Ritchie Bros. Auctioneers Incorporated reported results for the three months ended June 30, 2015. During the quarter, the company generated $155.5 million of revenue, a 10 percent increase compared to revenue of $141.8 million in the second quarter last year, and net earnings of $46.4 million, an increase of 20 percent compared to net earnings of $38.6 million in the second quarter last year. Diluted earnings per share (“EPS”) were $0.43, a 21 percent increase compared to $0.36 in the same quarter last year.
During the first half of 2015, for the six months ended June 30, 2015, the company generated $271.1 million in revenue, a 13 percent increase compared to $240.4 million during the first six months of 2014. Net earnings were $70.0 million during the first half of 2015, a 32 percent increase compared to $52.9 million in the first half of 2014. Diluted EPS for the first half of 2015 was $0.65, a 33 percent increase compared to the same period last year.
“The momentum we built during the first quarter continued into the second, with 10 percent revenue growth and 21 percent growth in diluted earnings per share compared to the second quarter last year. We also nearly doubled operating free cash flow compared to the same period a year ago,” said Ravi Saligram, chief executive officer.
“Our focus on enhancing the performance of our underwritten business is clearly delivering results, and was demonstrated by the strong revenue rates we achieved at many of the auctions we held during the second quarter. Every business unit contributed positively to our results, including EquipmentOne and Ritchie Bros. Financial Services. In particular, our U.S. and Latin America business achieved a new second quarter revenue record. It’s an early indication that our teams are embracing the new strategy and are laser focused on execution. The strength of our performance has given us the confidence to provide our shareholders with a 14 percent increase in our quarterly cash dividend, which raises our dividend to 16 cents per share.”
Income Statement
Scorecard Analysis
Gross Auction Proceeds (“GAP”) were $1.3 billion for the second quarter of 2015, a quarterly record and a 3 percent increase compared to the second quarter of 2014. EquipmentOne, the Company’s online equipment marketplace, contributed $31.7 million of gross transaction value (“GTV”) to GAP in the second quarter of 2015 compared to $29.6 million in the second quarter of 2014. GAP for the second quarter of 2015 would have been $98.7 million higher, or an additional 7.8 percent increase, if foreign exchange rates had remained consistent with those in the same period last year. This adverse effect on GAP is primarily due to the declining value of the Canadian dollar and the Euro relative to the U.S. dollar.
Revenue grew 10 percent during the second quarter of 2015 to $155.5 million, compared to $141.8 million in the second quarter of 2014, as a result of the record GAP and higher revenue rate achieved in the second quarter this year. Revenue would have been $12.7 million higher, or an additional 8.2 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
The revenue rate was 12.32 percent in the second quarter of 2015, compared to 11.54 percent in the second 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. As a percent of total GAP, the volume of underwritten business decreased slightly to 29 percent during the second quarter of 2015 compared to 32 percent for the same period in 2014.
Operating income grew 21 percent during the second quarter of 2015 to $62.4 million, compared to $51.7 million in the second quarter of 2014. This increase is due to revenue growth significantly outpacing the growth of selling, general and administrative (“SG&A”) expenses. Operating income would have been $4.9 million higher, or an additional 7.9 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
Operating income margin was 40.2 percent for the second quarter of 2015, 370 basis points higher than 36.5 percent for the same period last year, primarily due to revenues increasing at a rate higher than SG&A expenses.
Diluted EPS for the second quarter of 2015 was $0.43 per diluted share, a 21 percent increase compared to the second quarter of 2014. The increase was driven by GAP, revenue and revenue rate growth during the quarter, compared to the same period last year, offset slightly by an increase in SG&A expenses and a higher tax rate during the second quarter of 2015 compared to the same period in 2014.
Income Statement Scorecard Analysis for the Six Months Ended June 30, 2015
GAP was $2.2 billion for the first half of 2015, a half year record and a 6 percent increase compared to the first half of 2014. EquipmentOne, the company’s online equipment marketplace, contributed $53.5 million of GTV to GAP in the first half of 2015 compared to $48.0 million in the first half of 2014. GAP for the first half of 2015 would have been $151.6 million higher, or an additional 6.8 percent increase, if foreign exchange rates had remained consistent with those in the same period last year. This adverse effect on GAP is primarily due to the declining value of the Canadian dollar and the Euro relative to the U.S. dollar.
Revenue grew 13 percent during the first half of 2015 to $271.1 million, compared to $240.4 million in the first half of 2014, as a result of the record GAP and higher revenue rate achieved in the first half this year. Revenue would have been $19.5 million higher, or an additional 7.2 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
The revenue rate was 12.22 percent in the first half of 2015, compared to 11.53 percent in the first half 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 slightly to 30 percent during the first half of 2015 compared to 29 percent for the same period in 2014.
