Good morning. My name is Sarah, and I will be the conference operator today. At this time, I'd like to welcome everyone to the Ritchie Bros. Auctioneers 2012 Q2 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to our host, Mr. Peter Blake, CEO of Ritchie Bros. You may begin your conference.

Thanks, Sarah. Good morning, everyone. Thanks for joining us today on our 2012 Q2 investor conference call. I'm joined today here in Vancouver by Steve Simpson, our Chief Sales Officer; Rob Mackay, our President; Bob Armstrong, our Chief Strategic Development Officer; Rob McLeod, our CFO; and Jeremy Black, our Vice President of Business Development. We're going to focus our prepared remarks today on a few key takeaways so we have lots of time for questions. 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 considered forward-looking and involve risks and uncertainties. These risks and uncertainties are detailed from time to time in our SEC and Canadian Securities filings, including our management's discussion and analysis of financial condition and results of operations for the period ended June 30, 2012, and subsequent quarters, which is available on the SEC, SEDAR and company websites. 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 today's call, we will be talking about a number of non-GAAP measures, including gross auction proceeds, which represent the total proceeds from all items sold at our auctions, adjusted net earnings and EBITDA. A complete discussion of these measures and reconciliations are available in our MD&A for the quarter ended June 30, 2012. Now on to business. I'm happy to report we achieved record gross auction proceeds of over $2 billion and adjusted net earnings of growth of 25% for the first half of 2012. We remain on track to achieve our GAAP and earnings growth targets for the year, and although challenges remain in some of the regions in which we operate, we believe the used equipment market is starting to become more balanced with supply and demand moving more in line, which should benefit us in the near term. Steve, can you give us a quick key message about the used equipment market?

Thanks, Pete, and good morning, everyone. The used equipment market was generally strong in the early part of Q2, carrying on the momentum that we experienced in the first part of the quarter. We saw used equipment prices at our auctions steadily increase in the early part of the second quarter, before starting to level off in the latter part of the quarter. In the last few weeks of the quarter, we saw some saw softening of prices at our auctions. The used equipment market is becoming more balanced and well-maintained, low hour machines from good homes have generally been selling well over the last month or so, with the auction results mostly in line with our expectations. OEM production is catching up with demand for many categories of equipment and lead times for new equipment are coming down to more reasonable timeframes.We are still seeing lots of replacement demand from equipment owners looking to replace older fleets, but it's apparent that used equipment supply and demand are becoming more balanced, which is having a moderating impact on our used equipment prices. Based on conversations with our customers, we believe the used equipment market is going to remain healthy, which should translate into stable used equipment values at our auctions. There's still a lot of uncertainty in Europe, but in the near term, we see opportunities to continue to create liquidity for our customers in a challenging environment and ensure the equipment sales for the global marketplace. Rob Mackay over to you, to talk about the performance of that risk in the first quarter.

Thank you, Steve, and good morning, everyone. My key message relates to the performance of our at-risk business in the second quarter, which was below our expectations and we're not satisfied with it. Recent used equipment pricing dynamics create some challenges for our at-risk business in the latter part of the second quarter. Recall that we usually take 30 to 45 days from the time we sign an at-risk contract until we sell the equipment at auction. Although equipment values did not normally move as rapidly or dramatically as stock or commodity prices, changes in equipment prices at our auctions during this intervening period can impact the short-term results of our underwritten business. Particularly when values level off after a period of steady growth. This is what we experienced in the latter part of Q2 and the outcome was weaker-than-expected performance of our at-risk business, which eroded our auction revenue rate for the quarter. Our sales and valuation teams recognized partway through the second quarter that prices were leveling off, and in some cases, pulling back slightly. While we began to reflect this in our at-risk deals for the remainder of the quarter and into Q3. Fortunately, our business model allows us to work quickly through the potentially lower performing contracts and start with a clean slate. We're updating our values and pricing deals everyday based upon actual Ritchie Bros. auction results in order to stay on top of the market dynamics. If we exclude the 127 basis points net impact on our revised fee structure, our second quarter auction revenue rate would've been 9.38%, which is lower than we have experienced over the past 2 years, but not out-of-line when compared to rates we achieved prior to the above trend performance that we experienced in 2009 and 2010. We expect the volume of our at-risk business will be in the 30% to 35% of GAAP range for the full year in 2012. And now Rob McLeod will provide you key messages on our second quarter financial results.

