - | 2,865 | ||||||
Other non-current liabilities | 11,029 | 10,075 | ||||||
$ | 44,857 | $ | 46,773 |
March 31, 2019 | December 31, 2018 | |||||||
Operating lease liability | $ | 93,035 | $ | - | ||||
Tax payable | 22,438 | 22,583 | ||||||
Finance lease liability | 10,912 | 10,146 | ||||||
Other | 2,820 | 9,251 | ||||||
$ | 129,205 | $ | 41,980 |
Equity and dividends |
Share capital
Preferred stock
Unlimited number of senior preferred shares, without par value, issuable in series.
Unlimited number of junior preferred shares, without par value, issuable in series.
All issued shares are fully paid. No preferred shares have been issued.
Dividends
Declared and paid
The Company declared and paid the following dividends during the three months ended March 31, 20182019 and 2017:2018:
Declaration date | Dividend per share | Record date | Total dividends | Payment date | Declaration date | Dividend per share | Record date | Total dividends | Payment date | |||||||||||||||||||
Fourth quarter 2018 | January 25, 2019 | $ | 0.1800 | February 15, 2019 | $ | 19,568 | March 8, 2019 | |||||||||||||||||||||
Fourth quarter 2017 | January 26, 2018 | $ | 0.1700 | February 16, 2018 | $ | 18,246 | March 9, 2018 | January 26, 2018 | $ | 0.1700 | February 16, 2018 | $ | 18,246 | March 9, 2018 | ||||||||||||||
Fourth quarter 2016 | January 23, 2017 | $ | 0.1700 | February 10, 2017 | $ | 18,160 | March 3, 2017 |
Declared and undistributed
Subsequent to March 31, 2018,2019, the Company’s Board of Directors declared a quarterly dividend of $0.17$0.18 cents per common share, payable on June 20, 201819, 2019 to stockholders of record on May 30, 2018.29, 2019. This dividend payable has not been recognized as a liability in the financial statements. The payment of this dividend will not have any tax consequences for the Company.
Ritchie Bros. | 21 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
Equity and dividends (continued) |
Foreign currency translation reserve
Foreign currency translation adjustments include intra-entity foreign currency transactions that are of a long-term investment nature, which generated a net gainsloss of $2,138,000$855,000 for the three months ended March 31, 2018 (2017:2019 (2018: net gains of $3,667,000)$2,138,000).
Share-based payments |
Share-based payments consist of the following compensation costs:
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Stock option compensation expense: | ||||||||||||||||
SG&A expenses | $ | 2,148 | $ | 1,311 | $ | 1,539 | 2,148 | |||||||||
Acquisition-related costs | 195 | - | - | 195 | ||||||||||||
Share unit expense (recovery): | ||||||||||||||||
Share unit expense: | ||||||||||||||||
Equity-classified share units | 3,035 | 1,012 | 2,368 | 3,035 | ||||||||||||
Liability-classified share units | 1,599 | (407 | ) | 150 | 1,599 | |||||||||||
Employee share purchase plan - employer contributions | 537 | 436 | 553 | 537 | ||||||||||||
$ | 7,514 | $ | 2,352 | $ | 4,610 | $ | 7,514 |
Share unit expense (recovery) and employer contributions to the employee share purchase plan are recognized in SG&A expenses.
Stock option planplans
Stock option activity for the three months ended March 31, 20182019 is presented below:
WA | ||||||||||||||||
Common | WA | remaining | Aggregate | |||||||||||||
shares under | exercise | contractual | intrinsic | |||||||||||||
option | price | life (in years) | value | |||||||||||||
Outstanding, December 31, 2017 | 4,459,744 | $ | 24.29 | 7.5 | $ | 17,649 | ||||||||||
Granted | 889,169 | 32.16 | ||||||||||||||
Exercised | (202,112 | ) | 21.34 | $ | 2,215 | |||||||||||
Forfeited | (19,662 | ) | 22.25 | |||||||||||||
Outstanding, March 31, 2018 | 5,127,139 | $ | 25.78 | 7.7 | $ | 30,313 | ||||||||||
Exercisable, March 31, 2018 | 2,675,935 | $ | 24.13 | 6.7 | $ | 19,839 |
The fair value of the stock option grants is estimated on the date of the grant using the Black-Scholes option pricing model. The weighted average grant date fair value of options granted during the three months ended March 31, 2018 was $7.67.
Stock option plan (continued)
WA | ||||||||||||||||
Common | WA | remaining | Aggregate | |||||||||||||
shares under | exercise | contractual | intrinsic | |||||||||||||
option | price | life (in years) | value | |||||||||||||
Outstanding, December 31, 2018 | 4,013,863 | $ | 26.41 | 7.2 | $ | 25,374 | ||||||||||
Granted | 862,198 | 33.79 | ||||||||||||||
Exercised | (82,926 | ) | 19.61 | 1,302 | ||||||||||||
Forfeited | (15,405 | ) | 15.83 | |||||||||||||
Outstanding, March 31, 2019 | 4,777,730 | 27.89 | 7.5 | 29,190 | ||||||||||||
Exercisable, March 31, 2019 | 2,820,624 | $ | 25.51 | 6.5 | $ | 23,943 |
The significant assumptions used to estimate the fair value of stock options granted during the three months ended March 31, 20182019 and 20172018 are presented in the following table on a weighted average basis:
Three months ended March 31, | 2018 | 2017 | 2019 | 2018 | ||||||||||||
Risk free interest rate | 2.7 | % | 2.1 | % | 2.5 | % | 2.7 | % | ||||||||
Expected dividend yield | 2.11 | % | 2.05 | % | 2.06 | % | 2.11 | % | ||||||||
Expected lives of the stock options | 5 years | 5 years | 5 years | 5 years | ||||||||||||
Expected volatility | 28.1 | % | 27.9 | % | 26.8 | % | 28.1 | % |
As at March 31, 2018,2019, the unrecognized stock-based compensation cost related to the non-vested stock options was $10,976,000$9,530,000, which is expected to be recognized over a weighted average period of 2.52.6 years.
Ritchie Bros. | 22 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
16. | Share-based payments (continued) |
Share unit plans
Share unit activity for the three months ended March 31, 20182019 is presented below:
Equity-classified awards | Liability-classified awards | |||||||||||||||||||||||||||||||||||||||
PSUs | RSUs | PSUs | RSUs | DSUs | ||||||||||||||||||||||||||||||||||||
WA grant | WA grant | WA grant | WA grant | WA grant | ||||||||||||||||||||||||||||||||||||
date fair | date fair | date fair | date fair | date fair | ||||||||||||||||||||||||||||||||||||
Number | value | Number | value | Number | value | Number | value | Number | value | |||||||||||||||||||||||||||||||
Outstanding, December 31, 2017 | 434,248 | $ | 27.83 | 125,152 | $ | 26.93 | 259,241 | $ | 26.38 | 4,666 | $ | 26.42 | 93,487 | $ | 26.32 | |||||||||||||||||||||||||
Granted | 223,484 | 31.37 | 88,120 | 31.98 | - | - | 25 | 32.26 | 5,475 | 32.05 | ||||||||||||||||||||||||||||||
Transferred to (from) equity awards on modification | 257,659 | 31.30 | - | - | (257,659 | ) | 26.38 | - | - | - | - | |||||||||||||||||||||||||||||
Forfeited | (15,519 | ) | 31.28 | - | - | (1,582 | ) | 26.45 | - | - | - | - | ||||||||||||||||||||||||||||
Outstanding, March 31, 2018 (1) | 899,872 | $ | 30.87 | 213,272 | $ | 29.02 | - | $ | - | 4,691 | $ | 26.45 | 98,962 | $ | 26.64 |
As at March 31, 2018, the unrecognized share unit expense related to equity-classified PSUs was $13,656,668 which is expected to be recognized over a weighted average period of 2.2 years. The unrecognized share unit expense related to equity-classified RSUs was $5,696,935, which is expected to be recognized over a weighted average period of 2.8 years. The unrecognized share unit expense related to liability-classified RSUs was $30,024, which is expected to be recognized over a weighted average period of 0.6 years. There is no unrecognized share unit expense related to liability-classified DSUs as they vest immediately upon grant.
Equity-classified awards | Liability-classified awards | |||||||||||||||||||||||
PSUs | RSUs | DSUs | ||||||||||||||||||||||
WA grant | WA grant | WA grant | ||||||||||||||||||||||
date fair | date fair | date fair | ||||||||||||||||||||||
Number | value | Number | value | Number | value | |||||||||||||||||||
Outstanding, December 31, 2018 | 670,288 | $ | 31.46 | 207,986 | $ | 28.99 | 113,435 | $ | 28.16 | |||||||||||||||
Granted | 155,803 | 36.41 | 25,726 | 36.44 | 6,522 | 36.54 | ||||||||||||||||||
Vested and settled | (231,873 | ) | 30.41 | (260 | ) | 31.98 | - | - | ||||||||||||||||
Forfeited | (1,123 | ) | 31.63 | (530 | ) | 32.08 | - | - | ||||||||||||||||
Outstanding, March 31, 2019 | 593,095 | $ | 33.17 | 232,922 | $ | 29.81 | 119,957 | $ | 28.62 |
Senior executive and employee PSU plans
The Company grants PSUs under a senior executive PSU plan and an employee PSU plan (the “PSU Plans”). Under the PSU Plans, the number of PSUs that vest is conditional upon specified market, service, andor performance vesting conditions being met. The PSU Plans allow the Company to choose whether to settle the awards in cash or in shares. The Company intends to settle in shares. With respect to settling in shares, the Company has the option to either (i) arrange for the purchase shares on the open market on the employee’s behalf based on the cash value that otherwise would be delivered, or (ii) to issue a number of shares equal to the number of units that vest.
