RB Global, Inc. (RBA) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is Lorel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Ritchie Bros. Auctioneers 2012 Q1 Earnings Call. [Operator Instructions] Thank you. Mr. Peter Blake, CEO. You may begin your conference.

Great. Thanks, Lorel. Good morning, everybody. Thanks for joining us today on our 2012 Q1 investor conference call. I'm joined today by Rob Mackay, our President; Bob Armstrong, our Chief Strategic Development Officer; Steve Simpson, our Chief Sales Officer; Rob McLeod, our Chief Financial Officer; and Jeremy Black, our Vice President of Business Development and Corporate Secretary. Before we start, I'd like to make a Safe Harbor statement. The following discussion will include forward-looking statements as defined by SEC and Canadian rules and regulations. Comments that are not statements of fact, including projections of future earnings, revenue, gross auction proceeds and other items such as our potential addressable market are not considered forward-looking and involve risks and uncertainties. The risk and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed from time to time in our SEC and Canadian Securities filings, including our management's discussion and analysis, and financial condition and results of operations for the period ended March 31, 2012, in subsequent quarters, which is available on the SEC, SEDAR and company websites. The actual results may differ materially from those contemplated in the forward-looking statements. We do not undertake any obligation to update the information contained on this call, which speaks only as of today's date. I'd also like to note that during the call today, we'll be talking about gross auction proceeds which represent the total proceeds from all items sold at our auctions. Our definition of gross auction proceeds may differ from those used by other participants in our industry. It is not a measure financial performance, liquidity or revenue and do not presented it in our statement of operations. And finally, we will be discussing adjusted net earnings which is a non-GAAP measure. We define adjusted net earnings as financial statements net earnings, excluding the after-tax effects of sales of excess properties and significant foreign exchange gains and losses, resulting from nonrecurring financing activities. A reconciliation is available in our MD&A for the quarter. Okay. Now down to business. I'm very pleased to report that we have achieved adjusted net earnings of $0.17 per share for the first quarter, which represents growth of 32% compared to Q1 last year, and was in line with our plan. First quarter auction revenues are more than $101 million from gross auction proceeds or GAP of over $865 million. GAP increased to 2% year-over-year, revenues increased 15%, in part because of our expanded administrative fee that came into effect on July 1, 2012, and also because -- or 2011, pardon me; and also because we experienced a higher commission rate in Q1 this year. We saw a record GAP numbers from various auction sites around the world in the first quarter, including our largest-ever sale in our history in Orlando in February. We also just celebrated our largest-ever Canadian auction and our permanent auction site in Edmonton. That $110 million auction was incredible. Though some of that equipment might have been consigned to our earlier sale in Q1 and if not were -- if not for unseasonably warm weather in Northern Alberta earlier in the year. Many contractors kept working and delayed the sale of their gear until April because of the weather. Now I don't want to use the weather as an excuse, and we're certainly happy with our Q1 results, but it does demonstrate the challenges associated with comparing GAP on an auction-over-auction, month-over-month, or even quarter-over-quarter basis. Our April GAP, which we will be posting on our website today, came in at $370 million, which is up about 4% compared to April 2011, and in line with our expectations. We are presently looking at a full pipeline of consignments and lots of activity on the horizon. Our decision in 2011 to show a 10-year historical auction data on our website was largely driven by our desire to provide more transparency. But another benefit is, that you could see that we do not experience consistent monthly or quarterly growth on a year-over-year basis, even in our biggest growth years. This the nature of our business, which is not only seasonal but also event-driven. We believe our business is best looked at on an annual or a rolling 12-month basis, which help to take into account the inherent lumpiness and avoids the pitfalls associated with extrapolating our annual performance based on a single auction or even based from a single month. Perhaps the best way to demonstrate the lumpiness of our business is to use some live examples. Our business ebbs and flows depending upon market dynamics, competitive forces, seasonality, equipment supply among other factors, driven in part by the particular circumstances of our individual customers. Here's 2 examples of our recent quarter that come to mind: our Brisbane, Australia site recorded the largest single day auction in our history, selling more than $54 million worth of equipment in one day. The comparative 2011 Q1 Brisbane auction was roughly $13 million in GAP. On the other extreme, at our Dubai auction in the first quarter of 2012, we sold about $18 million worth of equipment, which was a successful auction yet modest, compared to our Dubai sale last year in the first quarter which generated a record-breaking $57 million in GAP, fueled by a large consignment out of India. It is fair to say that individual auction results vary great from one sale to the next, and year-over-year. Our business has always been lumpy, and we do not anticipate that will change materially in the near future. Now I'll pass it over to Steve for our market update.