Thanks, Rob, and good morning, everyone. I hope you've all seen our press release this morning announcing our second quarter and first half results. Our MD&A will be filed shortly. One of the highlights from our first half of 2012 performance was our discipline on SG&A costs, which performed well in the face of a challenging revenue environment. Our SG&A for the first half of 2012 increased 7% to $130.9 million, compared to first half of 2011. SG&A for the first 6 months of 2012 included $4 million of operating and acquisition costs related to AssetNation, as well as approximately $7.5 million of incremental spend for our strategic initiatives. Excluding these amounts, as well as the $2.7 million decrease in our SG&A as a result of currency fluctuations, our SG&A remained flat for the first half of 2012, compared to the first 6 months of 2011. I'd also like to highlight our depreciation expense for 2012, which has leveled off after a number of years of growth attributable to our accelerated CapEx program on previous years. We are now experiencing leverage on our depreciation expense line as revenue growth should outpace depreciation growth going forward. Our rolling 12-month EBITDA margin came in at 38% which is slightly below our 40% target for 2012 and reflects our lower-than-expected auction revenue rate. The impact of the AssetNation acquisition and their operations since closing are included in our results for the second quarter and this did not have a material impact on our EBITDA margin or earnings growth for the quarter. Now over to Jeremy to update our guidance.

Thanks, Rob, and good morning. We are reiterating our guidance for 2012 and continue to expect that GAAP will be in the range of $3.7 billion to $4.1 billion for the year. Our auction revenue rate should be in the range of 11% to 11.75% for the full year, including the impact of incremental revenue from a revised fee structure. We are expecting our EBITDA margin to be roughly 40% for the year and adjusted earnings before tax growth to exceed 15% for 2012. All of these measures include the impact of our AssetNation acquisition and other strategic initiatives. Our capital expenditures for the first 6 months came in just under $35 million and are on track to be on the top end of our guidance range of $50 million to $60 million for 2012. Our actual results and performance in future periods could be above or below the guidance range, depending on the performance of our at-risk business and the continued uncertainty in the global market. So it's difficult to forecast with much more precision. Now over to Bob.

Thanks, Jeremy, and good morning, everyone. Before Pete wrapped up the call, let me update you at our AssetNation acquisition and the development of our new services for equipment owners who's needs and preferences may not be met by our unreserved auctions. We are still keeping the specifics of the new services confidential for now, but I will tell you that the development effort is progressing well. I can also tell you that the AssetNation team has performed well since we completed our acquisition, and the integration effort has gone smoothly. Pete?

Okay. Thanks, Bob. But before I leave you with some concluding remarks and open the call to questions, I'd like to give you a quick takeaway about our headcount. Overall, we increased our headcount by 107 people during the quarter, including 80 employees who joined our team as a result of the AssetNation acquisition. Our team of sales representatives increased by a net of 2 people in the second quarter, bringing this total to 292 at June 30, 2012. AssetNation salespeople are not included in this number. We also grew our trainee territory manager ranks to 26 people from 19 at the start of the quarter. While we have reversed the recent downward trend in the size of our sales force, we are not satisfied with our performance and still have work to do here. I can assure you that we are laser focused on growing and developing our sales team, and we will be upping the ante with our field managers going forward to ensure we achieve our targeted sales team growth. Now to wrap up, let me recap the 5 key messages that we have left you today here. One, used equipment pricing leveled off in the second quarter. We are seeing supply and demand become more balanced, which should be positive for us going forward. Two, our at risk business performed below our expectations for Q2, mainly as a result of the leveling of pricing between the time we signed our at-risk contracts and when the equipment was sold at auctions 30 to 45 days later. Fortunately, we reset our pricing everyday which helps us to manage this exposure. Three, we were successful in managing our costs in the first half of 2012 and we are still on track to achieve our earnings growth target despite the challenging revenue environment in Q2. Four, we have reversed the contraction of our sales team and we are acutely focused to ensure we grow it to help drive our sales growth. And five, the development and launch of our new services for the non-auction segment through the AssetNation acquisition are right on track. So with that, Sarah, please open the call to questions.

Your first question comes from Nate Brochmann of William Blair & Company.

I wanted to talk a little bit more on the auction revenue rate. You kind of just alluded to that most of it was just due to the kind of the leveling off of pricing towards the end of the quarter, which is obviously something that historically has been a well understood variable. But if we break that out between what the impact was of the leveling of off of prices versus what the pressure is still on the new OEM, kind of production equipment, could you kind of help us through that in terms of what impacted what, and how we have some proof that, that pressure is kind of dwindling on the newer equipment?