The fair value of the equity-classified PSUs awarded in 2018 is estimated on modification date and on the date of grant using a Monte-Carlo simulation model as these awards are subject to market vesting conditions. The significant assumptions used to estimate the fair value of the equity-classified PSUs awarded during the three months ended March 31, 2018 are presented in the following table on a weighted average basis:
Three months ended March 31, | 2018 | |||
Risk free interest rate | 1.9 | % | ||
Expected dividend yield | 2.09 | % | ||
Expected lives of the PSUs | 3 years | |||
Expected volatility | 31.1 | % | ||
Average expected volatility of comparable companies | 34.1 | % |
The fair value of the equity-classified PSUs awarded in 2019 is estimated based on the Company’s common share price at grant date, as these awards are not subject to market vesting conditions.
As at March 31, 2019, the unrecognized share unit expense related to equity-classified PSUs was $11,688,000, which is expected to be recognized over a weighted average period of 2.2 years.
RSUs
The Company has RSU plans that are equity-settled and not subject to market vesting conditions.
As at March 31, 2019, the unrecognized share unit expense related to equity-classified RSUs was $4,386,000, which is expected to be recognized over a weighted average period of 1.8 years.
Ritchie Bros. | 23 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
Share-based payments (continued) |
Share unit plans (continued)
Senior executiveDSUs
The Company has DSU plans that are cash-settled and employee PSU plans (continued)not subject to market vesting conditions.
OnFair values of DSUs are estimated on grant date and at each reporting date. DSUs are granted under the DSU plan to members of the Board of Directors. There is no unrecognized share unit expense related to liability-classified DSUs as they vest immediately and are expensed upon grant.
As at March 1, 2018,31, 2019, the Company modified the market and performance vesting conditions for the PSUs. Concurrently, the employee PSU plan were reclassified to equity awards, based on the Company’s settlement intentions. The weighted average fair value of the PSU awards outstanding on the modification date was $31.35. The incremental compensation recognized ashad a result of the vesting condition modification was $1,400,000. Thetotal share unit liability related toof $4,068,000 (December 31, 2018: $3,714,000) in respect of share units under the employee PSUs, representing the portion of the fair value attributable to past service, was $6,701,000, which was reclassified to equity on that date. No incremental compensation was recognized as a result of the employee PSU settlement modification. Because the employee PSUs are contingently redeemable in cash in the event of death of the participant, on the modification date, the Company reclassified $6,132,000 to temporary equity, representing the portion of the contingent redemption amount of the PSUs as if redeemable on March 1, 2018, to the extent attributable to prior service.DSU plans.
Employee share purchase plan
The fairCompany has an employee share purchase plan that allows all employees that have completed two months of service to contribute funds to purchase common shares at the current market value at the time of share purchase. Employees may contribute up to 4% of their salary. The Company will match between 50% and 100% of the equity-classified PSUs is estimated on modification date andemployee‘s contributions, depending on the dateemployee‘s length of grant using a binomial model. service with the Company.
17. | Leases |
The significant assumptions used to estimate the fair valueCompany’s breakdown of the equity-classified PSUs duringlease expense for the three months ended March 31, 20182019 is as follows:
Three months ended March 31, 2019 | ||||
Operating lease cost | $ | 5,212 | ||
Finance lease cost | ||||
Amortization of leased assets | 1,760 | |||
Interest on lease liabilities | 155 | |||
Short-term lease cost | 2,565 | |||
Sublease income | (154 | ) | ||
$ | 9,538 |
Operating leases
The Company has entered into commercial leases for various auction sites and 2017offices located in North America, Europe, the Middle East and Asia. The majority of these leases are presentednon-cancellable. The Company also has further operating leases for computer equipment, certain motor vehicles and small office equipment where it is not in the following tablebest interest of the Company to purchase these assets.
The majority of the Company‘s operating leases have a fixed term with a remaining life between one month and 20 years, with renewal options included in the contracts. The leases have varying contract terms, escalation clauses and renewal options. Generally there are no restrictions placed upon the lessee by entering into these leases, other than restrictions on use of property, sub-letting and alterations. At the inception of a lease, the Company determines whether it is reasonably certain to exercise a renewal option and includes the options in the determination of the lease term and the lease liability where it is reasonably certain to exercise the option. If the Company’s intention is to exercise an option subsequent to the commencement of the lease, the Company will re-assess the lease term. The Company has included certain renewal options in its operating lease liabilities for key property leases for locations that have strategic importance to the Company such as its Corporate Head Office. The Company has not included any purchase options available within its operating lease portfolio in its determination of its operating lease liability.
Ritchie Bros. | 24 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
17. | Leases (continued) |
Operating leases (continued)
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
Remainder of 2019 | $ | 11,555 | ||
2020 | 13,817 | |||
2021 | 10,925 | |||
2022 | 9,524 | |||
2023 | 7,792 | |||
Thereafter | 85,876 | |||
Total future minimum lease payments | $ | 139,489 | ||
less: imputed interest | (35,804 | ) | ||
Total operating lease liability | $ | 103,685 | ||
less: operating lease liability - current | (10,650 | ) | ||
Total operating lease liability – non-current | $ | 93,035 |
At March 31, 2019 the Company has ROU assets relating to operating leases in the amount of $96,805,000.
At March 31, 2019 the weighted average basis:remaining lease term for operating leases is 14.9 years and the weighted average discount rate is 4.1%.
Three months ended March 31, | 2018 | 2017 | ||||||
Risk free interest rate | 1.9 | % | 1.4 | % | ||||
Expected dividend yield | 2.09 | % | 1.92 | % | ||||
Expected lives of the PSUs | 3 years | 3 years | ||||||
Expected volatility | 31.1 | % | 28.2 | % | ||||
Average expected volatility of comparable companies | 34.1 | % | 37.0 | % |
Finance leases
The Company has entered into finance lease arrangements for certain vehicles, computer and yard equipment and office furniture. The majority of the leases have a fixed term with a remaining life of one month to six years with renewal options included in the contracts. In certain of these leases, the Company has the option to purchase the leased asset at fair market value or a stated residual value at the end of the lease term. For certain leases such as vehicle leases the Company has included renewal options in the determination of its lease liabilities. The Company has not included any purchase options available within its finance lease portfolio in its determination of the finance lease liability.
As at March 31, 2019, the net carrying amount of computer and yard equipment and other assets under capital leases is $15,356,000 (December 31, 2018: $14,976,000), and is included in the total property, plant and equipment as disclosed on the consolidated balance sheets.
As at March 31, 2019 | Cost | Accumulated depreciation | Net book value | |||||||||
Computer equipment | $ | 11,291 | $ | (4,805 | ) | $ | 6,486 | |||||
Yard and others | 11,925 | (3,055 | ) | 8,870 | ||||||||
$ | 23,216 | $ | (7,860 | ) | $ | 15,356 |
As at December 31, 2018 | Cost | Accumulated depreciation | Net book value | |||||||||
Computer equipment | $ | 9,428 | $ | (3,992 | ) | $ | 5,436 | |||||
Yard and auto equipment | 12,125 | (2,585 | ) | 9,540 | ||||||||
$ | 21,553 | $ | (6,577 | ) | $ | 14,976 |
Ritchie Bros. | 25 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
17. | Leases (continued) |
Finance leases (continued)
The future aggregate minimum lease payments under non-cancellable finance leases are as follows:
Remainder of 2019 | $ | 4,539 | ||
2020 | 5,157 | |||
2021 | 3,871 | |||
2022 | 2,314 | |||
2023 | 1,020 | |||
Thereafter | 43 | |||
Total future minimum lease payments | $ | 16,944 | ||
less: imputed interest | (303 | ) | ||
Total finance lease liability | $ | 16,641 | ||
less: finance lease liability - current | (5,729 | ) | ||
Total finance lease liability – non-current | $ | 10,912 |
At March 31, 2019 the weighted average remaining lease term for finance leases is 3.3 years and the weighted average discount rate is 3.9%.
Subleases
As at March 31, 2019, the total future minimum sublease payments expected to be received under non-cancellable subleases is $981,000.
18. | Commitments |
Commitment for inventory purchase
The Company entered into a two-year non-rolling stock surplus contract with the U.S. Government Defense Logistics Agency (the “DLA”) in December 2017 with the option to extend for up to four-years. Pursuant to the contract the performance period commenced in April 2018 and concludes in March 2020.
The Company has committed to purchase between 150,000 and 245,900 units of property with an expected minimum value of $11,104,000 and up to $51,028,000 annually to the extent that goods are available from the DLA over the initial 12 month period relating to the purchase of inventory. At March 31, 2019, the Company has purchased $47,676,000 pursuant to the initial 12 month period of this contract which commenced in April 2018.
19. | Contingencies |
Legal and other claims
The Company is subject to legal and other claims that arise in the ordinary course of its business. Management does not believe that the results of these claims will have a material effect on the Company’s consolidated balance sheet or consolidated income statement.
Guarantee contracts
In the normal course of business, the Company will in certain situations guarantee to a consignor a minimum level of proceeds in connection with the sale at auction of that consignor’s equipment.