Thanks, Pete. Good morning, everyone. The used equipment market was generally robust in Q1. Strong used equipment prices carried over from the fourth quarter of 2011 into Q1, and prices were generally up in most categories of equipment during the first half of Q1. Pricing increases leveled off somewhat in the latter part of the quarter, but we continue to experience generally strong pricing across all regions for well inspected equipment with low-hours in good condition and from good homes. There was a particularly strong demand at our auctions for this type of equipment, while supply remained tight. It appears purchasers are focusing on these qualities, rather than just the year of manufacture. Almost anything in good condition, with less than 5,000 hours on the meter, regardless of age, is in demand right now. This is partly a reflection of the drop in new equipment production levels starting in 2008. Although competition remained strong for this type of equipment, our sales teams are continuing to work with our customers in winning the business. We are seeing a number of positive data points in the market, that gives us reason to be optimistic. Construction spending may be turning the corner after significant declines over the last few years. The equipment market continues to be driven by a replacement demand as contractors replace equipment that they have aged more than normal, over the last few years. And in 2012, we're experiencing stronger domestic demand in the U.S. This is related to improving optimism amongst U.S. contractors, which is a key driver of equipment transaction, and is important for there to be some sustain growth in the used equipment market in the U.S. Right now, OEMs have recorded backlogs and lead times remained long for many categories of new equipment, as OEMs continue to ramp-up production to meet demand. However, as this equipment flows into the market and gets delivered to the end-users, it will stimulate used equipment transactions that will ultimately benefit us. The log jam shows signs of breaking, but there's still a ways to go. Some of our other markets are also experiencing strength particularly Canada and Australia. Europe remains challenging particularly in the North, but we are making some important moves in the region. Our very successful first sale in our new auction site in the U.K. is an exciting development that bodes well for our growth in that market. Southern Europe is still dealing with the fallout from their financial crisis, but this is creating equipment transactions. Our unique global marketplace that combines domestic supply with global demand is extremely valuable for our customers in these countries such as Spain, Italy, and Greece among others, that have recently seen a domestic demand shrink. Now here's Rob Mackay to provide an operational update.

Thanks, Steve, and good morning, everyone. I would like to talk briefly about some innovative new ways we are using our network of auction sites to deliver enhanced services to our customers. The first is a recent Mexico national auction. This sale is a truly successful event not only from a record-breaking GAP perspective, it was our largest sale ever in Mexico, but also from an operational point of view. We had equipment for multiple consignors located in 4 different RBA-controlled sites around the country, and we hosted bidders on our permanent auction sites in Mexico City, and in Hermosillo in Northern Mexico, as well as online. We sold the equipment in sequence in multiple locations, and the use of our Virtual Ramp technology delivered an excellent customer experience. Everyone involved, employees and customers, clearly appreciated the innovative approach, and it was a very effective way to create scale in our Mexico auctions. With this template of successful, innovative customer solution, we are looking across our global network of auction sites for opportunities to host other auctions of this type, scale and experience. We expect to see more of these event in Mexico, and other locations in the future, as we look to leverage our auction site network, and other infrastructure to deliver value to our customers. Another example of using our yards creatively is the recent sale we held for United Rentals. They had equipment located in a number of their yards around the Eastern U.S., and we sold all of it in sequence using our Virtual Ramp technology to buyers participating online and to those who preferred to attend in person at our permanent auction site in Northeast Maryland. This is the second time we have done a sale like this for United Rentals, and they have been very pleased with the results. It's another example of using our infrastructure to serve our customers better. The one final note, our sales and operations realignment took effect in January 1, and has been progressing well. Recall that we created new senior operational roles at our auction sites. This has allowed us to free up our sales leaders to focus exclusively on sales of our sales teams. And while it has been a big change for us, I'm proud of our team for implementing the realignment successfully and seamlessly to our customers. Now over to Bob Armstrong for a strategy update.

Thanks, Rob. Good morning, everyone. And we're making the good progress on our initiative to introduce complementary solutions to help those equipment owners whose needs and preferences may not be satisfied by our unreserved auctions. We've talked to a lot of companies over the last 6 months, both in equipment world and in industries -- at the -- in other industries as we explore alternative models for exchanging asset. I hope we're able to provide you with a more full-some update in the near future. One thing I will say is that in spite of these investigations by a small group of our people, we remained dedicated to our core unreserved auction business, and will not let anything distract us from pursuing the tremendous growth potential we see in front of us. Our core business is a very large, addressable market. And although we are looking at solutions that will help us go after new segments in the equipment industry and expand our addressable market, we have many, many years of growth ahead of us, for our core business as we grew to a GAP of $10 billion and then $20 billion and beyond. We're not deviating from our core unreserved auction model, however, not all equipment owners want to buy and sell their equipment at auction, and we intend to create compelling business solutions for those equipment owners as well. To be very clear, we are not planning to introduce reserved auctions as part of any new solutions that we developed for new segments of the market. Rob McLeod, do you want to give us the financial review for the quarter?

Thanks, Bob, and good morning, everyone. I hope you saw you've all seen our press release this morning, announcing our first quarter results. Our MD&A is being filed as we speak, so I won't go into too many details now. I would, however, like to talk briefly about some of the highlights of quarter 1. Our auction revenue rate increased to 11.71% in the first quarter of 2012, from 10.39% in quarter 1 of 2011, mainly as a result of a revised administrative fee introduced on July 1, 2011. The incremental revenue from the new fee structure during the first quarter of 2012 was approximately $10.8 million, which on GAP of $865 million equates to 125 basis points net impact. Excluding this incremental fee revenue, our auction revenue rate was 10.46%, slightly ahead of our rate in quarter 1 last year. Our at-risk business represented approximately 29% of our gross auction proceeds in the first quarter of 2012 compared to 32% for the first quarter of 2011, and 36% for all of 2011. Competition remains intense for equipment consignments for our auction, which is driving the above trend at-risk volume. We believe our at-risk business will probably remain at this elevated level for the balance of 2012. Our selling, general and admin expenses in quarter 1, increased by a $3.1 million compared to quarter 1 last year. This increase was primarily due to increased headcount and related costs associated with our strategic initiatives. One of the key strategic initiatives that added to our full time employee headcount was a Detailed Equipment Information program, which necessitated hiring a number of new people at our yards. Our sales and operations realignment, also contributed to some increased non-sales headcount. Our rolling 12-month EBITDA margin came in at 38%, compared to our rolling 12-month EBITDA margin of 37% at March 31, 2011, which is slightly below our 40% target for 2012. We did a good job in the first quarter of sticking to our back-to-basics program of growing first before increasing spending; and our margin performance and earnings growth, demonstrated its execution. Before I pass the call to Jeremy to update our guidance, I'd like to update you on our spending for strategic initiatives. In the February call, we anticipated total D&A related to strategic initiatives in 2012 of $18 million, and we remain on track. Now we'll move to Jeremy.