Sure, Nate. Maybe I'll have a comment and then I'll invite Rob and Steve to throw in as well because their feet are more in the market everyday than mine are. But just in general, we did see some softening of some equipment, mostly older model equipment in the latter part of the quarter. The good stuff that comes from a new home, always is in good demand and that remains so. We see a fair bit of balancing in some of the dealer networks and many of the dealer networks in the OEM side with their availability and many of them are off allocation, not like maybe a year ago or so. So we're seeing a we call a bit more balance in the market of supply and demand. And that bodes well for us. Those are environments that we traditionally operate in when things get tight or things go the other way. But traditionally, it's been a more interesting environment for us to operate within. But for the most part, the primary reason that we saw -- I'll tell you, we did a very, very deep dive on all of our at-risk business in the quarter trying to understand where the deals were that we underperformed in and why we underperformed. So we're addressing that internally in terms of our execution. But for the most part, I think we're pretty good on par with where we're headed on execution. I think we've reset a lot of our expectation in terms of values going forward, even as much as early in the quarter going forward, we've seen some very much anticipated and on-the-mark pricing for auctions, even as an example, today in Chicago, and what we're seeing at the auction today and then last week in other parts of North America. So we're -- it's more traditional environment for us today and I think we're feeling pretty comfortable that we've got a handle on it, but maybe Rob or Steve -- or Rob?

Nate, Rob here. Follow-on to Pete's, we came out of Q1 with a fairly aggressive buying public out there. Some things were short in demand and the market was moving towards renewing fleet with younger used equipment or people looking for more used equipment to fill some jobs that they had picked up. So out of Q1, we had a pretty strong demand for stuff. We had a very competitive market. Used equipment dealers, brokers, the whole equipment network was out looking for equipment for customers. So most of the deals that we were on, we saw some very strong competition from individuals all the way through to dealers, which of course creates a need to pick your point on where you want to be competitively and aggressively. And then of course, all of that amounted to a leveling off of the demand and to some degree, a leveling off of the prices or decline in some situations, which is where we experienced some pressure in the auction revenue rate. So it's more of, I think, let's call it a karma market right now supply and demand I think have reached a somewhat more normalized level, and the aggressiveness of people going after everything has leveled off somewhat, although there still is competition on the right deal out there because people are still looking for the very good late model low mileage stuff.

And then kind of a follow-up to that. The level off of the pricing spend -- I mean you talked about the balance and maybe things are just a little bit more imbalanced rather than the heated approach trying to get your hands on some of that kind of mid-level equipment. But just want to be clear that the pricing leveling off isn't necessarily indicative of maybe some uncertainty creeping back into the market again, which would then relate to maybe people freezing again and not trading equipment. Just want to make sure that it's not related to that, and it's really just more of this balanced approach.

I think well, here, the U.S. market and the Canadian market, to us, is where we've reached a balance point. There are some markets around the world where the folks have pulled their horns in a little bit. The strength that the Australian buyers and to some degree, the Middle East buyers isn't what it used to be early on in the year. And maybe they satisfied their appetite for equipment based on their needs, or they're just pulled back on their future expectations of equipment that they want. So there's a few pockets around the world where there's been an easing in demand for equipment and hence the price that people are willing to pay in certain areas. Steve, you want to comment on just the confidence level of the guys in the U.S. I think that's a pretty topical thing.

Nate, I think generally speaking, the confidence in the U.S. is as it's creeping along, it's getting more and more positive every day. But having said that, it's moving very slowly, but it's trending upward. And I think some of the pricing we saw was -- it happens sometimes through the summer months too when they you into this time of the year and a lot of guys are working and then their jobs and holidays and all the rest of it and it's in varying degrees at different years that we're selling this stuff. But it definitely had a little bit of a bump here in June and we've seen it before. I mean, it doesn't come at us every year to this degree, maybe we saw it but it does occur. And were we surprised to see it? I guess, we're always a bit surprised, we don't enjoy it, but it happens and we've seen it before and it will probably happen again. But we're -- as Pete said we're feeling good about the balance of the year. We're seeing some really nice results already going into Q3 and we've had a handful of sales already that had been very positive and we're looking forward to the rest of the year.

It's Jeremy here. I'll just jump in and just clarify something, to get back to your question there, Nate. We don't expect a freezing of selling behavior. So we don't expect our consignors to pack up and not sell.

Hopefully, we're right between the lines. We're not anticipating -- I think it was interesting you've heard some of the OEM comments, a lot of guys are talking about '08 and this is 2008 again, and we're not seeing -- this is not 2008 right now. This is kind of, for us, as a more normalized operating environment, albeit as Rob says, there are some quieting and a little bit of stress on some of the other markets, Australia and a quieting down a little bit relative to the demand that is coming out of China and Middle East filling their boots and also in the same type of votes.

Your next question comes from Nick Coppola of Thompson Research Group.

I heard you guys talk about the lag between the point where you make a guarantee and when you make the sale and how kind of the modest change in pricing can have an impact. But is there also kind of a dynamic where the price you had to guarantee is moving upward because of competition? Is it kind of both of those pieces, or is it one more one than the other.