Ritchie Bros. | 26 |
Notes to the Condensed Consolidated Financial Statements
(Tabular amounts expressed in thousands of United States dollars, except where noted)
19. | Contingencies (continued) |
At March 31, 2018,2019, there were $103,315,000$138,057,000 of assets guaranteed under contract, of which 87%83% is expected to be sold prior to the end of June 30, 2018,2019 with the remainder to be sold prior to December 31, 2018by September 30, 2021 (December 31, 2017: $30,948,0002018: $41,461,000 of which 27%51% is expected to be sold prior to the end of March 31, 20182019 with the remainder to be sold by DecemberMay 31, 2018)2020).
The outstanding guarantee amounts are undiscounted and before estimated proceeds from sale at auction.
20. | Subsequent Events |
On May 8, 2019, our Board of Directors authorized a share repurchase program for the repurchase of up to $100,000,000 worth of our common shares subject to Toronto Stock Exchange approval over the next 12 months.
Ritchie Bros. |
IronPlanet acquisition
On May 31, 2017 (the “IronPlanet Acquisition Date”), the Company acquired 100% of the issued and outstanding shares of IronPlanet for a total fair value consideration of $776,474,000. As at the acquisition date, cash consideration of $772,706,000, of which approximately $35,000,000 was placed in escrow, was paid to the former shareholders, vested option holders and warrant holders of IronPlanet. In addition to the cash consideration, non-cash consideration of $2,330,000 was issued attributable to the assumption of outstanding IronPlanet options, $1,771,000 was paid in cash and placed in escrow, related to customary closing adjustments, and $333,000 was related to settlement of intercompany payable transactions. Funds placed in escrow of $36,771,000 were released in March 2018.
A summary of the net cash flows and purchase price are detailed below:
May 31, 2017 | ||||
Cash consideration paid to former equity holders | $ | 723,810 | ||
Settlement of IronPlanet's debt | 36,313 | |||
Settlement of IronPlanet's transaction costs | 12,583 | |||
Cash consideration paid on closing | 772,706 | |||
Cash consideration paid related to closing adjustments | 1,771 | |||
Less: cash and cash equivalents acquired | (95,626 | ) | ||
Less: restricted cash acquired | (3,000 | ) | ||
Acquisition of IronPlanet, net of cash acquired | $ | 675,851 | ||
Cash consideration paid on closing | $ | 772,706 | ||
Replacement stock option awards attributable to pre- combination services | 4,926 | |||
Stock option compensation expense from accelerated vesting of awards attributable to post-combination services | (2,596 | ) | ||
Cash consideration paid relating to closing adjustments | 1,771 | |||
Settlement of pre-existing intercompany balances | (333 | ) | ||
Purchase price | $ | 776,474 |
IronPlanet is a leading online marketplace for selling and buying used equipment and other durable assets and an innovative participant in the multi–billion dollar used equipment market. The acquisition expands the breadth and depth of equipment disposition and management solutions the Company can offer its customers.
The acquisition was accounted for in accordance with ASC 805,Business Combinations. The assets acquired and liabilities assumed were recorded at their estimated fair values at the IronPlanet Acquisition Date. Goodwill of $568,137,000 was calculated as the fair value of consideration over the estimated fair value of the net assets acquired.
IronPlanet provisional purchase price allocation
May 31, 2017 | ||||
Purchase price | $ | 776,474 | ||
Assets acquired: | ||||
Cash and cash equivalents | $ | 95,626 | ||
Restricted cash | 3,000 | |||
Trade and other receivables | 13,021 | |||
Inventory | 600 | |||
Advances against auction contracts | 4,623 | |||
Prepaid expenses and deposits | 1,645 | |||
Income taxes receivable | 55 | |||
Property, plant and equipment | 2,381 | |||
Other non-current assets | 2,551 | |||
Deferred tax assets | 1,497 | |||
Intangible assets ~ | 188,000 | |||
Liabilities assumed: | ||||
Auction proceeds payable | 63,616 | |||
Trade and other payables | 14,511 | |||
Deferred tax liabilities | 26,535 | |||
Fair value of identifiable net assets acquired | 208,337 | |||
Goodwill acquired on acquisition | $ | 568,137 |
The amounts included in the IronPlanet provisional purchase price allocation are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the IronPlanet Acquisition Date. The final determination of the fair values of certain assets and liabilities will be completed within the measurement period of up to one year from the IronPlanet Acquisition Date, and is dependent upon finalization of income tax liabilities. Adjustments to the preliminary values during the measurement period will be recorded in the operating results of the reporting period in which the adjustments are determined. Changes to the amounts recorded as assets and liabilities will result in a corresponding adjustment to goodwill.
Goodwill
The main drivers generating goodwill are the anticipated synergies from (1) the Company's auction expertise and transactional capabilities to IronPlanet's existing customer base, (2) IronPlanet providing existing technology to the Company's current customer base, and (3) future growth from international expansion and new Caterpillar dealers. Other factors generating goodwill include the acquisition of IronPlanet's assembled work force and their associated technical expertise.
Acquisition-related costs
Expenses totalling $639,000 for legal fees, stock option compensation expense, and other acquisition-related costs are included in the consolidated income statement for the three months ended March 31, 2018 (2017: $7,691,000).
ITEM 2: | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
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 December 31, 2017,2018, which is available on our website atwww.rbauction.com, on EDGAR atwww.sec.gov, or on SEDAR atwww.sedar.com, are among those that we consider may affect our performance materially or could cause our actual financial and operational results to differ significantly from our expectations. Except as required by applicable securities law and regulations of relevant securities exchanges, we do not intend to update publicly any forward-looking statements, even if our expectations have been affected by new information, future events or other developments.
We prepare our consolidated financial statements in accordance with United States generally accepted accounting principles (“US GAAP”). Except for Gross Transaction Value (“GTV”)1, which is a measure of operational performance and not a measure of financial performance, liquidity, or revenue, the amounts discussed below are based on our consolidated financial statements. Unless indicated otherwise, all tabular dollar amounts, including related footnotes, presented below are expressed in thousands of United States (“U.S.”) dollars.
We make reference to variousIn 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 SEC rules. The definitions and reasons we use these non-GAAP financial measures throughoutand the reconciliations to their most directly comparable US GAAP financial measures are included either with the first use thereof or in the Non-GAAP Measures section within the MD&A. Non-GAAP financial measures referred to in this discussionreport are labeled as “non-GAAP measure” or designated as such with an asterisk (*). Please see pages 38-44 for explanations of why we use these non-GAAP measures and analysis. These measures do not have a standardized meaning, andthe reconciliation to the most comparable GAAP financial measures.
Beginning in the first quarter of 2019, we are therefore unlikelyno longer disclosing agency proceeds*. Please refer to be comparable to similar measures presented by other companies.the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 for more information.
Overview
Ritchie Bros. Auctioneers Incorporated (“Ritchie Bros.”, the “Company”, “we”, or “us”) (NYSE & TSX: RBA) was founded in 1958 in Kelowna, British Columbia, Canada and is a world leader in asset management and disposition of used industrial equipment and other durable assets, selling $1.2$4.96 billion of used equipment and other assets during the first quarter of 2018. Our expertise, unprecedented global reach, market insight, and trusted portfolio of brands provide us with a unique position in the used equipment market. We primarily sell used equipment for our customers through live, unreserved auctions at 40 auction sites worldwide, including in the United States, Canada, Australia, the United Arab Emirates, and the Netherlands, which are also simulcast online to reach a global bidding audience.audience and through our online marketplaces.
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.
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. |
On May 31, 2017, we acquired IronPlanet Holdings, Inc. (“IronPlanet”)We operate globally with locations in more than 13 countries, including the U.S., a leading online marketplace for heavy equipmentCanada, Australia, the United Arab Emirates, and other durable assets for $776.5 million (the “Acquisition”). IronPlanet’s complementary used equipment brand solutions, together with Marketplace-E, our online marketplace that supports reserved pricing, provide different value propositions to equipment ownersthe Netherlands, and allow us to meet the needs and preferences of a wide spectrum of equipment sellers and buyers. Upon the consummation of the Acquisition on May 31, 2017, we formed an alliance with Caterpillar Inc. (“Caterpillar”), pursuant to a Strategic Alliance and Remarketing Agreement (the “Alliance”). Under the Alliance, we became Caterpillar's preferred global partner for live on site and online auctions for used Caterpillar equipment.
In the past three years, we have also added a private brokerage service (Ritchie Bros. Private Treaty) and an online listing service (Mascus).
Through our unreserved live on site 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 through our multiple brand solutions. Customers selling equipment through our sales channels include end-users (such as construction companies), equipment dealers, original equipment manufacturers, and other equipment owners (such as rental companies and government bodies). Our customers participate in a variety of sectors, including heavy construction, transportation, agriculture, energy, and mining.employ more than 2,200 full time employees worldwide.
Service Offerings
As part of our Auction and Marketplace (“A&M”) solutions, 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. The tables below illustrate the variousFor a complete listing of channels and brand solutions available under our A&M segment, as well as our other services.Other services segment, please refer to our Annual Report on Form 10-K for the year ended December 31, 2018, which is available on our website atwww.rbauction.com, on EDGAR atwww.sec.gov, or on SEDAR atwww.sedar.com.
A&M segment
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Contract options
As part of our A&M business, we offer sellers several contract options to meet their individual needs and sale objectives, which include:including:
· | 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 refer to guarantee and inventory contracts as underwritten contracts.
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.
