RB Global, Inc. (RBA) Q2 2013 Earnings Report, Transcript and Summary

Good morning. My name is Kyle, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Ritchie Bros. Auctioneers 2013 Q2 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Blake, you may begin your conference.

Thank you, Kyle. Good morning, everyone. Thanks for joining us on our fiscal second quarter 2013 earnings conference call. Today, I'm joined by Rob McLeod, Chief Financial Officer; Bob Armstrong, our Chief Strategic Officer; and Steve Simpson, our Chief Sales Officer. Before we start, I'd like to make the 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 statements and involve risks and uncertainties. The risks and uncertainties that could cause our actual financial and operating results to differ significantly from our forward-looking statements are detailed in our SEC and Canadian securities filings available on the SEC and SEDAR websites, as well as rbauction.com. Our definition of gross auction proceeds may differ from those used by other participants in our industry. It is not a measure of financial performance, liquidity or revenue, and is not presented in our statement of operations. Finally, we will be discussing adjusted net earnings, which is a non-GAAP measure. We define adjusted net earnings as financial statement net earnings, excluding the after-tax effects of sales on excess properties and significant foreign exchange gains or losses resulting from nonrecurring financing activities. A reconciliation is available in our MD&A for the quarter. Our quarterly results were made available early this morning. We encourage you to review our second quarter earnings release, MD&A and financial statements which are available on rbauction.com and will be available shortly on EDGAR and SEDAR today. Now onto our quarterly results discussion. We're keenly focused on what we can control to grow our GAP and our bottom line. And we're taking actions to improve the overall performance of our company. But this was a challenging quarter for the business as we dealt with both aging equipment supply and a less tenured sales force. And overall, while we were pleased with the performance of our at risk business and our auction revenue rate, we were disappointed in the lack of GAP growth during the second quarter. From a high level, there are 4 basic components that have an effect on our GAP: one, the pricing environment; two, the mix of categories of assets sold at the auctions; three, the mix of age of those assets sold; and four, the number of lots consigned and sold. In both the first 2 categories, the pricing environment and the mix of categories of assets sold, we have experienced some relative stability and consistency in the past few quarters. In the third category, however, over the past many quarters, we have seen a change occurring in the average age of assets we have been selling. The age of the equipment making its way into the retail market has been steadily getting older. As we have noted in previous market commentary, we're finding fewer late-model lower-hour machines out there and are presently facing headwinds from a temporary void in equipment supply in that 3- to 5-year age range due to dramatically lower OEM production in 2009 and '10. When we look at that last factor, the number of lots sold, while we're selling as many or slightly more lots than we had in past years, the age of items sold has led to lower average values per lot and contributed to our overall GAP growth challenge. To date, we have not yet driven sales productivity levels to the point where we can offset the lower average per lot value with simply more lots. One way we achieve more lots is with additional and more productive salespeople. We have aggressively recruited and expanded our sales force to 280 Territory Managers at the end of June. But in retrospect, we believe we were too slow off the mark in building the sales capacity and bringing more revenue producers into the team. And we are feeling the temporary effects of that right now. Today, approximately 40% of our Territory Managers have been with the company for less than 2 years, which is more than ever before. Between 2007 and 2011, about 31% of U.S. and 22% of Canadian TMs were in that less-than-2-year category. This is a meaningful number as newer TMs generally take 18 to 24 months to become fully productive in their roles. Our new recruits are demonstrating good results with their respective experience levels, but our delay in recruiting 2 years ago has caused a drag on expected GAP for the first half of this year. In fairness, I believe we also overestimated our ability to train and coach the record number of new TMs we currently have in order to get them fully productive. Recognizing this, we're already allocating more time and resources to accelerate the training of these new set of TMs and believe we're on track to see significant improvements in their productivity. We're more confident about the second half of the year and expect to see the impacts of this strategy in future quarters. We've also noted in the past our sales teams have experienced some equipment owners hanging onto their equipment longer than they may have otherwise when compared to previous periods. This is partly due to the reticence of owners to acquire replacement or more expensive and newer Tier 4-compliant powered assets, and partly due to a less financial pressure on them to be in a position to have to sell their fleets. That delay has also contributed to the phenomenon of disproportionately higher ratio of older equipment making its way to the market through our auction channel. We expect the headwinds from age of equipments sold at our auctions will moderate, as the sub-machinery supply ages and equipment from higher production years makes its way back into the 3- to 5-year age bracket. We believe, and we can see early signs, that an increase in that vintage equipment supply is coming to market now. And we're well-positioned for it. But in the meantime, we know that we can only sell what's for sale. But by focusing on enhancing the sales team and their productivity and executing on other related strategies, we're not simply waiting around for newer supply to return to the market and equipment owner behavior to change in order to grow our auction proceeds. We're already seeing pockets of improved performance across many parts of our business. In fact, a number of regions are currently performing very well, which demonstrates to us that our strategy is working. It's just taking a bit longer than we originally anticipated. And while patience is a virtue, we are also keenly aware that we need to deliver results. And we are doing all that we believe we can do to get our productivity back in form to grow our profitable GAP. With that, I'll pass the call over to Steve Simpson to provide an update on our sales efforts.