Rob here, Nick. For sure, it's both. When the market is sort of on a boil or bubbling and it's in the upward growth stage, you've got lots of people chasing the equipment. You've got the belief from everybody that's chasing it, that the equipment prices are strong or even growing. And half the people -- each competitive person on the deal has a different view of how strong those prices are. So you run into situations on deals where a competitor may have a very stronger view than you do on pricing, and his offer for the package might be above yours. And in order to be competitive and have the deal or a group of deals to build an auction sale, you've got to push the envelope.

Why has there been any more confidence in straight commission deals?

Sorry, I don't understand, Nick, what do you mean confidence and straight commission?

Is it the percentage of change? Are our folks maybe being more confident in doing straight commission deal rather than getting a guarantee?

We haven't seen any meaningful movement. It's very early in the quarter. So for us, I mean we've had a few sales in July, September will be a bigger month. But we haven't seen any big material demand for, I want my iron guaranteed or I'm not bringing it to market. It's a very typical discussion, usually it centers more on the risk profile of the individual owner and where your appetite sits. So as Rob says, there's less competition on the deal, in general. Dealers are traditionally back in, kind of back in their business and doing what they do normally. There is still competition on every deal you have. The other thing you have to be mindful of is the expectation of the owners now that items are selling in a more predictable price range than the expectation of the owners is set at that level as well. So you're also not competing with owners increasing expectations and then trying to predict the higher market. So pushing you on your number to try to land a deal in the auction. So this is a more traditional and more balanced environment for us to be operating in. So we're feeling -- let's just say we're feeling pretty confident that we're -- there's a few things we can write internally in terms of execution. But overall, apart from the revenue rate on the quarter, which we understand and we're dealing with, I thought our execution in all aspects of our businesses was darn good. SG&A-wise, great, we've got our gear in order. In terms of where we're headed, strategically where we're moving. Our AssetNation acquisition and on boarding of that and where it's moving. We're feeling we're very confident that we're in the right place in the market to continue to serve our customers and drive sales.

Your next question comes from Cherilyn Radbourne of TD Securities.

If I replay the questions that you --or the comments that you made on used equipment pricing in Q1, they very much mirrored what you just said in the quarter sort of started with a head of steam and you saw some leveling off towards the end of the quarter. So I guess my first question is, do you think there's anything happening seasonally whereby your quarters are starting with more momentum and then leveling off at the end? And if you were to characterize used equipment pricing as we sit today relative to the beginning of the year and year-over-year, where would that put us?

Rob here. I don't think there's any trend that we're starting with strong -- any different trends than what we've seen historically in the company where you start out the Q fairly strong and you have a leveling off or a lowering at the end of the Q. Typically, at the beginning of the year, our February sales year-over-year, time-over-time, we've seen a strong jump out of the gates of our Orlando sales. It typically happens most years and what happens from there on in is depending upon the economy and we saw a strong Q1, a little bit of a leveling off. It has to, when it comes out of the gate and grows compared to the Q4, typically, it has to level off at the end of the quarter or you're into an economic growth period where it keeps growing during the year, but that usually doesn't happen. So this phenomenon at the end of Q2 is a little bit stronger in its leveling or those areas that dip than we anticipated for the quarter. But I don't think there's anything different here than we've seen historically in past years.

The other part of the question, Rob, was how does pricing today compared to beginning of the year and 12 months ago. Can you speak to that?

Compared to the beginning of the year? I would say there's areas or pockets of equipments that are down somewhat. A little bit, not a lot. The good strong equipment is still there, still in demand and the prices that are being achieved are I think in line with what we experienced at the beginning of the year. The cause -- the effect that's causing our auction revenues rates to go down is the competitive age of the market that pushed us on some deals to get beyond where the pricing was at the beginning of the year in this quarter is what's put some pressure on the auction revenue rate. Year-over-year, at this point, last time, I would say we're probably the same or maybe overall up a bit, in pricing.

And to the extent that we're entering into a more balanced supply and demand environment, can your at-risk business directionally come down?

When you say come down, are you talking about the quantum of the at-risk business?

Yes, as a percentage of growth auction proceeds.

Yes, for sure. I think -- we gave guidance around the 30%, 35% for the full year in terms of our at risk component of GAAP, but we don't see that trending materially outside that range. And we thought it's a pretty good range to give you guidance on going forward. But its back to, if it's a traditional more balanced environment, than you're dealing with less frothing or bubbling, as Rob put it, within the marketplace. And you're dealing in a more rational marketplace, perhaps in some respects. And then, you're dealing primarily with the individual risk profiles of the owners and whether they care to take a guaranteed deal, which is typically priced higher from a risk point of view because of the risk reward paradigm rather than a straight commission deal.