Revenue Accounting Policy Change
Effective January 1, 2018, we adopted ASU 2014-09Revenue from Contracts with Customers (“Topic 606”). Revenues on inventory sales and ancillary and logistical services are presentedgross of the related expenses rather than net. Accordingly, in addition to total revenues, we have added a new metric to our disclosures called agency proceeds2 (non-GAAP measure), which presents revenues as previously reported and is calculated as total revenues under Topic 606 less the cost of inventory sold and ancillary and logistical service expenses.
The following table presents total revenues and agency proceeds (non-GAAP measure) results for the first quarter of 2018 and 2017, as well as reconciles those two measures:
(in U.S. $000's) | Three months ended March 31, | |||||||
2018 | 2017 | |||||||
Total revenues | $ | 260,178 | $ | 199,427 | ||||
Less:cost of inventory sold | (75,791 | ) | (63,401 | ) | ||||
Less:ancillary and logistical service expenses | (14,580 | ) | (11,527 | ) | ||||
Agency proceeds (non-GAAP measure) | $ | 169,807 | $ | 124,499 |
Performance Highlights
Net income attributable to stockholders of $17.1 million improved 65% compared to $10.4 million for the same quarter in 2017. Diluted earnings per share (“EPS”) attributable to stockholders increased 60% to $0.16 versus $0.10 in the first quarter of 2017. Other key first quarter highlights included:
Consolidated results:
A&M segment results:
Results of Operations
Financial overview | Three months ended March 31, | |||||||||||||||
$ Change | % Change | |||||||||||||||
(in U.S. $000's, except EPS) | 2018 | 2017 | 2018 over 2017 | 2018 over 2017 | ||||||||||||
Service revenues | $ | 176,016 | $ | 123,379 | $ | 52,637 | 43 | % | ||||||||
Revenue from inventory sales | 84,162 | 76,048 | 8,114 | 11 | % | |||||||||||
Total revenues | 260,178 | 199,427 | 60,751 | 30 | % | |||||||||||
Costs of services | 36,657 | 24,340 | 12,317 | 51 | % | |||||||||||
Cost of inventory sold | 75,791 | 63,401 | 12,390 | 20 | % | |||||||||||
Selling, general and administrative expenses | 97,470 | 70,575 | 26,895 | 38 | % | |||||||||||
Acquisition-related costs | 1,633 | 8,627 | (6,994 | ) | (81 | )% | ||||||||||
Depreciation and amortization expenses | 16,191 | 10,338 | 5,853 | 57 | % | |||||||||||
Gain on disposal of property, plant and equipment | (345 | ) | (721 | ) | 376 | (52 | )% | |||||||||
Foreign exchange gain | (92 | ) | (730 | ) | 638 | (87 | )% | |||||||||
Operating income | 32,873 | 23,597 | 9,276 | 39 | % | |||||||||||
Operating income margin | 12.6 | % | 11.8 | % | n/a | 80 | bps | |||||||||
Interest expense | (11,310 | ) | (8,133 | ) | (3,177 | ) | 39 | % | ||||||||
Other income, net | 913 | 2,284 | (1,371 | ) | (60 | )% | ||||||||||
Income tax expense | 5,269 | 7,315 | (2,046 | ) | (28 | )% | ||||||||||
Net income attributable to stockholders | 17,138 | 10,377 | 6,761 | 65 | % | |||||||||||
Diluted earnings per share attributable to stockholders | $ | 0.16 | $ | 0.10 | $ | 0.06 | 60 | % | ||||||||
Effective tax rate | 23 | % | 41 | % | n/a | -1800 | bps | |||||||||
GTV | $ | 1,160,712 | $ | 899,410 | $ | 261,302 | 29 | % | ||||||||
Agency proceeds (non-GAAP measure) | 169,807 | 124,499 | 45,308 | 36 | % |
Consolidated Results
Total revenues
Total revenues are comprised of:
Total revenues increased $60.8 million, or 30%, in the first quarter of 2018 compared to the first quarter of 2017, primarily due to the Acquisition, an increase in the volume of inventory contracts in Canada and Europe, an increase in service revenues from our live on site auctions, and the partial harmonization of our transaction fees. Foreign exchange had a positive impact on total revenues in the first quarter of 2018.
Geographic analysis
The distribution of our revenues is determined by the location in which the sale occurred, or in the case of online sales, where the legal entity earning the revenues is incorporated. The following table presents our total revenues on a geographic basis:
(in U.S. $000's) | United States | Canada | Europe | Other | Consolidated | |||||||||||||||
Total revenues for the three months ended March 31, 2018 | $ | 135,563 | $ | 65,809 | $ | 34,574 | $ | 24,232 | $ | 260,178 | ||||||||||
Proportion of consolidated amount | 53 | % | 25 | % | 13 | % | 9 | % | 100 | % | ||||||||||
Total revenues for the three months ended March 31, 2017 | $ | 112,083 | $ | 41,492 | $ | 18,267 | $ | 27,585 | $ | 199,427 | ||||||||||
Proportion of consolidated amount | 56 | % | 21 | % | 9 | % | 14 | % | 100 | % | ||||||||||
Change 2018 over 2017: | ||||||||||||||||||||
$ change | $ | 23,480 | $ | 24,317 | $ | 16,307 | $ | (3,353 | ) | $ | 60,751 | |||||||||
% change | 21 | % | 59 | % | 89 | % | (12 | )% | 30 | % |
The increase in total revenues in Canada and Europe in the first quarter of 2018 compared to the first quarter of 2017 was primarily due to an increase in revenue from inventory sales over the same comparative period. The increase in total revenues in the United States was primarily due to the Acquisition, partially offset by a decrease in revenue from inventory sales over the comparative period. The decrease in total revenues from other regions was primarily due to a decrease in revenue from inventory sales in the first quarter of 2018 compared to the first quarter of 2017.
Costs of services
Costs of services are comprised of expenses incurred in direct relation to conducting auctions (“direct expenses”), earning online marketplace revenues, and earning other fee revenues. Direct expenses include direct labour, buildings and facilities charges, and travel, advertising and promotion costs.
Costs of services increased $12.4 million or 51% in the first quarter of 2018 compared to the first quarter of 2017, primarily due to the Acquisition and the costs associated with the inspection and appraisal activities that support our online channels. The increase is also due to an increase in GTV at our live on site auctions over the comparative period and the growth of our ancillary business.
Cost of inventory sold
Cost of inventory sold consists of the initial purchase price of equipment and other assets purchased for resale. Cost of inventory sold increased $12.4 million, or 20%, in the first quarter of 2018 compared to the first quarter of 2017, primarily due to higher volume of inventory contracts.
Selling, general and administrative (“SG&A”) expenses
SG&A expenses increased $26.9 million, or 38%, during the first quarter of 2018 compared to the first quarter of 2017, primarily due to the Acquisition, investment in talent to support new businesses and initiatives, and $4.6 million of share unit expenses in the first quarter of 2018 compared to $0.6 million in the first quarter of 2017. Foreign exchange had a negative impact on SG&A expenses in the first quarter of 2018.
The Acquisition drove increases in our employee compensation, audit fees, tax and legal consulting fees, and technology support costs. Our headcount6, including RBFS and Mascus but excluding Xcira, increased 26% over March 31, 2017, primarily due to the Acquisition and continued growth in the teams that support in our value-added services.
Of the $4.0 million increase in our share unit expenses in the first quarter of 2018 compared to the first quarter of 2017, $2.4 million related to mark-to-market costs driven by growth in our share price over the comparative period. In addition, the March 1, 2018 modification of certain performance factors related to our share units resulted in an incremental compensation cost of $1.4 million.
Acquisition-related costs
Acquisition-related costs consist of operating expenses directly incurred as part of a business combination, due diligence and integration planning – including those related to the Acquisition – and continuing employment costs that are recognized separately from our business combinations. Business combination, due diligence, and integration operating expenses include advisory, legal, accounting, valuation, and other professional or consulting fees, and travel and securities filing fees.
Acquisition-related costs decreased $7.0 million, or 81%, in the first quarter of 2018 compared to the first quarter of 2017 primarily due to costs associated with the Acquisition, which totaled $7.7 million in the first quarter of 2017 versus $0.6 million in the first quarter of 2018.
Operating income
Operating income of $32.9 million increased $9.3 million or 39%, in the first quarter of 2018, compared to the first quarter of 2017. This increase was driven by higher total revenues and lower acquisition costs, partially offset by higher costs of services and SG&A expenses. Foreign exchange did not have a significant impact on operating income in the first quarter of 2018. As there were no adjusting items during the first quarter of 2018 or the first quarter of 2017, adjusted operating income7 (non-GAAP measure) results were the same as operating income results.
Operating income margin, which is our operating income divided by revenues, increased 80 bps to 12.6% in the first quarter of 2018 compared to 11.8% in the first quarter of 2017. This increase is primarily due to the increase in operating income exceeding the increase in total revenues. Agency proceeds adjusted operating income rate8 (non-GAAP measure) increased to 19.4% in the first quarter of 2018 compared to 19.0% in the first quarter of 2017.
Interest expense
Interest expense of $11.3 million increased $3.2 million or 39% in the first quarter of 2018, compared to the first quarter of 2017. This increase is primarily due to the additional indebtedness we incurred in 2016 to finance the Acquisition and an increase in short-term interest over the comparative period. As of March 31, 2018, our long-term debt was $780.3 million compared to $596.4 million as of March 31, 2017.
