Ritchie Bros. Auctioneers Incorporated announced third quarter 2014 results for the three months ended Sept. 30, 2014. During the quarter, the company generated $102.2 million of revenue and adjusted net earnings (a non-GAAP measure) of $14.5 million, or $0.13 per diluted share. Reported (GAAP) net earnings for the third quarter were $9.3 million, or $0.09 per diluted share.
Adjusting items in the third quarter of 2014 are comprised of a $3.4 million gain ($2.9 million after-tax) from the sale of land in Grande Prairie, Canada; and an $8.1 million non-cash charge ($8.1 million after-tax) related to the impairment of real-estate assets in Narita, Japan.
“After completing my 100 day listening tour, it is clear that we have a solid business model with significant runway ahead of it,” said Ravi Saligram, chief executive officer. “I plan to get our organization laser focused on increasing shareholder value by reinvigorating revenue and earnings growth, optimizing our capital allocation and capital structure, and enhancing our ROIC.”
“We are pleased with how our core auction business continues to perform. We saw continued growth in auction volumes and our revenue rate for the third quarter was in line with our guided range, but as expected, below the uniquely high revenue rate we achieved in the same quarter last year,” said Rob McLeod, chief financial officer. “Our free cash flow has also improved the last several quarters as a result of the performance of the business and our reduced capex spending.”
Third Quarter 2014 Summary for the Three Months
Ended Sept. 30, 2014
Gross auction proceeds (GAP) were $886.9 million for the third quarter of 2014, a record for the third quarter and a 12 percent increase compared to the same quarter of 2013. Ritchie Bros. also achieved over $4.0 billion in GAP for the four quarters trailing Sept. 30, 2014 — a first for the company. EquipmentOne, the company’s online equipment marketplace, contributed $23.2 million of gross transaction value (“GTV”) to GAP in the third quarter of 2014 compared to $22.1 million in the third quarter of 2013.
The revenue rate was 11.53 percent, in line with the company’s historical averages and within the guided range, but lower than the record 13.4 percent achieved in the third quarter last year. Fluctuations in the revenue rate, including the decline compared to 2013, are due mostly to the performance of the company’s underwritten business. The company’s underwritten business, which is comprised of guarantee and inventory contracts, represented 30 percent of GAP in the third quarter of 2014, compared to 29 percent in the third quarter of 2013.
Revenue was $102.2 million, 3 percent lower than the same quarter last year, as a result of the higher than average revenue rate achieved in the third quarter last year.
Operating expenses for the quarter totaled $71.0 million, 2 percent higher than total operating expenses of $69.6 million in the third quarter last year. Operating expenses include direct expenses and Selling, General and Administrative (SG&A) expenses, but exclude depreciation and amortization.
SG&A excluding depreciation and amortization for the third quarter of 2014 increased 2 percent compared to the same period in 2013 to $58.6 million. Expenses related to sales and marketing activities increased 3 percent from the third quarter last year to $18.9 million, in line with the growth of the company’s sales team. Expenses related to operational and administrative activities increased 2 percent to $35.7 million.
Adjusted net earnings were $14.5 million, 9 percent lower than $15.9 million of adjusted net earnings in the third quarter of 2013. Adjusting items, which have been removed from Q3 2014 adjusted net earnings, are: $3.4 million (or $2.9 million after-tax) from the gain on the sale of land in Grande Prairie, Canada; and $8.1 million (or $8.1 million after-tax) of impairment related to real-estate assets held in Narita, Japan (a non-cash charge).
Net earnings were $9.3 million, 43 percent lower than $16.3 million of net earnings in third quarter of 2013.
Earnings before interest, taxes, depreciation and amortization (EBITDA) was $31.2 million, 14 percent lower than EBITDA of $36.2 million in the third quarter of 2013. This decrease was due mostly to lower revenue.
Nine Months Summary for the Nine Months
Ended Sept. 30, 2014
Gross auction proceeds were $3.0 billion, which is 10 percent higher than in the first nine months of 2013. EquipmentOne contributed $71.2 million in the first nine months of 2014 compared to $71.6 million in the first nine months of 2013.