And last one for me, I'll pass it off. Just wondering what you're seeing in terms of an early recovery in the U.S. housing market and how that's influencing your thinking?

As Steve commented earlier, it's probably positive trending, but it's very gradual. We haven't seen any real big material movement in the U.S. housing market albeit that you look at lumber has gone up a little bit, some local lumber companies in Vancouver here they're selling in the U.S. or are experiencing some nice lift. There's little bit of housing projects here and there, but there's still a long way to go. I think the most recent housing starts were positive, but those are all multifamily units. And they'll dig out of it, it will come in time and you guys are in that numbers game a lot more deeply than we are, but we're seeing in general, we're seeing some mildly positive stuff coming out of the general smell of the contractors that we talked in the U.S.. Very different than what you read on the Wall Street Journal, again, these guys are more in the foundation of the economy out there. And we're seeing some encouraging things, albeit it's not going to -- we're not looking for a huge spike up in anything, it's just going to be a natural, very, a methodical trend out of the hole that they dug themselves in. I think the construction numbers came up today and they were adjusted up and it's around 8 30 billion or 8 40 billion, which is positive, and year-over-year, that's a nice 7% or 8% lift on that. So those are all good positive signs for the U.S. economy. And Steve, you might want to add some anecdotal stuff, you're walking around there more often than I am.

Yes, I think as I commented before, I mean, generally speaking, there's some positive sentiment out there with our customers generally. And the housing market, I mean there is, sure there's signs that the housing thing is getting better for sure. But having said that, there's still a lot of inventory that a lot of the finance companies haven't flushed out yet and there's still a lot of developments that are sitting there that there's pads ready to go for houses on them. So before you get a big rush of opportunity for the guys push dirt and make June developments, there's still an enormous amount of product there that needs to get houses built on, that's already ready to go. So I think the signs are positive, but I think it will be a very good -- it's going to be slow and steady and gradually come out of the hole.

Our next question comes from Hamzah Mazari of Crédit Suisse.

The first question is, maybe if you folks could touch on just the mobility of used equipment globally and now that impacts you? How much equipment are you seeing move out of the U.S., assumed that slowed down. Do you have any expectations of equipment coming back to the U.S. from overseas? And how that impacts your business?

Rob here, I'll answer that. Used equipment mobility is very good. Equipment ebbs and flows around the world and has done so for many years based on economic situations. When Asia collapsed in '96, '97, virtually hundreds of millions of dollars in equipment moved out of Asia into North America, Europe, Dubai. We've seen a slowing in the export of used equipment out of the U.S. this year, vis-a-vis, last year and the year prior to that, when the U.S. first went into the recessionary period, a lot more equipment was exported to the Middle East to South and Central America, and out of the gate in Q1 and Q2 this year that dropped a fair bit over what's happened in the past. As far as equipment pulling back into the U.S., we see trickles of it today. But given EPA requirements on engines and other restrictions that allow the free movement of equipment around the world, it's a different market today than it was back, say, in the late '90s, when Asia collapsed. So used equipment today has the right engine and it is somewhat restricted in its ability to freely move around from country to country. But with the decline in the European market and the exchange rates between the euro and the dollar, there's a few opportunities bubbling up where people maybe looking at the U. S. market vis-à-vis selling it over there. But we have auction sites strategically located around the world now and it's our position that you can bring the equipment to our local market and the global market will find its way to that equipment and take it where it's needed.

That's helpful. On the at-risk business, do you guys have an estimate of how much that impacted the auction revenue rate, and then also does the at-risk business becoming or having been a bigger part of your mix changed the way you think about compensation of your sales force? And in general, where are you in terms of rethinking the compensation structure of your sales force given the new environment that we're in?

It Rob McLeod this time. Yes, the impact of our at-risk business on our auction revenue rate historically, that is what has driven the variability in our auction revenue rate. So if you look at the graphs that we published, where you see our revenue rate, especially quarter-to-quarter, year-over-year, with fluctuations, that is due to the performance of the at-risk business right there. And your second question was on -- was more on the sales force and their incentive to go after at risk business or not go after at-risk business? Their incentive is to go after business. And if they are working on a package of equipment, we will propose to that owner different scenarios, including a straight commission proposal or a guarantee for example. And that salesperson is generally indifferent to the proposal and the contract that is finally set up because we want to make sure that the -- our sales force is doing what's right for our customer and perhaps for that customer, a straight commission contract is the best way to go or perhaps it is providing a guarantee.

Steve, you want to speak to that?