Income tax expense and effective tax rate
For the three months ended March 31, 2018, income tax expense was $5.3 million, compared to an income tax expense of $7.3 million for the same period in 2017. Our effective tax rate was 23% in the first quarter of 2018, compared to 41% in the first quarter of 2017. The effective tax rate decreased in the first quarter of 2018 compared to the first quarter of 2017 primarily due to a greater proportion of income taxed in jurisdictions with lower tax rates and partially offset by our estimated Base Erosion Anti-Abuse Tax (“BEAT”). Additionally, in 2017 a $2.3 million expense relating to an increase in uncertain tax positions was recognized and greater annual non-deductible acquisitions costs were estimated.
On December 22, 2017 H.R. 1, originally known as the Tax Cuts and Jobs Act, (the “Tax Act”) was enacted. The Tax Act makes broad and complex changes to the U.S. tax code that impacted our quarter ended March 31, 2018, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and (2) imposing BEAT - a tax on certain deductible payments from our U.S. subsidiary to any of its foreign-related parties.
On December 22, 2017, Staff Accounting Bulletin No. 118 (“SAB 118”) was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. For the three months ended March 31, 2018, we have not made any adjustments to the provisional amounts recorded at December 31, 2017. Additional work is still necessary for a more detailed analysis of our deferred tax assets and liabilities, our historical foreign earnings subject to the one-time transition tax, and potential correlative adjustments. Any subsequent adjustment to these amounts will be recorded to tax expense in the corresponding quarter of 2018 when the analysis is complete.
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.
Net income
Net income attributable to stockholders increased $6.8 million, or 65%, in the first quarter of 2018 compared to the first quarter of 2017. This increase was primarily due to stronger operating income and was partially offset by a higher interest expense. Adjusted net income attributable to stockholders9(non-GAAP measure) increased $4.5 million, or 35%, to $17.1 million in the first quarter of 2018 from $12.7 million in the first quarter of 2017.
Similarly, net income increased $6.8 million or 65% to $17.2 million in the first quarter of 2018 from $10.4 million in the first quarter of 2017. Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)10 (non-GAAP measure) increased $14.3 million, or 41%, to $49.6 million in the first quarter of 2018 from $35.3 million in the first quarter of 2017.
Net income margin increased 140 bps to 6.6% in the first quarter of 2018 from 5.2% in the first quarter of 2017. Agency proceeds adjusted EBITDA rate11 (non-GAAP measure) increased 90 bps to 29.2% in the first quarter of 2018 from 28.3% in the first quarter of 2017, as revenue growth outpaced expense growth.
Debt at March 31, 2018, represented 9.6 times net income as at and for the 12 months ended March 31, 2018. This compares to debt at March 31, 2017, which represented 8.4 times net income as at and for the 12 months ended March 31, 2017. The increase in this debt/net income multiplier was primarily due to higher debt balances in the first quarter of 2018 versus the first quarter of 2017, partially offset by higher net income over the comparative period. The increase in debt was primarily due to funding for the Acquisition. Adjusted net debt/adjusted EBITDA12(non-GAAP measure) was 2.5 times as at and for the 12 months ended March 31, 2018 compared to -0.6 times as at and for the 12 months ended March 31, 2017.
Diluted EPS
Diluted EPS attributable to stockholders increased 60% to $0.16 in the first quarter of 2018 from $0.10 in the first quarter of 2017. This increase is primarily due to the increase in net income attributable to stockholders. Diluted adjusted EPS attributable to stockholders13 (non-GAAP measure) increased 33% to $0.16 in the first quarter of 2018 from $0.12 in the first quarter of 2017.
Segment Performance
Auctions and Marketplaces segment
(in U.S. $000's) | Three months ended March 31, | |||||||||||||||
$ Change | % Change | |||||||||||||||
2018 | 2017 | 2018 over 2017 | 2018 over 2017 | |||||||||||||
Service revenues | $ | 148,405 | $ | 103,030 | $ | 45,375 | 44 | % | ||||||||
Revenue from inventory sales | 84,162 | 76,048 | 8,114 | 11 | % | |||||||||||
Total revenues | 232,567 | 179,078 | 53,489 | 30 | % | |||||||||||
Costs of services | 21,448 | 12,587 | 8,861 | 70 | % | |||||||||||
Cost of inventory sold | 75,791 | 63,401 | 12,390 | 20 | % | |||||||||||
SG&A expenses | 93,002 | 67,111 | 25,891 | 39 | % | |||||||||||
A&M profit | $ | 42,326 | $ | 35,979 | $ | 6,347 | 18 | % |
Gross Transaction Value
We believe that revenues are best understood by considering their relationship with GTV. The following table presents GTV by channel:
(in U.S. $000's) | Three months ended March 31, | |||||||||||||||||||||||
2018 | 2017 | $ Change | % Change | |||||||||||||||||||||
Total GTV | % of total | Total GTV | % of total | 2018 over 2017 | 2018 over 2017 | |||||||||||||||||||
Live on site auctions | $ | 974,026 | 84 | % | $ | 860,806 | 96 | % | $ | 113,220 | 13 | % | ||||||||||||
Online marketplaces including featured(1)and other(2) | 186,686 | 16 | % | 38,604 | 4 | % | 148,082 | 384 | % | |||||||||||||||
GTV | $ | 1,160,712 | 100 | % | $ | 899,410 | 100 | % | $ | 261,302 | 29 | % |
Overall, GTV increased $261.3 million, or 29%, in the first quarter of 2018 compared to the first quarter of 2017. This increase was primarily due to the Acquisition, the mix of equipment that came to market during the first quarter of 2018, and the strength of our Orlando auction in the first quarter of 2018 compared to first quarter of 2017. The increase was partially offset by the continuing equipment supply constraints, as well as the reduction in the number of live on site auctions and sale days over the comparative period.
The total number of industrial and agricultural lots sold at our live on site auctions decreased 7% to 83,300 lots in the first quarter of 2018 compared to 89,100 lots in first quarter of 2017. The decrease was primarily due to a reduction in number of industrial and agricultural live on site auctions from 61 in the first quarter of 2017 to 52 in the first quarter of 2018, as well as three fewer sales days over the same comparative period.
GTV generated at our live on site auctions increased 19% on a per-lot basis to $11,500 in the first quarter of 2018 compared to $9,700 in the first quarter of 2017. This increase was primarily due to a change in the mix of equipment at our auctions.
We saw strong price performance in construction assets in Canada, Europe, and Asia, as well as in vocational trucks in Canada. The effects of this price strengthening were partially offset by a softening of supply of various other types of equipment, including agricultural equipment in Canada and trailers and transport trucks in the United States.
We offer our customers the opportunity to use underwritten commission contracts to serve their disposition strategy needs, entering into such contracts where the risk/reward profile of the terms are agreeable. The volume of underwritten commission contracts decreased to 13% of our GTV in the first quarter of 2018 from 14% in the first quarter of 2017.
Seasonality
Our operations are both seasonal and event-driven. Total revenuesrevenue and GTV generated by our A&M segment tend to be the highest during the second and fourth calendar quarters. We generally conduct more live on site auctions during these quarters than during the first and third calendar quarters. Late December through mid-February and mid-July through August are traditionally less active periods. Online volumes are similarly affected as supply of used equipment is lower in the third quarter as it is actively being used and not available for sale.
Total revenuesRevenue Mix Fluctuations
Our revenue is comprised of service revenue and inventory sales revenue. Service revenue from A&M totalsegment 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 by geographical region are presented below: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.
(in U.S. $000's) | Three months ended March 31, | |||||||||||||||
$ Change | % Change | |||||||||||||||
2018 | 2017 | 2018 over 2017 | 2018 over 2017 | |||||||||||||
United States | $ | 122,704 | $ | 102,002 | $ | 20,702 | 20 | % | ||||||||
Canada | 58,887 | 36,887 | 22,000 | 60 | % | |||||||||||
International | 50,976 | 40,189 | 10,787 | 27 | % | |||||||||||
A&M total revenues | $ | 232,567 | $ | 179,078 | $ | 53,489 | 30 | % |
Inventory sales revenue can fluctuate significantly, as it changes based on whether our customers sell using a straight commission contract, guarantee contract, or an inventory contract at time of selling. Straight commission contracts and guarantee contracts will result in the commission being recognized as service revenue, while inventory contracts will result in the GTV 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 revenue and inventory sales revenue can have a significant impact on revenue growth percentages.
Ritchie Bros. | 29 |
The increase in A&M total revenues in the first quarter of 2018Performance Overview
Net income attributable to stockholders increased 6% to $18.2 million compared to the first quarter of 2017 was primarily due$17.1 million in Q1 2018. Diluted earnings per share (“EPS”) attributable to the regional differences discussed below, an increasestockholders increased 6% to $0.17 per share in equipment pricing, and the partial harmonization of our fees:Q1 2019 compared to $0.16 per share in Q1 2018.
