Ritchie Bros. Auctioneers Incorporated reported results for the three months ended March 31, 2015. During the quarter, the company generated $115.6 million of revenue, a 17 percent increase compared to revenue of $98.6 million in the first quarter last year, and net earnings of $23.6 million, an increase of 65 percent compared to net earnings of $14.3 million in the first quarter last year. Diluted earnings per share (“EPS”) were $0.22, a 65 percent increase compared to $0.13 in the same quarter last year.
“I am very pleased with our team’s performance during the first quarter, with strong year-on-year growth in revenue, earnings, operating free cash flow and return on net assets; and am especially encouraged by our strong results in Canada and the U.S., our two priority markets. The 12.1 percent revenue rate we achieved during the quarter was supported by the excellent performance of our underwritten contracts,” said Ravi Saligram, chief executive officer.
“It is clear that our team is laser-focused on executing our new strategy and demonstrating the value of our services to our customers. This momentum has continued to build in the second quarter, as evidenced by the April Edmonton auction, which generated the most revenue for a single auction in Ritchie Bros. history.”
“We returned $62.6 million to shareholders in the form of dividends and share buybacks during the first quarter — a demonstration of our capital allocation strategy. Our primary objective with the repurchase program was to mitigate the dilutive effects of options and to achieve this, a total of 1.9 million shares were repurchased and cancelled during the quarter,” said Rob McLeod, chief financial officer, Ritchie Bros. Auctioneers.
“We’re very pleased with the 67 percent increase in operating income during the first quarter, which speaks to the strength of our core auction business and the improved performance of EquipmentOne. Our first quarter net earnings benefitted from foreign exchange gains related to the revaluation and settlement of foreign-denominated monetary assets and liabilities held by subsidiaries, which was offset by a higher tax rate in Q1 2015 compared to Q1 2014. On a 12-month rolling basis, operating free cash flow improved 62 percent demonstrating our strong cash-generating capability.”
Income Statement Scorecard Analysis?for the Three Months Ended March 31, 2015
Gross Auction Proceeds (“GAP”) were $955.6 million for the first quarter of 2015, a quarterly record and a 12 percent increase compared to the first quarter of 2014. EquipmentOne, the company’s online equipment marketplace, contributed $21.8 million of gross transaction value (“GTV”) to GAP in the first quarter of 2015 compared to $18.3 million in the first quarter of 2014. GAP for the first quarter of 2015 would have been $52.9 million higher, or an additional 6 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
Revenue grew 17 percent during the first quarter of 2015 to $115.6 million, compared to $98.6 million in the first quarter of 2014, as a result of the record GAP and higher revenue rate achieved in the first quarter this year. Revenue would have been $6.7 million higher, or an additional 6 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
The revenue rate was 12.10 percent in the first quarter of 2015, compared to 11.53 percent in the first quarter of 2014. The increase in the revenue rate is primarily due to the performance of the company’s underwritten business, which is comprised of guarantee and inventory contracts, consistent with the company’s strategic focus on this business. The volume of underwritten business increased to 32 percent during the first quarter of 2015 compared to 24 percent for the same period in 2014.
Adjusted operating income grew 67 percent during the first quarter of 2015 to $29.6 million, compared to $17.7 million in the first quarter of 2014. This increase is due to revenue growth significantly outpacing the growth of selling, general and administrative (“SG&A”) expenses. Adjusted operating income would have been $0.6 million higher, or an additional 2 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
Adjusted operating income margin was 25.6 percent for the first quarter of 2015, 766 basis points higher than 18.0 percent for the same period last year, primarily due to revenues increasing at a rate higher than SG&A expenses.
Diluted EPS for the first quarter of 2015 was $0.22 per diluted share, a 65 percent increase compared to the first quarter of 2014. The increase was driven by GAP, revenue and revenue rate growth during the quarter, compared to the same period last year, and other income items, offset slightly by an increase in SG&A expenses and a higher tax rate during the first quarter of 2015 compared to the same period in 2014.
Balance Sheet Scorecard Analysis for the 12 Months Ended March 31, 2015
Operating free cash flow increased 62 percent to $164.4 million during the 12 months ended March 31, 2015 compared to $101.4 million during the 12 months ended March 31, 2014. This increase is the result of more cash generated by operating activities and less capital spending during the 12 months ended March 31, 2015 compared to the same period ended in 2014.