Thanks, Rob, and good morning. We are reiterating gross auction proceeds guidance for 2012. We expect GAP will be in the range of $3.7 billion to $4.1 billion for the year. It's been a good start so far in 2012, and we are pleased with the on-plan result. We remain comfortable with our guidance, which reflects the best available information we have right now, including recent sales results, discussions with our sales leaders and customers, as well as the external factors we see developing in the market. We continue to expect our auction revenue rate to be in the range of 11% to 11.75% for the year, and we are within -- we were within this range in the first quarter. This range includes the impact of incremental administrative fee revenues associated with our recent fee changes, which are expected to contribute around $50 million to auction revenues for 2012. Our actual performance in future periods could be above or below this range, depending on the performance of our at-risk business and other factors. Our long-term targets remain annual adjusted EPS growth of at least 15%, while working towards and then maintaining an average return on invested capital of at least 15% over the long term, and a minimum EBITDA margin of 40%. We continue to believe adjusted earnings before tax for 2012 will be at least 15% higher than last year's earnings before tax. Actual results could be above or below this range. And in the near-term, there remained some uncertainty in the market, so it's difficult to forecast with more -- much more precision. Now back to Pete.

Okay, and thanks, Jeremy. And before I leave you with some peculiar remarks and open the call to questions, I'd like to comment briefly on our sales headcounts. Our sales force contracted slightly during the quarter from 294 at the start down to 290 at the end of the quarter. While some individuals left voluntarily to pursue other opportunities, other departures were a result -- as a result, from our ongoing process to ensure we have the right people in the right place to perform. Sales force productivity is one of our primary focus areas in 2012, and we are taking steps to improve our ability to attract, development and retain key people. As a result, we've already added 7 new sales reps to the Richie Bros. team in April. Please also note that we have changed the definition of our sales team to reflect the recent changes to our organizational structure. We eliminated the Divisional Manager position effective January 1, 2012; and this position was previously included in our sales force numbers. Now we're made up solely of Territory Managers and Regional Sales Managers. We have adjusted our December numbers mentioned a minute ago to reflect this change. Another very important point to mention is that our Trainee Territory Managers increased to 19 people during the quarter, from 16 at the start of the quarter and 11 at the end of Q1 last year. This is an important metric because our strategy has evolved to place greater emphasis on hiring trainees, since the results of this program have been very positive. Although they are not reflected on our overall sales force numbers, these people will be meaningful contributors to our success in the future. We believe the fundamentals in the global equipment market have improved in recent business, and we are pleased with our results to date. Revenue growth of nearly 15% and an earnings before tax growth of more than the 44%, are both demonstration of our success in the quarter. We remain optimistic and believe we are well positioned to capitalize on the strengthening of the used equipment market, and to meet the demands of our customers, the builders of the world, and help them easily and confidently exchange equipment. We are confident in our ability to deliver on our plans for 2012. Lorel, can you please open the call for questions?

[Operator Instructions] Your first question comes from the line of Ben Cherniavsky with Raymond James.

I must have missed it. Rob, you didn't mention your CapEx plans for the year?

Oh, sorry, Ben, yes, the CapEx plans are unchanged from our previous guidance of $55 million to $60 million. And if you look at our financials, you'll notice that a lot of that CapEx was front-end loaded, which was not a surprise. That is the plan, and which was about $24 million in -- here in the first quarter.

So as you scale back the CapEx and forecast your EBITDA to be up, what are your intentions for the cash you want to generate?

Consistent with our previous conversations, the intention is to grow -- have steady growth in our dividends. And that dividend growth would probably at least match our growth in earnings.

Okay. The other thing just on -- you mentioned the business you did was United, and I'm just more broadly speaking, I'm curious about how the rental business is evolving for you because they've -- like rental -- United Rentals reported a great first quarter, and we're hearing a lot about the rental channel being the go to place for the market right now. How is that -- how do you think that affects your business in -- because I don't think historically you've done a ton of business with the rental companies, right? I mean it's mostly end-users that you service? So do you see any impact that, that's having on auction flow?

It's Pete here. Steve is remote down in Phoenix right now, and I wouldn't mind him chiming into this but just I'll layer off comment and then hand it over to Steve. We got a relationship with United and lots of the rental companies around -- these are the big guys that have lots and lots and lots of little around too, that are -- literally multimillion dollar companies that are operating in more regional districts. But we've had a decent and a growing relationship with United. I think with their pending -- and now, I think, official merger with RSC coming up that, that creates some scale for us to be able to serve them probably more effectively. So we're working on expanding relationships with them for sure. They've got a great business, and that's been very, very well run. So they're serving a market need right now. But that, of course, any time equipments going to the market and starts being used, that's good for us, And whether it's through in a rental channel or whether it's not, but ultimately it has to be sold out in the back-end and somebody has to help in that process to make sure they're maximizing the value. We think that we can do that most effectively for United, and for Ashtead and for a bunch of the guys that are throughout the U.S., and Canada and the European channel. But Steve, do you want to talk -- chime in there?