The revenue rate was 11.53 percent compared to 12.41 percent during the same period in 2013. Fluctuations in the revenue rate, including the decline compared to 2013, are due mostly to the performance of the Company’s underwritten business. Underwritten business represented 29 percent of GAP in the first nine months of 2014, compared to 26 percent in the first nine months of 2013.
Revenue during the first nine months of 2014 grew 2 percent to $342.6 million, compared to $336.2 million in the first nine months of 2013, due mostly to the higher revenue rate achieved in 2013.
Operating expenses for the first nine months of 2014 totaled $220.4 million, 2 percent higher than total operating expenses of $215.7 million in the same period last year. SG&A excluding depreciation and amortization for the first nine months of 2014 increased 1 percent compared to the same period in 2013. Expenses related to sales and marketing activities in the first nine months of 2014 increased 6 percent to $62.7 million compared to the same period in 2013, in line with the growth of the company’s sales team. Expenses related to operational and administrative activities decreased 1 percent to $105.3 million.
Adjusted net earnings for the nine months ended Sept. 30, 2014, were $67.3 million, a 13 percent increase compared to adjusted net earnings for the same period last year.
Net earnings were $62.2 million, or $0.58 per diluted share, a 4 percent increase compared to net earnings of $60.1 million, or $0.56 per diluted share, for the same period last year.
EBITDA was $122.2 million for the nine months ended Sept. 30, 2014, 1 percent higher than EBITDA of $120.5 million in the same period in 2013. EBITDA for the first nine months of 2014 was bolstered by the company’s second quarter performance.
Working Capital and Cash Use as of Sept. 30, 2014
Working capital as of Sept. 30, 2014, was $121.7 million, an increase of 11 percent compared to working capital of $110.0 million as of Dec. 31, 2013. Ritchie Bros. believes working capital is a more meaningful measure of the company’s liquidity than cash alone.
Free cash flow, excluding changes in working capital, increased to $82.2 million during the nine months ended Sept. 30, 2014, compared to $60.4 million during the same period in 2013, representing a 36 percent increase. Due to the seasonal impacts, the company believes that free cash flow excluding changes in working capital is an effective measure of the cash generated by the business.
Capital expenditures for the first nine months were $30.3 million, compared to $40.9 million in the same period a year ago, representing a 26 percent decrease. The company expects capital expenditures for 2014 to be in the range of $40 million to $45 million.
Dividends paid during the first nine months of 2014 totaled $42.9 million, compared to $40.0 million during the same period last year.
Operational Highlights
Sales Team Growth
The company added four net new territory managers (TMs) to its sales team during the third quarter for a total of 296 TMs as of Sept. 30, 2014, an increase of 8 percent, or 23 TMs, compared to Sept. 30, 2013.
Online Statistics
Ritchie Bros. sold approximately $1.2 billion of equipment, trucks and other assets to online buyers during the first nine months of 2014, a 16 percent increase compared to the same period of 2013.
Online buyers at Ritchie Bros. auctions and purchases made through the company’s online equipment marketplace represented 41 percent of GAP during the first nine months of 2014. Internet bidders comprised over 60 percent of the total bidder registrations at Ritchie Bros. industrial auctions in the first nine months of 2014.
The company surpassed $1 billion in year-to-date online sales by Sept. 12, 2014 — nearly one month earlier than during 2013.
Auction Activity
During the third quarter of 2014, Ritchie Bros. conducted 52 unreserved industrial auctions in 14 countries throughout North America, Europe, the Middle East, and Australia. Highlights during the quarter include:
• At the July 23-24, 2014, Fort Worth, Texas, auction Ritchie Bros. sold more than $49 million of assets on behalf of consignors
• At the Aug. 27-28, 2014, Houston, Texas, auction Ritchie Bros. sold more than $48 million of assets on behalf of consignors
• Ritchie Bros.’ achieved its largest ever September auction, with the Edmonton Sept. 10-12, 2014, auction.
• On Sept. 24-25, 2014, Ritchie Bros.’ Montreal auction broke company records for number of consignors and number of items sold at that site.
• At the Sept. 24-25, 2014, Fort Worth, Texas, auction, the company sold more than $40 million of assets on behalf of consignors
For more information, please visit www.rbauction.com.
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