Working capital intensity was negative 27.8 percent for the 12 months ended March 31, 2015, an improvement of 182 basis points from negative 25.9 percent for the 12 months ended March 31, 2014. This improvement in working capital intensity is the result of increased revenues and decreased quick operating working capital during the 12 months ended March 31, 2015, compared to the same period ended in 2014. The decrease quick operating working capital is primarily the result of decreases in advances against auction contracts and inventory balances. Working capital intensity will fluctuate most significantly based on the timing and size of auctions just prior to each period end. The fact that the company’s working capital intensity is negative highlights the minimal amount of working capital required to run the business.
CAPEX Intensity was 4.9 percent for the 12 months ended March 31, 2015, a decrease of 329 basis points from 8.2 percent for the 12 months ended March 31, 2014. This 40 percent decrease is due primarily to a decrease in net capital spending. Additionally, revenue increased $34.2 million, or 7 percent, during the 12 months ended March 31, 2015, compared to the same period ended in 2014.
Return on Net Assets (“RONA”) for the 12 months ended March 31, 2015, was 21.1 percent, an increase of 348 basis points compared to 17.6 percent in the 12 months ended March 31, 2014. This increase was the result of an increase in net operating profit after tax combined with a decrease in adjusted net assets. The decrease in adjusted net assets was driven by foreign exchange effects on non-U.S. dollar denominated assets and a decrease in current liabilities.
Debt/Adjusted EBITDA decreased to 0.6x for the 12 months ended March 31, 2015, compared to 0.9x for the 12 months ended March 31, 2014. The company achieved a 13 percent increase in adjusted EBITDA with a lower level of borrowings as at March 31, 2015, compared to March 31, 2014.
Dividend Information
Quarterly dividend: The company declared a quarterly cash dividend of $0.14 per common share payable on June 19, 2015, to shareholders of record on May 29, 2015.
Operational Highlights
Sales team growth: The company added one net new territory manager (“TM”) to its sales team during the first quarter of 2015 for a total of 308 TMs as of March 31, 2015, and increase of 7 percent, or 21 TMs, compared to March 31, 2014.
Online statistics: During the first quarter of 2015, the company attracted record first quarter online bidder registrations and sold approximately $405.7 million of equipment, trucks and other assets to online auction bidders and EquipmentOne customers. This represents a 27 percent increase over the first quarter of 2014 and a first quarter online sales record.
Auction activity: During the first quarter of 2015, Ritchie Bros. conducted 40 unreserved industrial auctions in 12 countries throughout North America, Europe, the Middle East, Australia and Asia. Highlights during the quarter include:
• At the March 25, 2015, Casper, Wyo., auction, the company sold more than $54 million of assets on behalf of one owner. This was the largest single-owner auction in Ritchie Bros.’ history and one of the largest underwritten transactions the company has completed. 78 percent of the equipment sold at the auction went to buyers outside the state of Wyoming, demonstrating the reach of Ritchie Bros.’ auction platform.
• At the March 18 – 19, 2015, Montreal, Quebec, auction, the company sold more than $44 million Canadian dollars of assets on behalf of consignors — the largest Montreal auction in company history.
• At the March 4 – 5, 2015, Fort Worth, Texas, auction, Ritchie Bros. sold more than $47 million of assets on behalf of consignors.
• At the Feb. 25 – 26, 2015, Edmonton, Alberta, auction, the company sold more than $84 million Canadian dollars of assets on behalf of consignors.
• At the Feb. 16 – 20, 2015, Orlando, Fla., auction, Ritchie Bros. sold more than $179 million of assets, including $66 million of equipment to online buyers participating in the live auction.
• At the Feb. 11 – 12, 2015, Houston, Texas, auction, the company sold more than $42 million of assets on behalf of consignors
There are currently 90 unreserved auctions on the 2015 Ritchie Bros. auction calendar, including auctions in North America, Central America, Europe, the Middle East, Australia and Asia.
Corporate Developments
Share repurchase program: On Feb. 26, 2015, Ritchie Bros. received TSX approval for a normal course issuer bid (share repurchase program). Following TSX approval, the company repurchased 1.9 million common shares during the first quarter, with an aggregate value of $47.5 million. All 1.9 million shares have since been cancelled. The company’s share repurchase program is aimed primarily at offsetting dilution from vesting options.
Management update: On May 4, 2015, the company announced the appointment of Terry Dolan as president, United States and Latin America. Dolan will be based out of Chicago and is expected join Ritchie Bros. on May 20, 2015. Dolan has held numerous leadership roles, most recently at Generac, where he was executive vice president, global commercial and industrial products.
On March 30, 2015, the company announced Steve Simpson, chief sales officer, global key accounts, would be resigning to pursue new opportunities. On Jan. 9, 2015, the company announced the appointment of Todd Wohler as chief human resources officer.
For more information, please visit www.rbauction.com.
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