Yes, sure. I mean, Ben, we've been doing a lot of business with the rental companies generally and a lot of those guys during the downturn, they weren't acquiring a lot of new assets. And of course, they've been filling up their yards with a lot of new product and pushing out some of the older stuffs that get some hours and some model on it. So we've had this first quarter, our national account guys that look after the rental guys, were -- we've seen some nice business from those folks, as we did last year. So it's been good business for us actually.

I'm just a bit puzzled that, and I appreciate, as well as anyone, that your businesses is lumpy month-to-month, quarter-to-quarter, et cetera. But I'm just a bit puzzled that you wouldn't be seeing more robust growth in your GAP if prices are high, your business with the rental company is strong. We've heard a lot about replacement demand. And frankly, we've heard about it for about 2 years now, and just I'm puzzled why that wouldn't be spilling into your results by now that if someone's replacing old -- or buying new to replace their old, they've got to get off their old, and they're going to send it somewhere in the market. So can you maybe just speak to that a little more broadly, like what is it -- April, I guess, is up single digits. Why aren't you -- why would you say GAP is not growing more robustly right now?

Yes, Ben, it's Pete here. A large reason why the GAP is -- I don't think it's not growing in a pace in the single digits is on low-end of where we want to go for sure. But at the same time, it's very competitive out there and the availability of equipment is not as most people would think. The OEMs are -- that contraction of production, cutting production probably in half or most of these guys back in mid-'08 through the rest of '08 and into '09, and perhaps full year of '09. There's an echo effect that's still rippling through the market. Even people who are ordering product today, a lot of the dealers are still on allocation. So the OEMs are working hard to get production an at or above our previous levels and start to feel the backlog. But there's still -- this echo effect of the reduced production in the marketplace that Steve mentioned in his comments that low-hour machinery that's out there, even if it's a older year model, the people are buying on hours because it's just hard to get their hands on new equipment. And as the sort of the optimism in the U.S. particularly we've noted in the quarter has improved, and the construction seems to be rolling along and getting more movement towards it in the front and forward end, those are things it will continue to be positive effects for Ritchie Bros. on the way through the next many, many months.

So when would you say -- when would you expect this to that, that -- the metaphorical dam to break? Like, if there's a bunch of this stuff don't stop, I mean, OEMs have been putting capacity back in the market for some time now. At what point would you be scratching your head and saying, "Look, you didn't see a wall of equipment coming your way, so there's something else going on?"

Yes, I don't know if you can put in a sort of a pin on a calendar and say, “Ah-ha, it’s May 12 or pick a timeframe." The reality is, it's just an evolution of flow of equipment that comes in and out of the marketplace. And I think what we're seeing from a trending perspective is certainly positive indicators for us, that things are moving in the right direction. The OEM production is up. Utilization from rental companies is up. The construction spending is now starting to sort of -- it had bottomed out, and it's come up -- I think it came out relatively flat, month-over-month and most of these -- U.S constructions spending in the recent results. But those are all -- I mean, positive things that we're to see in the marketplace moving forward. I wouldn't characterize it as a big pent-up flow, like you're waiting for the dam to burst, and all this sort of stuff floods into the market. I think people are a lot smarter than that, and they're utilizing equipment in an effective way. But people are -- remained reluctant to let go of equipment if they can't replace it, and right now, that replacement cycle is still on. I think you'll hear in the some of the comments from other OEMs and rental companies and whatnot, you'll find that, that replacement cycle is still on, right now. And that the people are not going to sell older equipment until they can replace it with -- replaced with new equipment. And if they can't get their hands on it, they're not going to let it go. So that will ease over time, as production levels increase back to more normal. If you look at any of the big OEMs, you'll note their recent results are in fact above the peeks of '07, '08, in terms of their revenue. So they're pushing stuff into the deal channel and that goes through the rest of the channel. All that stuff is -- it continues to be a positive for Ritchie Bros. so, we're optimistic that we're well placed to be able to serve that, as it rose.

And your next question comes from the line of Nate Brochmann with William Blair.

Hey, I wanted to talk a little bit -- I mean, I know it's hard to dissect this, but obviously you guys have had a lot of different initiatives over the last couple of years, and have added some new service categories and new ways to sell. Do you think that, that showing up and doubling new business wins? Or are the recent results just more of a function of the market unfreezing as you just alluded to, Pete?

You want to take that, Bob? Or…

We're just looking at some...

Who wants to answer that one?

What are you referring to Nate? Are you referring to the -- like our launch of the financing, and warranty or?

Well, a little bit of that but also in just some of the kind of the new virtual type auctions, in terms of the new enhanced pictures, and just some of those new value-added type things?

Sure. I'll take a crack at that. I don't think we can point to any significant turning of the corner or tipping point or anything like that. But we're definitely seeing steadily increasing numbers of participants both on the buy side in the sell side. We're seeing steadily increasing numbers of new people coming to us. We're seeing more and more people take advantage of our online tools to participate in the auction. So we -- our view would be that the various different things we've done to make it easier to participate have been very positive. We're just seeing steady, steady growth of numbers, dollars, lots, people, all of the different metrics we think are important. Watching our sales force productivity improve. We think pretty good percent of traction on the very different metrics that we think are important. And because like you said, you know that we've had so many different initiatives underway. It's not really possible to say, "Well that's the one that caused this." But overall, we're very pleased, and we think we're getting good feedback from our customers as well to say that we're moving in the right direction. It's an interesting question and because we've had so many things going on, it's tough to, exactly as you said, it's tough to dissect. Okay.