Thanks, Pete. Good morning, everyone. Our continued focus on better managing our underwritten business has helped us to achieve another near-record revenue rate this quarter. The auction revenue rate for Q2 was just under 12%. We're really pleased with the progress we're making on this front and expect our auction revenue rate to continue at an elevated level for the duration of the year. We're achieving higher rate by being more disciplined in our approach to our underwritten or at risk contracts. We're still aggressively pursuing profitable GAP, but we're also not afraid to walk away from opportunities that we don't believe will benefit our business. At risk contracts made up approximately 27% of the total gross auction proceed this quarter, down from 36% the same period of last year. Customer risk profiles and equipment pricing stability are large factors in our decision of whether a contract is pursued out of straight commission or is underwritten. Pricing of equipment has remained pretty solid and stable since the beginning of the year, which has provided consignors with more confidence to sell their machinery through straight commission contracts. As a result, fewer at risk contracts have been negotiated. Growing revenue is the single most important focus on our business today. Everyone on the sales team is aggressively growing our prospects and relationships and mentoring new TMs to help them hit their revenue targets. As Pete discussed earlier on the call, we continue to experience some more challenging supply environment right now as reduced production of machinery in 2009 and '10 has left a shortage of used equipment in the 3- to 5-year old age. This is a reality of the environment we're currently operating in, but we're out there every day chasing deals to secure late-model low-hour equipment when and wherever possible. We only sell what's for sale, so if a later model unit is available, then we'll sell it. We're seeing some early indications that the U.S. market should pick up in the second half of the year, especially within the construction, transportation and agricultural sectors. As activity increases in these industries, so does equipment turnover. And we're well-positioned to leverage this opportunity. As you know, we publish our monthly gross auction proceeds in the days following month-end. So I can tell you now that the July GAP was $176 million, up 16% compared to July last year. While summer months are typically a seasonally slower period for us, we're pleased in what we're seeing so far. And with that overview of the sales channel, I'll turn it over to Bob Armstrong.

Thanks, Steve. Good morning. I'll focus my comments to this morning on EquipmentOne. The total value of assets sold on EquipmentOne and our other AssetNation marketplaces during the first half of 2013 was $45.5 million, which is up approximately 10% over the first 6 months of 2012. Revenue during the first half of 2013 was $6.7 million. And operating expenses were $8.6 million. We are pleased with the traffic that we've been attracting to the website during the first 6 months of operating EquipmentOne. And we're confident that customers are already finding value in it. As with any new service, we are still enhancing aspects of the platform based on customer feedback. Consistent with our previous guidance, we expect to combine EquipmentOne and AssetNation marketplaces to have an immaterial impact on EBITDA this year as we continue to enhance and expand the platform. Importantly, the sales volume completed through EquipmentOne continues to trend higher each quarter, as does the number of unique visitors to the websites. So we're building the right kind of momentum. Now over to Robert McLeod for a review of our financial performance this quarter.