Well, just -- Steve Simpson here, just on the sales compensation. We actually have, the last few months, been reviewing all of the compensation for our sales team and looking at other options that we're going to be rolling out here in -- late in Q3, early in Q4. So we are restructuring the way it's going to look for the guys and the goal will be for a lot of our folks to be focused on the commission dollars rather than the GAAP. And so that is something that is in play, and is just about ready to be rolled out. So we're on it. And I don't really want to say much more about it today because we haven't rolled it out to our teams. But it's well underway and you'll hear about it soon.

Your next question comes from Steve Volkmann with Jefferies.

I was just wondering, and maybe, you might have just started to answer this, but I guess I was just trying to get a sense of, I mean, the at-risk business has always driven some volatility in the rate here, and I guess I'm just wondering if there's anything you think you can actually do about that or if that's just kind of part of business here. And we will all just have to kind of get used to it?

Well, I guess there are things to do about it. Surely, our plan is not to sit here and be quiet about it. We're disappointed in our at-risk rate for the quarter and our overall rates. And we're taking down the hatches in a few areas and applying additional scrutiny as we go through a bit of a volatile period, and maybe it's just a been short period the end of Q2, we don't know yet, until we get more results in Q3. But our auction at risk rates, when the market is going up, we tend to over perform at our at risk rate. And in the past, like back when Bob was the CFO, and we -- before you Rob. I mean we overachieved our at-risk rate because we were chasing the market up. Everybody thought we had a new business model and a new at-risk rate and we cautioned the market that this was not a new way to do it. But our rate will ebb and flow as the market goes up and the market goes down. So fortunately -- unfortunately, in our business we chase the market up and then we chase it down. And on the way chasing it down, our job is to manage the risk on the way down. On the way up, it's way more fun, because usually you're overachieving. But every time we go into one of these down periods, as we did early on in this recession, we managed our risk quite well, we felt on the way down, maybe given past performances years back in the company, but this little experience in Q2 was probably a little bit more abrupt than we anticipated. And we are taking steps to minimize it or manage our risk better going forward in this quarter and beyond.

Fair to say -- it's Pete here, Steve. Fair to say that there's always going to be volatility in the revenue rate, that's our business. I still remember marching around the IPO in 1998 saying our business is lumpy, and that's the way it is. Although the lumpiness within the volatility can be controlled by levers that we pull internally on execution and Rob refers to that and we were disappointed with our Q2 results albeit that when we deep dive and looked at it, lots of it was market movement. But some of it was execution so we know we'll fix that and move forward. We're always learning and always improving as we go. So we'll make sure that we adjust on the way through. Don't read that we're going to be a perfectly straight line in terms of our performance, we're going to overperform and underperform on the way through. But the reality is, overall, we think we're in a pretty good position in the market to drive continued growth in the organization.

And then I guess I wonder if you can say anything about what AssetNation -- how that's going to sort of fit into your view of the world and work within your system?

Steve, it's Bob. I'm not sure how to quite answer the question. Can you repeat that, make sure I get it right?

I just want to understand how the acquisition is going to kind of interface with the rest of your business and you had talked I think at one point about some different types of business models that might use the backbone of this business. And I guess I'm just curious if you've made any progress in that direction?

Sure. The AssetNation group has an existing core business. It's currently operating in. It will carry on to the extent it's not competitive with Ritchie Bros. For example, where they sell surplus assets to create complimentary business and that's carrying on now, it's doing well. And what you're referring to is really the main purpose behind the acquisition. We're looking to work with the team in AssetNation to build a brand new marketplace solution for the equipment users out there who are not going to be customers of Ritchie Bros. current auction model that or non-auction segment if you like and that's what we've been developing. We're kind keeping it a little bit quiet until we're ready to launch it, but as Steve mentioned in his comments, it's on track, we're progressing well. And so hopefully in the next few months we'll have some more to say about that.

Your next question comes from Neil Forster of Scotiabank.

Just wondering if you can talk about the level of competition or the aggressiveness, the change from Q1 to Q2, did it get better or worse? And then just overall, are you seeing new entrants in the market or is it kind of the same usual suspects just being more aggressive than they have been in the past? Are there particular groups being more aggressive whether it's individual, dealerships or competing auctioneers? Just maybe if you could just talk about that a bit?