It's Rob here. I might add some in that. I think there is, some of the initiatives that we did I -- for example, with United Rentals and a similar activity we're doing have been Europe between our Spain and Portugal sites is adding business to our channels that may not have otherwise come. Not providing the ability for say, in the example of United, to structure a sale or all of the equipment remains at their stores. We very well would've got some of that business, but may not have got it all. So some of these initiatives that we're taking is, is the retail been trying to satisfy customer needs that otherwise, we weren't be doing in the past. So it would be a bit of both.

Okay. And then kind of talking about that productivity a little bit in terms of, looking at some incremental margins and a little bit in enhancement there. And I think that we're all happy to kind of hear the focus on that. What really has driven the opportunity at this point to really be able to drive that, and focus that?

It's Rob McLeod in the -- that focus on sales force productivity, a part of that, I would say is our -- that realignment of our sales and operations teams effective January 1 this year. I mean, it's still early days for sure but being freeing up our sales and management team to focus strictly on their team of sales people, as well as our customers, is a driver of that productivity. And I'd say it's early days yet, but it's a -- as Rob has commented, well implemented and so far, seamlessly. And we anticipate that, that will be a -- for sure a driver of productivity of the sales team.

The other thing Nate is going to be, I think the support of that productivity levels, a more acute focus by us, so we can do a better job, and we'll do a better job on filling vacant sales positions and hiring. And I mean our guys out there -- and you've been to our auctions before, you've seen them in there. They're very customer-focused guys. They love going on to deals and creating relationships are important to them, and our sales leaders have to have that same acute focus on open sales positions and treat them as if it's a $5 million or $10 million deal, because that's really what a new salesman can kind of go out there and produce and fill a -- if they can fill a void in a marketplace that's not been a part of the territories that's not being properly served. Those guys have to maintain that focus. So we're going to ramp that up in a big way and all of our senior leaders are on that, right now. So that will I think, would be an added fuel to the productivity levels that we should be able to carry on and improve.

Your next question comes from the line of Cherilyn Radbourne from TD Securities.

I wondered if you could talk about the performance of your at-risk business in the quarter. It feels like in the recent periods, anytime at-risk was elevated, that was somewhat negative for the auction revenue rate. So I'm just looking at your results this quarter, it feels like maybe the at-risk did it better than it has in recent periods?

This is about the -- it is the performance of our at-risk business is really what is the kind, the fluctuation in the -- sorry on the auction revenue rate. And the -- it's not necessarily the volume of it, and the -- it's really the competitive nature of the environment that we're in right now, and is that perhaps in -- if it was quarter 4 of last year where it was just more intensely competitive perhaps because it's a yearend or our -- both for our customers and our competitors up there versus quarter 1. And so it is the -- it's the performance of that at-risk business, and I wouldn't say that it's particularly the volume of it. And also we don't -- as you know, and as we've said before, we don't target a particular level of at-risk business. We're going into an auction, and we have a number of at-risk contracts already in place, and it looks like that will probably add up to both 20% of the volume of that auction. We don't put the brakes on further deals. Conversely, as you get into an auction and you're 2 weeks out from the auction date, probably we're not going to be presuming very many at-risk contracts just because it's a limited time for promotion and advertising on that types of equipment. So we don't target a at-risk volume sale-by-sale or quarter-to-quarter per se.

Okay, but on average, it has to be 20% to 25% of your business?

Historically.

Yes. But I would be right to think that the at-risk business did better sequentially in Q1 versus Q4?

Yes, it probably was a little bit better, yes.

Okay. I also wondered if you could just elaborate a bit on any mixed impact in the quarter. It does look like gross auction proceeds for auction were relatively flat year-over-year. But GAP on a per consignment or per lot basis, was down somewhat. Anything of note there?

Yes. On the mix, it is a -- that's the tough because every day, every quarter, every year, it's a different mix. And every auction is a different mix. Your analysis is, I would say as good as any analysis and in terms of the results of quarter 1 and the mix being -- we probably so a few more low value lots, if you will, showing up in quarter 1, for example, in Orlando. Orlando, we saw that. So there's a few more smaller lots within quarter 1. Although, on the other hand, you had Peter's example of the auction in Brisbane if you -- it is one day auction of $54 million, so you had a beautiful mix, if you will, in Australia. But overall, probably the mix was similar to last year with a few more smaller lots.

Okay. And last one for me. Just I guess, I've been curious over the last couple of years, where you guys have felt some improvement in customer optimism and then it sort of waxed and waned, at that time. What do you feel is the sustainability of the improvement of -- in sentiments this time?

Hey Steve, maybe you guys can jump in on that?

Sure. Yes, I mean it did -- it feels bumpy for sure. I mean you're -- you go through periods where the guys like -- look how last year finish off, and then we came out in the first quarter and there was lots and lots of optimism out there. And the guys are feeling good about the workloads they have in front of them. And then it's a -- and then it almost feels like we sort of plateau-ed or flattened out a bit here coming through the end of the first quarter. And some of the things that the positive influence, is that the guys felt that, where are some of that stuff sort of evaporated or disappeared for a different reason. So it's hard to nail it right now. I mean, you just feel like you're getting some traction and then it just backs up a little bit on you. It's very, very difficult to nail that right now and it's -- I don't know if this can change so much for the rest of the year, and of course we've got an election coming up in the U.S. which is always cause of some pause for some of the people. So it's challenging for sure.