Consolidated results:
· |
o | Service revenue decreased 2% to $172.4 million in |
o | Inventory sales revenue increased 56% to $131.1 million in Q1 2019, compared to $84.2 million in Q1 2018 |
· |
· |
· | Cash provided by operating activities was $71.9 million for the |
As A&M total revenues are generated from transactional asset disposition services, we believe that these revenues are best understood by considering their relationship to GTV. The metric we use to measure that performance is A&M revenue rate, which is calculated as A&M total revenues divided by GTV.Auctions & Marketplaces segment results:
· | GTV of $1.2 billion increased 1% from Q1 2018. Excluding the impact of foreign exchange, GTV increased 3% from Q1 2018 |
· | A&M total revenue of $274.5 million increased 18% from $232.6 in Q1 2018 |
o | Service revenue decreased 3% to $143.4 million in Q1 2019 compared to $148.4 million in Q1 2018 |
o | Inventory sales revenue increased 56% to $131.1 million in Q1 2019 compared to $84.2 million in Q1 2018 |
Other Services segment results:
· | Other Services total revenue of $28.9 million increased by 5% from $27.6 million in Q1 2018 |
· | RBFS revenue of $6.3 million increased 32% from $4.7 million in Q1 2018 |
Results of Operations
A&MFinancial overview
Three months ended March 31, | ||||||||||||
% Change | ||||||||||||
(in U.S. $000's, except EPS) | 2019 | 2018 | 2019 over 2018 | |||||||||
Service revenue: | ||||||||||||
Commissions | $ | 92,280 | $ | 101,294 | (9 | )% | ||||||
Fees | 80,092 | 74,722 | 7 | % | ||||||||
Total service revenue | 172,372 | 176,016 | (2 | )% | ||||||||
Inventory sales revenue | 131,057 | 84,162 | 56 | % | ||||||||
Total revenue | 303,429 | 260,178 | 17 | % | ||||||||
Service revenue as a % of total revenue | 56.8 | % | 67.7 | % | -1090 | bps | ||||||
Inventory sales revenue as a % of total revenue | 43.2 | % | 32.3 | % | 1090 | bps | ||||||
Costs of services | 36,069 | 36,657 | (2 | )% | ||||||||
Cost of inventory sold | 120,475 | 75,791 | 59 | % | ||||||||
Selling, general and administrative expenses | 95,184 | 97,470 | (2 | )% | ||||||||
Operating expenses | 269,841 | 227,305 | 19 | % | ||||||||
Cost of inventory sold as a % of operating expenses | 44.6 | % | 33.3 | % | 1130 | bps | ||||||
Operating income | 33,588 | 32,873 | 2 | % | ||||||||
Operating income margin | 11.1 | % | 12.6 | % | -150 | bps | ||||||
Net income attributable to stockholders | 18,164 | 17,138 | 6 | % | ||||||||
Diluted earnings per share attributable to stockholders | $ | 0.17 | $ | 0.16 | 6 | % | ||||||
Diluted adjusted EPS attributable to stockholders (non-GAAP measure) | $ | 0.17 | $ | 0.16 | 6 | % | ||||||
Effective tax rate | 26.8 | % | 23.4 | % | 340 | bps | ||||||
Total GTV | 1,174,681 | 1,160,712 | 1 | % | ||||||||
Service revenue as a % of total GTV- Rate | 14.7 | % | 15.2 | % | -50 | bps | ||||||
Inventory sales revenue as a % of total GTV- Mix | 11.2 | % | 7.3 | % | 390 | bps |
Ritchie Bros. | 30 |
Total revenue
Total revenue increased 17% to $303.4 million primarily due to a 56% increase in inventory sales revenue, partially offset by a 2% decrease in service revenue.
Inventory sales revenue was $131.1 million in Q1 2019, an increase of 56% compared to $84.2 million, primarily due to an increase in volume of inventory sales contracts in the US and Europe. As a percent of GTV, our GTV from inventory sales revenue was 11.2% in Q1 2019, compared to 7.3% in Q1 2018.
The decline in service revenue resulted from a 9% decrease in commissions offset by a 7% increase in fees. Lower commissions were attributable to lower price realization on guarantee contracts as well as a decrease in the volume of straight commission contracts. The lower rates earned from guarantee contracts was partially due to softer price performance on specific assets in greater supply at the 2019 Orlando auction. Fee revenue increased 7% due to moderately higher GTV volume with an increased proportion of low value lots, online inspection fees and fees earned from RBFS.
Foreign exchange had an unfavourable impact on total revenue in Q1 2019 due to fluctuations in the Euro and Canadian exchange rate relative to the U.S. dollar.
Income tax expense and effective tax rate
At the end of each interim period, the Company estimates 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 the three months ended March 31, 2019, income tax expense was $6.6 million, compared to an income tax expense of $5.3 million for the same period in 2018. Our effective tax rate was 20.0%26.8% in Q1 2019, compared to 23.4% in Q1 2018.
Net income
Net income attributable to stockholders increased $1.0 million, or 6%, from $17.1 million in Q1 2018 due to higher operating income coupled with lower net interest expenses. This increase was partially offset by an increase in the effective tax rate.
Diluted EPS
Diluted EPS attributable to stockholders increased 6% to $0.17 per share for Q1 2019 from $0.16 per share in Q1 2018.
U.S. dollar exchange rate comparison
We conduct global operations in many different currencies, with our presentation currency being the U.S dollar. The following table presents the variance in select foreign exchange rates over the comparative reporting periods:
Value of one local currency | Three months ended March 31, | |||||||||||
% Change | ||||||||||||
2019 | 2018 | 2019 over 2018 | ||||||||||
Period-end exchange rate | ||||||||||||
Canadian dollar | 0.7491 | 0.7761 | (3 | )% | ||||||||
Euro | 1.1218 | 1.2300 | (9 | )% | ||||||||
Australian dollar | 0.7096 | 0.7677 | (8 | )% | ||||||||
Average exchange rate | ||||||||||||
Canadian dollar | 0.7524 | 0.7906 | (5 | )% | ||||||||
Euro | 1.1355 | 1.2292 | (8 | )% | ||||||||
Australian dollar | 0.7124 | 0.7861 | (9 | )% |
Ritchie Bros. | 31 |
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 19.9%equipment, impairment losses, and certain other items, which we refer to as ‘adjusting items’. There were no adjusting items in Q1 2019 or Q1 2018.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) (non-GAAP measure) increased $2.3 million, or 5%, to $51.9 million in Q1 2019 from $49.6 million in Q1 2018.
Debt at the end of Q1 2019, represented 5.8 times net income as at and for the 12 months ended March 31, 2019. This compares to debt at Q1 2018, which represented 9.6 times net income as at and for the 12 months ended March 31, 2018. The decrease in this debt/net income multiplier was primarily due to lower debt balances at March 31, 2019 compared to March 31, 2018, as a result of our voluntary and involuntary debt repayments. The adjusted net debt/adjusted EBITDA (non-GAAP measure) was 1.7 times as at and for the 12 months ended March 31, 2019 compared to 2.5 times as at and for the 12 months ended March 31, 2018.
Segment Performance
(in U.S $000's) | Three months ended March 31, 2019 | |||||||||||
A&M | Other | Consolidated | ||||||||||
Service revenue | $ | 143,437 | $ | 28,935 | $ | 172,372 | ||||||
Inventory sales revenue | 131,057 | - | 131,057 | |||||||||
Total revenue | 274,494 | 28,935 | 303,429 | |||||||||
Ancillary and logistical service expenses | - | 13,759 | 13,759 | |||||||||
Other costs of services | 20,817 | 1,493 | 22,310 | |||||||||
Cost of inventory sold | 120,475 | - | 120,475 | |||||||||
SG&A expenses | 89,182 | 6,002 | 95,184 | |||||||||
Segment profit | $ | 44,020 | $ | 7,681 | $ | 51,701 | ||||||
(in U.S $000's) | Three months ended March 31, 2018 | |||||||||||
A&M | Other | Consolidated | ||||||||||
Service revenue | $ | 148,405 | $ | 27,611 | $ | 176,016 | ||||||
Inventory sales revenue | 84,162 | - | 84,162 | |||||||||
Total revenue | 232,567 | 27,611 | 260,178 | |||||||||
Ancillary and logistical service expenses | - | 14,580 | 14,580 | |||||||||
Other costs of services | 21,448 | 629 | 22,077 | |||||||||
Cost of inventory sold | 75,791 | - | 75,791 | |||||||||
SG&A expenses | 93,002 | 4,468 | 97,470 | |||||||||
Segment profit | $ | 42,326 | $ | 7,934 | $ | 50,260 |
Ritchie Bros. | 32 |
Auctions and Marketplaces Segment
Results of A&M segment operations
Three months ended March 31, | ||||||||||||
% Change | ||||||||||||
(in U.S. $000's) | 2019 | 2018 | 2019 over 2018 | |||||||||
Service revenue | $ | 143,437 | $ | 148,405 | (3 | )% | ||||||
Inventory sales revenue | 131,057 | 84,162 | 56 | % | ||||||||
Total revenue | 274,494 | 232,567 | 18 | % | ||||||||
A&M service revenue as a % of total A&M revenue | 52.3 | % | 63.8 | % | -1150 bps | |||||||
Inventory sales revenue as a % of total A&M revenue | 47.7 | % | 36.2 | % | 1150 bps | |||||||
Costs of services | 20,817 | 21,448 | (3 | )% | ||||||||
Cost of inventory sold | 120,475 | 75,791 | 59 | % | ||||||||
SG&A expenses | 89,182 | 93,002 | (4 | )% | ||||||||
A&M segment expenses | $ | 230,474 | $ | 190,241 | 21 | % | ||||||
Cost of inventory sold as a % of A&M expenses | 52.3 | % | 39.8 | % | 1250 bps | |||||||
A&M segment profit | $ | 44,020 | $ | 42,326 | 4 | % | ||||||
Total GTV | 1,174,681 | 1,160,712 | 1 | % | ||||||||
A&M service revenue as a % of total GTV- Rate | 12.2 | % | 12.8 | % | -60 bps |
Gross Transaction Value
We believe it is meaningful to consider revenue in relation to GTV. GTV by channel and by revenue type are presented below for the three months ended March 31, 2018 and 2017, respectively. This marginal increase was primarily due to the growth in A&M total revenues outpacing the growth in GTV over the comparative period. A&M agency proceeds rate (non-GAAP measure) was 13.5% and 12.9% for the three months ended March 31, 2018 and 2017, respectively.2019.