Thanks, Bob, and good morning, everyone. During the second quarter, we generated gross auction proceeds of $1.1 billion, a 10% decline compared to GAP in the second quarter of last year. In the first half of 2013, the company generated GAP of $1.9 billion, a decline of 7% from the first 6 months of last year. As discussed earlier, our business is still impacted by the effects of a temporary void in equipment in the 3- to 5-year age bracket, which has historically been a key component of our sales mix. We also overestimated how quickly we could train and coach new Territory Managers to reach full productivity. These 2 components influenced our GAP results in quarter 2. However, we fully expect both issues to improve in the second half of 2013 and into 2014. While we contend with these market and sales force dynamics, we have evaluated our GAP guidance. We now expect gross auction proceeds for fiscal 2013 to be in the range of $3.6 billion to $3.8 billion, down from our previous guidance of $4 billion to $4.4 billion. As Steve mentioned, we achieved another near-record auction revenue rate for the quarter, 11.96%. Our auction revenue rate was 131 basis points higher than the same period last year and just under the record rate we achieved in the first quarter. We're pleased with the progress we're making in taking a more disciplined approach to our underwritten contracts. And this is certainly being reflected in our revenue rate performance. The success we've had so far this year in achieving a higher auction revenue rate has provided us the confidence to update guidance on what we expect to achieve for the year. We now forecast an auction revenue rate in the range of 11.5% to 12% for fiscal 2013, up from previous guidance of 11% to 11.75%. During the second quarter, we generated $30 million of net earnings or $0.28 per diluted share. This is down slightly from $0.29 per share in the same quarter last year or $0.30 on an adjusted basis. Revenue for the fiscal second quarter was $128.3 million, up 1% from the same period last year due mainly to our increased auction revenue rate. For the first 6 months of fiscal 2013, we generated $230.4 million of revenue, a gain up 1% from the same period last year. As we're now tracking only slightly above last year's revenue levels, we've reevaluated our revenue expectations for the year and now expect revenue for 2013 to come in between $430 million to $460 million, down slightly from previous guidance. Now I'd like to spend a little more time on our SG&A. Setting aside depreciation, which is included in our SG&A figures in our financial statements, our overheads were $60.4 million in the second quarter of 2013 compared to $57.5 million in quarter 2, 2012, a 5% or a $3 million increase. This increase is due to the incremental overhead for EquipmentOne of $2.4 million, the increase in our sales team overhead of $1.5 million offset by a reduction in our administrative and operations departments' overheads of $1 million. Looking only at our core auction business excluding EquipmentOne, SG&A expenses were $55.9 million, roughly in line with quarter 2 last year. As Pete mentioned, we are disappointed in the lack of GAP growth during the second quarter, and have taken steps to better align our costs with our current revenue levels. These steps included reorganizing some administrative departments and our teams associated with our capital infrastructure and also rationalizing some operational procedures. At the same time, we remain committed to developing and growing our sales team and pursuing our other strategic initiatives. We still see significant growth for the company in the years ahead. However, the current supply environment and the lull in TM hiring over the last 2 years has created some drag on our expected earnings growth this year. Having taken into consideration the results of the last 6 months and our expectation of the next 2 quarters, we are adjusting our earnings growth guidance for 2013. We forecast our pretax earnings to be flat to up 5% over 2012. Much of the infrastructure needed to handle future growth is in place. And we have steadily reined in capital investments over the last several quarters. That said, of course, some maintenance CapEx and investments in our technology platforms will continue. We expect 2013 CapEx to be in the range of $60 million for 2013, and then to be lower in future years. While we will be challenged to achieve it this year, we will be close to our stated 40% EBITDA margin, but still below it. In much the same way, we are maintaining our long-term return on invested capital target of 15%, although we do not believe this will be achieved in 2013. All of our strategies continue to be aimed at driving revenue and earnings and helping us achieve this target. I'll turn the call back over to Pete for final comments.

Thanks, Rob. As I mentioned earlier, we are not pleased with our lack of GAP growth and resulting performance in the first half of this year, but we're taking actions to overcome the challenges we're currently facing. Of the 4 components that affect our GAP, we believe 2 are currently stable and consistent, both the pricing environment and the mix of categories of assets. We've seen a higher proportion of older equipment of late coming to market. And we have not yet felt the effects of our sales productivity strategies to enhance the number of lots sold in our auctions. We have began, too, our TM recruitment push earlier -- or had we began our TM recruitment push earlier, we will be further ahead of the game in their training and productivity. But our front-line meetings were focused more intently on growing GAP in the last 2 years, as opposed to recruiting and growing future revenue producers and increasing our sales team capacity. We are now correcting this, and have built a strong sales force to support future growth. To help ramp up our TM productivity sooner, we're providing more training, coaching and mentoring than we've ever provided to our recruits before. We acknowledge external headwinds have impacted our growth, but we all firmly believe that the stall in our company's growth in the last 2 quarters was due more so to setbacks stemming from our internal strategic execution. We're confident we have the right strategy in place at the right time to continue growing our business. I'm personally very proud of the progress our sales force and support staff are making since we corrected our efforts. And we've all taken ownership of delivering better results in the future. As a global team, we're uncovering more leads, generating new sales tools to facilitate increased sales productivity and finding ways to operate more efficiently and focusing our efforts where they're needed. We're still uniquely positioned as the world's largest industrial auctioneer. And we still believe we're only reaching a fraction of the available market. While the opportunity to expand into new geographies will always be a consideration, we believe our best opportunities will reside in growing our market share in our existing major markets. We're extending our sales team capacity and the portfolio solutions we offer to sellers and buyers in order to more effectively reach new customers. Before we break for questions, I'd just like to take a moment to thank Rob Mackay for his 28 years of contribution to leadership and helping us build Ritchie Bros. into what it is today. So we were aware of Rob's impending retirement. We already had a succession plan working its way into place. And a smooth transition of his responsibilities is already occurring. But Rob has been somewhat of an institution in our business, and we wish him well and thank him for everything he's done for our company. And with that, we will welcome your questions. [Operator Instructions] Kyle, can you please open the call to questions?