Your next question comes from the line of Yuri Lynk with Canaccord Genuity.

I'm looking for a little more color on the strategic efforts underway to accommodate the needs of customers that aren't being served by unreserved auctions. Is this mostly going to be an Internet effort? Or will there be some physical aspects to it as well? And in case I missed it, what type of investment are we looking at, is it going to be more -- I know you're looking at more, an organic approach or via the acquisition?

Yuri, it's Bob. A fair question, partly because we really haven't provided much information on that and that we'll stick to that until we have something substantive to say, I think we'll stay pretty quiet on it. The goal here is to increase the addressable market for Ritchie Bros. We're looking at the market that we plan today. We see significant growth for our core unreserved auctions model. But we also see a large market out there that probably, we won't be able to reach. I mean, we have to be realistic. If there's $100 billion or $150 billion in transactions, we don't think that the core market or core services will reach all of it. And so we're exploring the ways to create value for the people who aren't going to use auctions. Beyond that, I know, I don't think we're committed to too much. So it will be a mistake to sort of layout a game plan for you. But as soon as we have something to announce, for sure we'll be doing so.

All right, that's fair. Second one for me. I'm wondering if you've seen any dramatic change in the competitive environment, specifically thinking about other auction dealers like CAT Auction Services. We've heard it's out to trying to recruit new CAT dealers to join as partners. So have you seen any change there?

I think the CAT guys took a run at some dealers and we watched everyone not just CAT and there's other players in the industry. And CAT is particularly interesting because they've got their name behind it. It really is a group of dealers that's work their ways. You can go to their page and see what their activity level is. It's probably the best way to judge what's going on with them relative to what's going on with us. And I would invite you to do that and that might give you a sense of what's happening competitively for them. But also Steve and Rob, you want to throw in anything or?

Yes, sure. I will, Pete. The competition and the levels of it out there, I don't think have changed really at all. I mean, this is some of the big guys that are getting some of the business and then lots of little smaller market individual players. And the level of that compared to the last year, I would say generally, is unchanged. It's out there. We're facing it every day, and we're dealing with it, with as best as we can. And I'm happy to say we're getting our fair share of it. So I it's -- I can't say there's been any change.

Your next question comes from the line of Nick Coppola with Thompson Research.

So almost a lot of my questions have already been answered, but I just wanted to just follow up on, I guess, the last question on the underwriting business. So I mean, looking at the sequential decline right from 38.7% to, I guess, 29% underwritten. Was there -- I appreciate what you said earlier, you don't have a target for underwritten percentage. But was there any GAP that was kind of you turn it away, you didn't want, that would have been -- would have had if you've underwritten? Or was there, okay I guess, I'll just leave it there. Do you have any kind of, comments around that?

Yes, Bob, do you want to answer that?

Well, I'll start first then Steve, you can jump in but just before Steve. It's highly unlikely that we turn away GAP. I don't like swearing around Ritchie Bros. But on the other hand, for sure, when we -- when there's a package of equipment, and we're pursuing it, at some point, if a -- if our competitors on that package of equipment push our upper limits of what we believe makes an economics, or make that good economics for the -- for that package of equipment, we will walk away. It's as Steve said, the competition is -- continues to be very intense. We don't walk away that often. But for sure we do sometimes. And it's -- but again, reiterating that we don't target the volume of at-risk business. It is deal-by-deal and because every deal will be different and the characteristics of that deal, and also the characteristics of that auction or event, will also be different, that will have an impact on our decision to pursue that, how far to pursue that package of equipment.

Yes, okay. And then, I guess just a point of clarification. Did I heard that the Q4 was kind of -- it's kind of environment was a little more difficult as a function at being the end of the year, I just -- relative to where we are today?

I guess, sort of that was my comment. No I think, for example, perhaps our customers who had different motivations because it was the end of the year. But we don't necessarily get into that conversation with every customer on every deal. But I was just alluding to the fact that perhaps that was part of their motivation.

Okay. And have you seen any notable change to the type of buyers at auction? And I guess, you can look at that a few different ways, if it's more -- like, you're seeing more rental customers versus contractors. What types of contractors and then -- and maybe even region-specific?

I think, nothing comes to mind, Nick. I think we've seen a fair bit of buying out of Australia with the -- with the commodity demand going down there although we probably -- it's fair to say, it tailed up a little bit, near the end of the quarter with the -- our were primarily things like coal, and like in the coal markets and where they're going. But I mean, overall I think, we're still seeing some very strong international demand. The north part of -- the northern part of South America, very strong out of our Florida auctions in the southern part of the U.S. Europe, even though we've had -- we're having sales in Europe, the demand internally within Europe is still very strong in economics challenging in markets like Spain and Portugal, and Italy. But people still have to do stuff. There's still work to be done and roads to be fixed, and pipes that break and they have to be repaired. So people tend to go to that used market first. So we're seeing some fairly interesting -- and very predictable for us the results economically around what happens in some of those markets that are more challenged than others. I don't know, Steve, you might -- I know you go to as many auctions or more than Steve or Rob both, so you guys want to throw in there?

Yes I don't -- I haven't seen really any change in the mix of buyers at all. As Pete pointed out, I mean, it's -- we're getting a full cross-section of folks in every industry from every walk. So it's really -- it's just business as usual.