Steve Simpson here, I'll take that one. Competition is, from our perspective, has remained constant. The usual suspects that we're battling everyday have been out there, chasing a lot or most of the deals that we're on. And then typically, as always, you always have a fairly large supply of the broker-dealer network that are out there chasing some of the deals as well. And then it's not uncommon for auctioneers and other guys that show up that you're not used to seeing, which we get surprised at and that happens fairly regularly. So I don't -- I think general speaking, the environment has not changed. Albeit, when you're going out and chasing the deals as Rob McLeod mentioned, and sometimes there's quite a fine line between success and failure. And we had a few things that went south on us that we were surprised by. But again, I think as Pete said, our business is lumpy and we've seen this result before. And we need to remain aggressive going up there, getting this business to grow our business and we will do that. But we need to be smarter about it and every now and then, a little lesson can be healthy, and we just got one. So we're ready to move forward and I'm sure all the competitiveness we saw in the first half there, we'll see them in the second half and it will be business as usual.

Did you guys say you guys were more aggressive in Q2 versus Q1, or just kind of the same since then?

I think it's similar. I think the amount of competition has -- I can't really say, it's either spiked or gone down, it's pretty constant. It's steady and there's a lot of it out there. Which is fine, I mean we're up for it. I mean we're about positioned to be in a competitive market and just sometimes, you get some surprises and it allows you to be a bit sharper and reposition yourself to get better moving forward, which is exactly what we're about to do.

It's Rob here. I'll just add that every other competitor that we play with would have had a similar experience at the end of Q2. And deals that they were successful in getting away from us, they either have sold them or will be selling them early in Q3, and would have experienced the same downturn and quite likely the same couple of bumps in the road that we did. Or those competitors that don't sell right away as we do within the 30, 45 day window, maybe holding some inventory for a lot longer than they envisioned.

That's helpful. And then typical cycles in the past, when pricing has been peaking. Do owners tend to become more conservative, given an uncertain pricing outlook or do you think they tend to bring more equipment to the market, trying to sort of sell at the peak? And what would your expectations be this time around?

It's Peter, Neil. I think we might -- my view is that when things become more stable, you get more predictable behavior. It's kind of like a housing market. When the housing market is frothing, everyone wants to sell at the peak and only one guy in the whole world will sell at the peak of the market. But when things are more predictable, I think the value proposition that we can lay out for owners is more compelling and more -- you line up what you can get with option A, B, or C, and if you've got some less emotional and more analysis, put to a more stable marketplace, that generally works in our favor. So I'm looking forward to moving forward with some more balance in supply and demand going forward and allowing us to not have the froth or not have the boil. But at the same time on the way up, it's always fun because it seems like lots of people are making money on the way up and on the way down you can get stung. We have to be careful. As Rob said earlier in 2008, 2009, 2010, our average business was actually over performing. And we managed our risk quite well. We saw this little turn at the latter part of Q2 here, that we're reacting to and we are seeing stabilizing environments right now in terms of the supply and demand and pricing. So that net effect of all that stuff is actually quite good for us.

And then just finally, on AssetNation, I'm just wondering if all those sales show up in GAAP? Because I noticed some of what sold there is non-auction. I'm just wondering if any of this are showing up in the auction revenue rate?

Yes, good question, Neil. So all of the things they sell, they call it gross merchandise value. It's immaterial to Ritchie Bros. so we've just left it in with GAAP as sort of total sales, if you like. And then all their revenues are in fact included in auction revenues. Again immaterial and all their expenses are included in our G&A. So it's always folded in to the line item that's comparable. But as Rob McLeod said in his presentation, the net impact on EBITDA and bottom line has been immaterial through the 45 days we have -- that we owned it during the second quarter.

Question comes from Scott Schneeberger from Oppenheimer.

Guys, curious on the auction revenue rate guidance, you're now towards the low end of the range on the year and the second quarter was below it. So I'm just curious how should we think about modeling the third quarter and the fourth quarter. Was it an inflection point in the second quarter that you now are through that turbulent time and things smooth out so we'll see a pop-up in third quarter, or is going to be a gradual build? It looks like you need to do a 10 9 in the second half to achieve the low-end?

Scott, it's Jeremy here. Why don't I just tell you what we're expecting third and fourth quarter.

That'd be great.

We kind of gave a guidance range, that's our expected range for the full year. So I'll leave it to you to kind of fill in the blanks by quarter. But we're still comfortable with that range.

Okay. I guess, shifting gears then. Could you speak to -- I guess, Peter, Tier 4 dynamic and what type of impact is that having with regard to a particularly late model activity?