GTV by Channel
(in U.S $000's) | Three months ended March 31, | |||||||||||
% Change | ||||||||||||
2019 | 2018 | 2019 over 2018 | ||||||||||
Live on site auctions | $ | 971,599 | $ | 974,026 | (0 | )% | ||||||
Percentage of total | 82.7 | % | 83.9 | % | ||||||||
Online marketplaces including featured(1) and other(2) | 203,082 | 186,686 | 9 | % | ||||||||
Percentage of total | 17.3 | % | 16.1 | % | ||||||||
GTV | $ | 1,174,681 | $ | 1,160,712 | 1 | % |
(1) | This represents GTV from IronPlanet’s Weekly Featured Auction, which operates under an unreserved auction model. |
(2) | This includes GTV from Marketplace-E and, before that, EquipmentOne. |
GTV by Revenue Type
(in U.S $000's) | Three months ended March 31, | |||||||||||
% Change | ||||||||||||
2019 | 2018 | 2019 over 2018 | ||||||||||
Service GTV | $ | 1,043,624 | $ | 1,076,550 | (3 | )% | ||||||
Percentage of total | 88.8 | % | 92.7 | % | ||||||||
Inventory GTV | 131,057 | 84,162 | 56 | % | ||||||||
Percentage of total | 11.2 | % | 7.3 | % | ||||||||
GTV | $ | 1,174,681 | $ | 1,160,712 | 1 | % |
Ritchie Bros. |
The following tables presents our agency proceeds (non-GAAP measure) and A&M agency proceeds rate (non-GAAP measure) results forOverall, GTV increased 1% to $1.2 billion in Q1 2019; excluding the current quarter and each quarter over the last two years, as well as reconciles those metrics to A&M total revenues and A&M revenue rate, which are the most comparable GAAP measures in, or calculatedimpact of foreign exchange, GTV increased 3%. GTV from our consolidated income statements:
(in U.S. $000's) | Q1 2018 | Q4 2017 | Q3 2017 | Q2 2017 | Q1 2017 | |||||||||||||||
A&M total revenues | $ | 232,567 | $ | 262,628 | $ | 202,718 | $ | 226,372 | $ | 179,078 | ||||||||||
Less: cost of inventory sold | (75,791 | ) | (98,895 | ) | (72,476 | ) | (71,726 | ) | (63,401 | ) | ||||||||||
A&M agency proceeds (non-GAAP measure) | 156,776 | 163,733 | 130,242 | 154,646 | 115,677 | |||||||||||||||
GTV | $ | 1,160,712 | $ | 1,294,932 | $ | 1,019,322 | $ | 1,254,318 | $ | 899,410 | ||||||||||
A&M revenue rate | 20.0 | % | 20.3 | % | 19.9 | % | 18.0 | % | 19.9 | % | ||||||||||
A&M agency proceeds rate (non-GAAP measure) | 13.5 | % | 12.6 | % | 12.8 | % | 12.3 | % | 12.9 | % |
(in U.S. $000's) | Q4 2016 | Q3 2016 | Q2 2016 | Q1 2016 | ||||||||||||
A&M total revenues | $ | 273,582 | $ | 280,961 | $ | 253,436 | $ | 237,195 | ||||||||
Less: cost of inventory sold | (136,984 | ) | (159,850 | ) | (104,978 | ) | (111,536 | ) | ||||||||
A&M agency proceeds (non-GAAP measure) | 136,598 | 121,111 | 148,458 | 125,659 | ||||||||||||
GTV | $ | 1,040,352 | $ | 998,859 | $ | 1,275,682 | $ | 1,019,922 | ||||||||
A&M revenue rate | 26.3 | % | 28.1 | % | 19.9 | % | 23.3 | % | ||||||||
A&M agency proceeds rate (non-GAAP measure) | 13.1 | % | 12.1 | % | 11.6 | % | 12.3 | % |
Costs of services
Segment costs of services by nature are presented below:
(in U.S. $000's) | Three months ended March 31, | |||||||||||||||
$ Change | % Change | |||||||||||||||
2018 | 2017 | 2018 over 2017 | 2018 over 2017 | |||||||||||||
Employee compensation | $ | 8,941 | $ | 5,413 | $ | 3,528 | 65 | % | ||||||||
Buildings, facilities and technology | 2,435 | 1,383 | 1,052 | 76 | % | |||||||||||
Travel, advertising and promotion | 6,505 | 4,656 | 1,849 | 40 | % | |||||||||||
Other costs of services | 3,567 | 1,135 | 2,432 | 214 | % | |||||||||||
A&M costs of services | $ | 21,448 | $ | 12,587 | $ | 8,861 | 70 | % |
The increase in A&M costs of services in the first quarter of 2018 compared to the first quarter of 2017 was primarily due to the Acquisition and the costs associated with the inspection activities that support our online channels. The increase is also due to the increase in our live on site auctions was flat partly due to the Q1 2018 Grande Prairie auction of $37 million that did not repeat in Q1 2019, offset by growth in live on site auctions in the US and Europe. Online marketplaces GTV over the comparative period.
Cost of inventory sold
Cost of inventory sold increased $12.4 million, or 20%,posted consecutive quarter growth delivering a 9% increase in the first quarter of 2018quarter.
GTV from inventory contracts increased 56%, while Service GTV decreased 3% compared to the first quarter of 2017,Q1 2018. These changes were primarily due to higher volumesourced inventory deals in US and in Europe.
We offer our customers the opportunity to use underwritten commission contracts to serve their disposition strategy needs, entering into such contracts where the risk and reward profile of the terms are agreeable. Our underwritten contracts, which includes inventory and guarantee contracts, increased to 16.5% in Q1 2019, compared to 12.9% in Q1 2018, primarily due to higher inventory contracts.
SG&A expensesOnline bidding
Segment SG&A expenses, which includeAcross all channels, 60% of total GTV was purchased by online buyers in Q1 2019 compared to 56% in Q1 2018. This increase in internet bidders and online buyers show that we continued to promote multi-channel participation at our corporate head office support costs, are presented by nature below:auctions through Q1 2019.
(in U.S. $000's) | Three months ended March 31, | |||||||||||||||
$ Change | % Change | |||||||||||||||
2018 | 2017 | 2018 over 2017 | 2018 over 2017 | |||||||||||||
Employee compensation | $ | 60,233 | $ | 42,149 | $ | 18,084 | 43 | % | ||||||||
Buildings, facilities and technology | 14,759 | 11,901 | 2,858 | 24 | % | |||||||||||
Travel, advertising and promotion | 9,238 | 6,125 | 3,113 | 51 | % | |||||||||||
Professional fees | 3,963 | 2,862 | 1,101 | 38 | % | |||||||||||
Other SG&A expenses | 4,809 | 4,074 | 735 | 18 | % | |||||||||||
A&M SG&A expenses | $ | 93,002 | $ | 67,111 | $ | 25,891 | 39 | % |
Total industrial live on site auction metrics
Three months ended March 31, | ||||||||||||
% Change | ||||||||||||
2019 | 2018 | 2019 over 2018 | ||||||||||
Number of auctions | 35 | 35 | 0 | % | ||||||||
Bidder registrations | 143,000 | 119,000 | 20 | % | ||||||||
Consignments | 11,550 | 10,750 | 7 | % | ||||||||
Buyers | 30,750 | 29,000 | 6 | % | ||||||||
Lots | 86,250 | 81,000 | 6 | % |
The total number of industrial lots increased 6% to 86,250, and the total number of lots including agricultural lots increased 6% to 88,000 lots in Q1 2019, primarily due to an increase of smaller value lots sold in Q1 2019. Total live auctions, including agricultural, were 47 in Q1 2019 compared to 52 in Q1 2018.
Average industrial live on site auction metrics
(in U.S $000's) | 12 months ended March 31, | |||||||||||
% Change | ||||||||||||
2019 | 2018 | 2019 over 2018 | ||||||||||
GTV | $ | 21.2 million | $ | 15.9 million | $ | 33 | % | |||||
Bidder registrations | 3,164 | 2,405 | 32 | % | ||||||||
Consignors | 300 | 233 | 29 | % | ||||||||
Lots | 2,089 | 1,576 | 33 | % |
We saw an increase in A&M SG&A expenses inaverage GTV per industrial auction for the first quarter of 201812 months ended March 31, 2019 compared to the first quarter12 months ended March 31, 2018. The increase was primarily driven by our site optimization strategy to close five on site auction locations across North America to focus on online sales and largers auctions, as announced at the end of 2017 was2017.
GTV on a per lot basis generated at our industrial live on site auctions decreased 4% to $11,000 in Q1 2019 compared to $11,500 in Q1 2018, primarily due to the Acquisition, our investmentan increase of smaller value lots sold in talent, and higher share unit expenses, as discussed above. Foreign exchange had a negative impact on A&M SG&A expenses in the first quarter of 2018.Q1 2019.
Productivity
The majority of our business continues to be generated by our A&M segment operations. Sales Force Productivity within this segment is an operational statistic that we believe provides a gauge of the effectiveness of our Revenue Producers in increasing our GTV. Revenue Producers14is a term used to describe our revenue-producing sales personnel. This definition is comprised of Regional Sales Managers and TerritorialTerritory Managers.