One thing I -- I'm just thinking out loud here, one thing, we just our Farm Run in April in Saskatchewan and Alberta. The farming community very, I would say very robust right now, and we're attracting more interest from the agricultural side of life, either end-user farmers that are coming and we're working and building -- with the reputation of the company layered over the agriculture industry, people are starting to get more comfortable and the level of trust takes a long time sometimes to build in many markets. And I think we're seeing some nice traffic into our agricultural sales, and that I think will continue.

Your next question comes from the line of Neil Forster with the Scotiabank.

I just want to drill down on the competitive situation a little bit more. So you remained -- you mentioned that the competition remains intense, so there's no real change there. Perhaps, there's a timing impact, Q4 to Q1. We've seen the error higher and a big drop in at-risk business, 29% this year versus 39% in Q4. So have you seen competitors at all becoming less aggressive on at-risk deal or at least in some cases? Or maybe are your customers kind of gaining confidence in taking in the straight commission deals? So maybe if you could flush that out a little bit more. That would be great.

Yes, Steve, you want to throw in there?

Yes, sure. The competition's appetite for at-risk business, I don't think has changed. The level of -- any -- any -- in particular any of the really nice packages of equipment from grade owners that were looking out that have competitors, I mean it's very intense for sure. But as you commented, the level of comfort from some of the consignors right now, for sure has got a lot better. They've been watching the prices come up. So from their perspective to go the route without a guarantee or some sort of insurance, if you will, and get a cheaper commission rate from us to do that there's definitely been some change in the markets than just knowing that the pricing is better. So I would say that will probably, it answers the question of why the at-risk business has changed a little bit. But that is bumpy too. I mean, another week ago and our next quarter is coming up here and it could be significantly higher than it was last year.

Okay. So you mentioned that you expect the percentage of at-risk business to remain above trends for the remainder of the year. But would you expect it to go up sequentially from the 29% that we've seen?

Sure, yes, Neil it's Rob. And I wouldn't -- I -- when we say that it's, we've kind of remain above trend levels. What I'm talking about is the -- our 2011 rate is 36%. And I wouldn't extrapolate quarter 1 to the balance of the year. I would look at the performance of all of 2011, and we'll probably be somewhere in that range. I would suggest probably we would be higher than the volume in 2011 but still an elevated level.

And it's helpful. I'm just wondering if you could comment on the expected cadence of GAP growth as the year unfolds here. Would you expect the acceleration or should we continue to expect low- to mid-single digits year-over-year growth for the remainder of 2012?

Hey, Neal, it's Rob. And the -- yes, it's probably going to be in somewhere in single digits. But I would -- it goes obviously, your comp from last year makes a difference. And the quarter 3 last year was a particularly challenging quarter, partly due to just shifting of auctions and shifting of packages and equipment last year in the quarter 3. So that -- so it makes it relatively modest comp to perform against in 2012. So you in quarter 3 you would probably see a more than a single-digit growth.

Okay, that's helpful. And then just finally, given that records are still weak in Europe, although you mentioned that you're seeing something in there for equipment. Are you seeing at all equipment being shipped overseas for sale in North American markets where the pricing might a little bit stronger? Or is that -- is it truly a global marketplace and pricing would be consistent across-the-board?

We have some consignors that want to be that aggressive in terms of putting stuff on a boat and taking it market one to market two. And that's about -- that's not abnormal. We don't necessarily do that. We believe that the market will come to where the equipment is. We've seen that time and time again. But we're not going to certainly dissuade you guys from doing that. So you -- generally, you've seen some stuff moving into Australia, as an example. The market is particularly hot with the big mining year, and the demand for the ancillary and related things. But our experience has been that the crowd and the buyers will come from everywhere no matter where the equipment is and then factor that in. So it's a bit of a mugs game to try to do that. Although people will. But in particular, we don't see people sitting in North America going, "I'm going to ship that stuff over to x to make sure that I can access the Spanish market or the Italian market or the Australian market. Do not attempt to -- you don't tend to see a ton of that, but it does happen from time to time.

Your next question comes from the line of Jamie Sullivan with RBC Capital Markets.

This question -- just a follow-up on the growth. It seems that last year, we have a lot of same dynamics you're talking about today, except last year, the shortages were a bit exude OEM production, and pricing were lower. It even sounds like maybe the risk business is feeling a little bit of relief because of the improved performance in the ARR this year. So I just wanted to get your thoughts relative to the pressures in 2011 what's changed into 2012 that's holding back that GAP growth?