It's a good question, Scott. The Tier 4 issue is -- not an issue, I guess, a Tier 4 environment, not only Tier 4 in the U.S. but 3D in Europe and other markets are moving forward with like Canada, Japan and others moving into that. I think they're, probably, overall has been a net shift up that we experienced over the last, maybe 24 months, of people getting used to the new Tier 4 pricing and then adjusting the value of used equipment on the way through. I think that that's probably -- that effect is, the lion's share or the majority of that effect has happened. We haven't sold the whole pilot Tier 4 stuff in our auctions. But for what we have sold, it's sold fairly well and there is a fair demand for it. So the number of markets that you can sell into that are compliant with whatever the local regulations are and they're slightly different in each of the jurisdictions, but not materially enough to warrant a change. It's interesting, some of the OEMs are including in their manufacture production process the ability to convert a Tier 4 back into a Tier 3 equivalent engine so that they can run on that higher sulfur fuel. So that will be interesting to see from my perspective what impact that has on the resale value, whether that will have an upward or a neutral effect, the OEMs that are doing it are obviously touting the fact that their product will be able to be sold in more jurisdictions than simply the ones that are Tier 4 compliant restrictive or Tier 3 B in Europe. But I think the dynamic that we haven't yet seen what's to come of it. I don't know that, that will happen…

If I could sneak one more in on the expense side. With the increase of the inflection point on your decision here to start increasing headcount on the sales front and across the board. How should we think about this as it hit the financials, are we going to see a significant ramp in the operating expenses or -- we know the guidance, we know it works within, but just odds on that and that turn.

Scott, it's Jeremy here. We aren't expecting any significant ramp up in our SG&A.

Sarah, we probably have time for one more question and we'll get back to business here.

Last question comes from Bert Powell with BMO Capital Markets.

Pete, I just want to go back to pricing. '08 and '09, major collapse in the market and we've had a bit of an inventory restocking in the OEMs that have been behind and that's pushed price and now that were in balance. I'm just wondering if we're at risk here of seeing the prices actually start to give a little bit of that back. I know you talked about the price leveling quicker than you thought. But I'm wondering if we've got a bit of give back coming on the pricing and how you're thinking about that in your bidding on underwritten business today?

Sure. That's a good question, Bert. I personally don't see a sort of a looming pricing decline. I think the impact of Tier 4 pricing has been positive. You look at the rental guys there, their rental pricing is up as well. So they've been seeing some positive impact there, which again, it's just math but it supports the net value of used on the way through. There's still lots of work out there. That '08, '09 reduction in the OEM production levels has created bit of a vacuum for equipment at that vintage. So that sort of helps support the value on the way through. But there has been -- this pause that the world economy has been through in '08 and '09, and we've characterized it within the U.S. as people are starting to get more positive and moving forward. And I think there's generally positive momentum, places like other markets that are really going well like Canada has a good example. We haven't even talked about Canada in our comments today, but Canada is very strong. We've seen some very nice results. The ag market is very strong right now and lots of positive results coming out of that in the last little while. I don't see much of a risk in the pricing decline. I think that, that return of supply demand, that balanced state of the market is like a net positive for us only because it becomes a bit more predictable and it only sets the expectation level within the owners of equipment. But this is about the right price that things should be selling at. Steve, Rob, you may have any comments, or...

Yes, Bert, Rob here. I agree with Pete. I don't think it's indicative of...

You have to, though, Rob...

I don't think it's indicative. I think there is a pause and a leveling here and I think there's enough demand, particularly in the North American market. That pricing is -- should stay normalized or stay level as it is now. Obviously, there is some drama going on in Europe that still got to work its way through the system and if that equipment will either find its way to other markets, Africa, the Middle East. Or as I mentioned earlier, there's the odd package that's poking its head out that might find its way over here. Being that the market thinks it's a bit stronger here than what's going on over there. So globally, I think there's enough going on that we're not going to see a decline going forward.

So this was a transition quarter, as far as you're concerned?

Yes. I'd say for sure Bert. Yes.

And then just lastly, on the overall auction revenue rate. Outside of the underwritten business, how has it been in terms of the commissions you've been able to generate on just the straight commission business? I'm just wondering, how the competition has affected that and I guess directed to Steve a little bit, your ability to get your sales guys to start moving that up.

As far as -- can you say the -- excuse me, I missed what you said on the straight commission part?

Outside of the underwritten business, just when you go and you ink a deal, the average rate that you're able to get, are you able to move that up? Or is competition holding that down as well?

No, I mean, I think we're holding that very steady. Actually, I think that hasn't really been a problem and our guys have been doing a very good job to hold that and then in some cases even getting it up somewhat. So our straight commission part of life is business as usual, no profound change there at all.

Okay, everyone, thanks. And thank you, Sarah, we'll close the call now. But just to reiterate, we're reiterating our guidance for the balance of year. We're very comfortable moving in the right direction here. There's a few things that we're going to be pulling levers on internally here, but overall, I think, we're executing well. We got a good group of people out there and we're looking forward to the latter half of the year. We'll be back with you in Q3 results sometime in late September, early October, I guess it would be? Early September, yes. Okay, everyone, thanks for joining us today. I appreciate it.

This concludes today's conference call. You may now disconnect.