Ritchie Bros. | 34 |
Historically, we measured
Our Sales Force Productivity asfor the trailing 12-month GTV divided by the number of Revenue Producers at the reporting date. As a result of the timing and impact of the Acquisition on both GTV and the number of Revenue Producers, we updated our Sales Force Productivity measure calculations as at and for the 12-month periodsperiod ended March 31, 2018 and2019 was $11.6 million per Revenue Producer compared to $11.3 million per Revenue Producer for the trailing 12-month period ended March 31, 2017.2018.
Our updated Sales Force Productivity measure calculation as at and for the 12-month period ended March 31, 2018 iswas calculated as the sum of the following two amounts:
· | GTV for the two months, pre-Acquisition, ended May 31, 2017, divided by the average number of Revenue Producers over the same two-month period;
A&M revenue Total A&M revenue was $274.5 million, an increase of $41.9 million, or 18%, from Q1 2018. The increase in total revenue was primarily due to the $46.9 million, or 56%, increase in inventory sales revenue, partially offset by a 3% decrease in service revenue. A&M revenue by geographical region are presented below:
Changes in A&M segment revenue in Q1 2019 compared to Q1 2018 were primarily driven by: • United States– 39% increase was due to a $48.4 million increase in inventory sales revenue. We strategicially accepted a large volume of inventory contracts to secure equipment supply for our 2019 Orlando auction, the largest auction ever hosted by Ritchie Bros. We also experienced revenue growth in our GovPlanet non-rolling stock program as the contract was launched in Q2 2018. Service revenue remains unchanged with lower volume of commission revenues and lower guarantee rate performance, offset by higher fees revenue. • Canada– 60% decrease was primarily due to a $33.4 million decrease in inventory sales revenue, and a $2.0 million decrease in service revenue. There was higher inventory sales revenue in Q1 2018 compared to Q1 2019 primarily due to the dispersal of large oil and gas equipment from our Q1 2018 Grande Prairie auction of $37 million that did not repeat in Q1 2019. Service revenue decreased 9% primarily due to lower volume from our commission contracts. • International– 57% increase was primarily due to a $31.8 million increase in inventory sales revenue, partially driven by macroeconomic conditions in parts of Europe and Asia creating a more favourable supply environment. This increase was offset by the $2.8 million decrease in service revenue caused by the change in revenue mix between service revenue and inventory sales revenue.
Costs of services A&M costs of services decreased $0.6 million, or 3%, in Q1 2019 compared to Q1 2018, which was in-line with the change in GTV. Cost of inventory sold A&M cost of inventory sold increased $44.7 million, or 59%, in Q1 2019 compared to Q1 2018, in line with higher activity in inventory sales revenue. A contributing factor to the higher cost of inventory sold in the quarter resulted from discrete lower price performance on certain categories of equipment which was in greater supply at the February 2019 Orlando auction. SG&A expenses Our A&M segment SG&A expenses decreased $3.8 million, or 4%, in Q1 2019 compared to Q1 2018. The decrease was primarily due to higher share unit expenses in Q1 2018 related to mark-to-market costs driven by growth in the share price and incremental compensation cost resulting from the modification of certain performance factors. The decrease was partially offset by on-going incremental costs related to the GovPlanet non-rolling stock program. Foreign exchange rates had a favourable impact on SG&A expenses in the quarter primarily due to fluctuations of the Euro and Canadian dollar exchange rate relative to the U.S. dollar. Other Services Segment
Revenue from other services increased $1.3 million, or 5%, in Q1 2019 compared to Q1 2018. This increase was primarily due to the increase in RBFS revenue of $1.5 million and RB Logistics of $1.5 million, offset by lower ancillary service revenue of $1.7 million. Ancillary service revenue decreased partially due to less ancillary services provided across our auction sites in the US.
Funded volume, which represents the amount of lending brokered by RBFS, increased
SG&A expenses in the other segment increased $1.5 million, or 34% primarily due to expenses incurred to support the growth of RBFS.
Other services profit decreased $0.3 million, or 3% primarily due to lower profits from our appraisal services, partially offset by the growth in RBFS.
Liquidity and Capital Resources
We
Operating activities continue to be the primary source of our cash, as well as borrowings from our revolving credit facilities to fund significant acquisitions and various business activities. Cash provided by operating activities can fluctuate significantly from period to period due to factors such as differences in the timing, size, and number of auctions during the period, the volume of our
Cash flows
Operating activities Cash provided by operating activities increased $4.7 million in
Investing activities
Net cash used in investing activities
Financing activities
Net cash used
Dividend information
We declared and paid a regular cash dividend of $0.17 per common share for the
Return on average invested capital
Our return on average invested capital is calculated as net income attributable to stockholders divided by our average invested capital. We calculate average invested capital over a trailing 12-month period by adding the average long-term debt over that period to the average stockholders’ equity over that period.
Return on average invested capital stockholders over the comparative period, partially offset by an increase in average stockholders’ equity and long-term debt. Return on invested capital (“ROIC”)
Debt covenants
We were in compliance with all financial and other covenants applicable to our credit facilities at March 31,
Share repurchase program On May 8, 2019, our Board of Directors authorized a share repurchase program for the repurchase of up $100 million worth of our common shares (subject to the Toronto Stock Exchange ”TSX” approval) over the next 12 months. Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, financial performance, liquidity, capital expenditures or capital resources.
Critical Accounting Policies,
Aside from the adoption of
Effective January 1, On adoption of the
The
Non-GAAP Measures
We reference various non-GAAP measures throughout this Quarterly Report on Form 10-Q. These measures do not have a standardized meaning and are, therefore, unlikely to be comparable to similar measures presented by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation of, or as a substitute for, the financial information prepared and presented in accordance with generally accepted accounting principles. Non-GAAP financial measures referred to in this report are labeled as “non-GAAP measure” or designated as such with an asterisk (*).
Adjusted Operating Income* Reconciliation Adjusting operating income* eliminates the financial impact of adjusting items which are 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, and certain other items, which we refer to as ‘adjusting items’.
The following table
There were no adjusting items in Q1 2019 or in the comparative prior period.
Adjusted Net Income Attributable to Stockholders* and Diluted Adjusted EPS Attributable to Stockholders* Reconciliation We believe that adjusted net income attributable to stockholders* provides useful information about the growth or decline of our net income attributable to stockholders for the
The following table
statements. There were no adjusting items
Adjusted EBITDA*
The following table
We believe that comparing adjusted net debt/adjusted The following table reconciles
Operating Free Cash Flow* (“OFCF”) Reconciliation We believe OFCF*, when compared on a trailing 12-month basis to different financial periods provides an effective measure of the cash generated by our business and provides useful information regarding cash flows remaining for discretionary return to stockholders, mergers and acquisitions, or debt reduction. Our balance sheet scorecard includes OFCF* as a performance metric. OFCF* is also an element of the performance criteria for certain annual short-term and long-term incentive awards.
The following table reconciles OFCF* to cash provided by operating activities and net capital spending, which are the most directly comparable GAAP measures in, or calculated from, our consolidated statements of cash flows:
Adjusted Net Income Attributable to Stockholders* and Adjusted Dividend Payout Ratio* Reconciliation We believe that adjusted net income attributable to stockholders* provides useful information about the growth or decline of our net income attributable to stockholders for the relevant financial period and eliminates the financial impact of adjusting items we do not consider to be part of our normal operating results. We believe that disclosing our adjusted dividend payout ratio* for different financial periods provides useful information about how well our net income supports our dividend payments. The following table reconciles adjusted net income attributable to stockholders* and adjusted dividend payout ratio* to net income attributable to stockholders, and dividend payout ratio, which are the
Adjusted Net Income Attributable to Stockholders* and ROIC* Reconciliation We believe that comparing ROIC on a trailing 12-month basis for different financial periods, provides useful information about the after-tax return generated by our investments. The following table reconciles adjusted net income attributable to stockholders* and ROIC* to net income attributable to stockholders, long-term debt, stockholders’ equity, return on average invested capital which are the most directly comparable GAAP measures in, or calculated from, our consolidated financial statements:
Adjusting items during the trailing 12-months ended March 31, 2019 were: Recognized in the first quarter of 2019
Recognized in the fourth quarter of 2018
Recognized in the third quarter of 2018
Recognized in the second quarter of 2018
Adjusting items during the trailing 12-months ended March 31, 2018 were: Recognized in the first quarter of 2018
Recognized in the fourth quarter of 2017
Recognized in the third quarter of 2017
Recognized in the second quarter of 2017
There have been no material changes to our market risk during the three months ended March 31,
Disclosure Controls and Procedures
Management of the Company, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), have evaluated the effectiveness of the Company’s disclosure controls and procedures as at March 31,
Based upon their evaluation of the Company’s disclosure controls and procedures, the CEO and the CFO concluded that, as at March 31, 2019, the disclosure controls are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms.
The Company, including its CEO and CFO, does not expect that its internal controls and procedures will prevent or detect all error and all fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
Changes in Internal Control over Financial Reporting
We have no material legal proceedings pending, other than ordinary routine litigation incidental to the business, and we do not know of any material proceedings contemplated by governmental authorities.
Our business is subject to a number of risks and uncertainties, and our past performance is no guarantee of our performance in future periods. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risks and uncertainties discussed in “Part I, Item 1A: Risk Factors” of our Annual Report on Form 10-K for the year ended December 31,
There were no material changes in risk factors during the three months ended March 31,
None.
None.
Not applicable.
Exhibits
The exhibits listed in below are filed as part of this Quarterly Report on Form 10-Q and incorporated herein by reference.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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