Operating income grew 33 percent during the first half of 2015 to $92.1 million, compared to $69.4 million in the first half of 2014. This increase is due to revenue growth significantly outpacing the growth of SG&A expenses. Operating income would have been $5.6 million higher, or an additional 6.0 percent increase, if foreign exchange rates had remained consistent with those in the same period last year.
Operating income margin was 34.0 percent for the first half of 2015, 509 basis points higher than 28.9 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 half of 2015 was $0.65 per diluted share, a 33 percent increase compared to the first half of 2014. The increase was driven by GAP, revenue and revenue rate growth during the first half of 2015, 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 half of 2015 compared to the same period in 2014.
Balance Sheet Scorecard Analysis as at and for the 12 Months Ended June 30, 2015
Operating free cash flow increased 91 percent to $220.3 million during the 12 months ended June 30, 2015, compared to $115.3 million during the 12 months ended June 30, 2014. This increase is the result of more cash generated by operating activities and less capital spending during the 12 months ended June 30, 2015, compared to the same period ended in 2014.
Working capital intensity was minus 23.9 percent for the 12 months ended June 30, 2015, an improvement of 806 basis points from minus 15.9 percent for the 12 months ended June 30, 2014. This improvement in working capital intensity is the result of increased revenues and decreased quick operating working capital during the 12 months ended June 30, 2015, compared to the same period ended in 2014. The decrease quick operating working capital is primarily the result of decreases in inventory, advances against auction contracts, and trade and other receivable balances. Working capital intensity will fluctuate most significantly as a result of 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 3.2 percent for the 12 months ended June 30, 2015, a decrease of 369 basis points from 6.9 percent for the 12 months ended June 30, 2014. This 53 percent decrease is due primarily to a decrease in net capital spending of $16.5 million as a result of disciplined capital spending and strategic investments and the timing of these expenditures. Additionally, revenue increased $34.4 million, or 7 percent, during the 12 months ended June 30, 2015 compared to the same period ended in 2014.
Return on net assets (“RONA”) for the 12 months ended June 30, 2015, was 24.9 percent, an increase of 738 basis points compared to 17.5 percent for the 12 months ended June 30, 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 an increase in cash and cash equivalents and current liabilities, as well as foreign exchange effects on non-U.S. dollar denominated assets. The increase in current liabilities is primarily due to the reclassification from non-current to current borrowings of a Canadian dollar 60 million term loan in the second quarter of 2015. Management intends to refinance this borrowing when it falls due in May 2016.
The reclassification of this borrowing had a positive effect on RONA. Excluding the effects of the reclassification, RONA for the 12 months ended June 30, 2015, would have been 22.5 percent, an increase of 495 basis points compared to RONA for the same period ended June 30, 2014.
Debt/Adjusted EBITDA decreased to 0.6x for the 12 months ended June 30, 2015, compared to 0.9x for the 12 months ended June 30, 2014. The company achieved a 12 percent increase in adjusted EBITDA with a lower level of borrowings as at June 30, 2015, compared to June 30, 2014.
Dividend information
Quarterly dividend — The company declares a 14 percent increase to its quarterly dividend, raising the quarterly cash dividend to $0.16 per common share payable on Sept. 25, 2015, to shareholders of record on Sept. 4, 2015.
Operational Highlights
Online statistics — During the second quarter of 2015, the company attracted record second quarter online bidder registrations and sold approximately $583.7 million of equipment, trucks and other assets to online auction bidders and EquipmentOne customers. This represents a 12 percent increase over the second quarter of 2014 and a second quarter online sales record.
Auction activity — During the second quarter of 2015, Ritchie Bros. conducted 68 unreserved industrial auctions in 15 countries throughout North America, Central America, Europe, the Middle East, Australia, New Zealand and Asia. Highlights during the quarter include:
• At the June 24 – 25, 2015, Houston, Texas, auction, the company sold over $45 million of assets.
• At the June 11 – 12, 2015, Denver, Colo., auction, Ritchie Bros. sold over $40 million of assets – the largest auction ever held by Ritchie Bros. at the Denver auction site.
• At the June 9 – 11, 2015, Edmonton, Alberta, auction, Ritchie Bros. sold over CA$96 million of assets.
• At the May 6 – 7, 2015 Fort Worth, Texas, auction, the company sold over $50 million of assets.
• At the April 28 – May 1, 2015, Edmonton, Alberta, auction, the company sold a record CA$215 million of assets — making it the largest Canadian auction in Ritchie Bros. history.
• On April 23, 2015, Ritchie Bros. held its first auction in New Zealand, which was held on the site of the consignor.
• At the April 15 – 16, 2015 Houston, Texas, auction, the company sold $57 million of assets.
For more information, please visit www.rbauction.com.
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