Jamie, it's Pete here. I don't know that anything has materially changed in 2012, that the OEM production is up for sure, which is helpful for us, and that will create some movement of equipment offer. But that again is a -- when does that happen? And it happens over time and eases. Anytime things change typically, that's good for us, typically. So when you see OEM production levels, and if you look at any of the charts in the OEMs, you'll see then, some decent numbers coming. That's just feels like a deal chime. I mean, you got a dealer channel I mean, you got dealer iron that's being rented out as well. So as they hour up and as the pricing -- and the comfort and pricing increases, I suspect that as we saw that, some of that consignors be more comfortable with going straight commission rather than at-risk rates then we tend to charge higher because we're going to bear the risk, so we'll charge more for that. Those are all interesting signs to me that people are starting to return to a more balanced state of mind. And you'll see that in the finest companies. And in the past, our business, our finest companies has been probably higher than it is right now, because we just don't have a lot of equipment in their chain right now. They've dealt with all of their issues and they're out now, asset-based lending to make sure that they can cover off their risk positions, and that stuff sort of starts to roll. So that whole market upside down, stuff that happened in mid-'08 all the way through, is starting to ease its way back to a normal. You want to -- liken it to throwing a big rock in a pond, and of course, there's lots of ripples that start all the way, and then it starts to sort of calm down now and there's -- cooler heads are prevailing, I think, to the market and there are more predictable and more balanced behaviors are turning, which is nice. But then -- this takes time. I think that's probably the biggest -- I think the biggest, if you want to call it change. It's just that to me, it's just the natural way that markets will return to a more balance way albeit, that Steve's comments are exactly right. There's rather skittish behavior out there, people are still not quite comfortable at everything that's on the rails. At the housing market is a good example. In the U.S. we're looking at that and trying to see where that's going to shake out and as it rolls through and people gets used to maybe the new reality to what's going on out there. But those are all just factors in the market that we play, and that's just United States. So you layer that over the whole world, and there's ups and downs. We were up in a correct me if I'm wrong, a few weeks ago. And looking at the things that were going up there and it will blow your mind to see the activity in the North and the way that energy markets are moving, and the requirement for energy for the world going forward is very significant. And you got to be there and play. So those things are going to continue going on. So there's many things that are happening in the world. Every time we wake up in the morning and you jump online, and you read the news, virtually everything that happens out there affects our business. So it makes that interesting for sure. But any comments from you guys here?

All right. That's helpful. And then you mentioned Australia a few times, and some really strong auctions there, so far this year. It was really striking to see some nice volume of unused CAT year, a few of the auctions in the first half in these international locations. And even some unused 2012 models. I'm just wondering if there's -- if you can comment on what's driving that?

I think it's the supply demand. When people have it and they want to sell it and we're happy to sell it for them, and I think if they can make money. So that's the market forces at work, and that's exactly -- we represent the marketplace.

So nothing unique about an unused 2012 model being sold say in first quarter? It's just striking, I didn't know if there's anything else there of like...

You can -- you're going always to have the odd group of units. It's not a big -- I mean, we're not running around trying to replace the CAT dealership network because they do a great job on their own, and they got great customer service and parts, and service and warranty and all the things they do and they rent irons and they do a terrific job serving their customer base. So there's always some guys that have something that they want to sell, and if we're a network and a channel that they actually maximize the value on that then we're there, for them to use.

Right, okay, fair enough. And then just one quick one on D&A. It looks like that's come down the last couple of quarters. I'm just wondering what's driving that? How should we think about it going forward?

Sorry, Jamie. You said G&A?

No, depreciation and amortization.

Yes, that's reflection of the CapEx, kind of peak CapEx that hit in 2010, and the flow-through of those projects into the system and as we haven't added as much CapEx, it hasn't -- you don't see those big bump ups in depreciation that we've seen in the last few years.

Okay. So that just continue to dwindle as we go forward?

Yes. The -- for sure, that linkage between the volume of CapEx and the growth in your depreciation, and absolutely. Just to be clear, not dwindle, the rate of growth will dwindle.

But -- okay, so do you expect it to go up from the levels in the first quarter?

Yes, as we -- obviously, as we add CapEx and we're adding infrastructure, that infrastructure is both buildings that have depreciated or IT systems and IT development. They also get appreciated. And so as you're adding that, for sure, you're CapEx will -- sorry, your depreciation will grow because the CapEx that we put on 2 years ago is still being depreciated. It hasn't fallen off the plate. Yes, just at a lower pace.

And your last question comes from the line of Anna Kaminskaya with Bank of America.

Most of my questions have been answered, but I just wanted to follow-up quickly on G&A. How much of incremental cost, related to your growth initiative was added in the first quarter? And how much more should we expect in the second quarter kind of, on a sequential basis?

Anna, it's Rob McLeod. As we said in the comment, the annual amount for 2012 is going to be approximately $18 million. And you probably saw about $4 million in the first quarter, and it will be relatively evenly spread out because most of it is headcount that was in place either at January 1 or being put in place, during the -- here in the first quarter.

Okay so the step-up would not be as dramatic as the fourth quarter to the first quarter until the remainder of the year? Is this how I should be thinking about it? Or I'm just trying...

Yes. Yes, probably.

And just a quick follow-up on your used pricing comment. You said it leveled off into the second part of the first quarter. What were you seeing in April? Did it continue to level off? Or was it steady? Or did you see any some sort of improvement given some of the I guess, market volatility?

Steve, you want to take -- or Rob, you want to take that?

I'll comment, I guess, before Steve. I think Steve mentioned earlier, we came in to Q1 early in the year in January and are still -- Vegas on to Orlando, and we still saw a very strong pricing, a higher than -- in tendency to what we're experiencing in Q4. And for sure, somewhat higher than we did the year-over-year in Q1. As we went through Q1, we felt that, that intenseness, I guess, of pricing sort of, leveled off. The lower hour and late model that everybody is still chasing and it's very competitive. It still remains quite strong. But the some of the equipment that would've been more hours on it, is the stuff that we probably saw some leveling off of towards the end of the quarter.

Leveling off in absolute prices or just the rate of growth year-over-year? Just to be clear.

Sorry, I missed that?

Was it just leveling off in the absolute prices on the equipment or just the rate of growth year-over-year?

Leveling off from rate of growth, but leveling off from what they same machine was bringing earlier year-over-year in the quarter.

And did it continue until April or?

We're seeing similar activity in April, earlier so yes.

Okay, great. Thanks Anna and thanks everyone else for joining us on the call. We appreciate your time, and we'll get back out of here and we'll look forward to chatting with you next quarter. Okay?

And this concludes today's conference call. You may now disconnect.