[Operator Instructions] Your first question comes from the line of Nate Brochmann from William Blair. Nathan Brochmann - William Blair & Company L.L.C., Research Division: I wondered, to follow-up a little bit on kind of the 4 points that you brought up, Pete, in terms of the GAP and talking about the mix issues and certainly understand that. That's been going on for a little bit of time now. How much of that is just OEM equipment flowing through in terms of the normal course of the top end of the funnel spurring demand throughout the rest versus what might still be a somewhat constrained capital spending environment by businesses to really push that demand up?

Yes, it's a great question. I wish I had a great answer for you, Nate. I think we've been seeing, when we look at the analysis of the age of equipment sold at our auctions proportionately, we've seen continual shifts since 2009, say, progressively over the year. And we see this 3- to 5-year age category working its way through our system. So as an example, in 2013, so far we've seen a lift in the new and 1-year-old assets because they're out there and they're being built. But I can't give you a clear answer about what the difference is between the sort of I call it behavior of the marketplace, in terms of people hanging onto equipment a little bit longer than they might normally for confidence and economy reasons or whatnot, particularly in the United States. But other markets, we've seen some very good activity in places like Canada and Southern Europe, where markets are performing a little bit more traditionally and a little bit more familiar to us. The biggest growth challenge for us has been in the United States. And so we tend to focus our metric look at that marketplace. And I can't give you a clear definition between the one and the two. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Pete, but the point kind of is that it's a combination of the capital spending, the behavior of hanging onto equipment, as well as just the OEM production coming. And it's probably a combination of those 3 things as opposed to just getting through the curve of the OEM production. Is that probably fair?

Yes, it's not just one. It's not just -- I mean if it was simple, it would just be one factor and we could chase it or -- yes, I guess, the point is that those are macro things that happen in our marketplace. And you can't really control them, but you can control how you react to them. So as I mentioned, if we're selling average lots for less on average than we did in prior years because of that aging in the supply of equipment, then we just have to go out there and get more lots. And that comes down to sales force productivity and more salespeople out there knocking on doors. So I think we were slow off the mark getting -- recognizing that and getting it done. We're there now, but these guys take 18 to 24 months to get up to productivity levels. And we're in the middle of that right now. We hired a lot of salespeople in the latter half of 2012 and 2013 for the first half. So that group of new recruits is being trained and the level of productivity that they generate will improve in the latter half of 2013 and into '14. Nathan Brochmann - William Blair & Company L.L.C., Research Division: Great. And then just my second question, relative to those TMs, can you give us an update on how many you've hired in the second quarter and year-to-date relative to where you want to be for the year? And whether your kind of cost-saving programs that you've kind of implemented given where GAP is, is that enough to offset the hiring costs for the year? Or are the hiring costs going to be a little bit greater as you bring all those people on?

Nate, it's Rob McLeod. Your first part of your question there was the net increase in Territory Managers for year-to-date. And we're about where we plan to be at this point in time with some further expansion in the sales force in the second half of the year, if we can find the right people. We've gone from 259 Territory Managers at the end of, I guess, January 1 to 280 at June 30 this year. And as I mentioned in my section of the call, the -- one of the reasons for the increase in G&A in the first 6 months of this year was the increase in both Territory Managers and also increased number of sales support staff that are there to help drive the productivity of those -- of the sales team. And the, probably the -- any effects of reorganizations that we've done in various groups and departments within the organization probably will have a net neutral effect in the balance of 2013.

Your next question comes from the line of Hamzah Mazari from Crédit Suisse. Hamzah Mazari - Crédit Suisse AG, Research Division: The first question is on just the rental channel. Could you maybe comment on -- you talked about customers hanging onto equipment longer. You talked about the OEM production impact, as well as the lack of new age equipment. Could you maybe comment on -- is it the rental channel hurting you guys? Are customers preferring to rent equipment? The numbers out of the rental companies have been pretty strong. How should we think about that aspect?

Yes. Hamzah, it's Pete. I think it's a good point. The rental guys have done very well, utilization up. And they're booking some nice numbers for sure. I think the propensity for people to want to rent in an economy where the confidence is not as bullish as it was back in the heyday is probably there. You've got some guys that have existing fleet that want to supplement it. Not many people have sort of exited their entire fleet and just rent to replace. But overall, I mean the rental component of our GAP has been relatively small in our historic numbers. So while we enjoy providing service to the rental guys, a lot of them try to sell their equipment themselves, which we understand. They have to sell within the existing marketplace. And they've got challenges around making sure that they don't cannibalize their own market. So that delay in the rental guys hanging onto their equipment a little bit longer than they maybe initially have thought is also a factor in the market. And I think the availability of the end users to be able to rent instead of buy is also, for sure, a factor in the market. And they're seeing rental numbers go where they go. I don't know, Steve, you might want to add some color on that?

Yes. Just I think like what Pete said, I mean the rental guys have another really nice run through the first half of the year. And a lot of the end users have been utilizing those fleets. And I think as this market in the U.S., in particular, gets some traction and some more confidence, I think you'll see a lot more of those guys getting back into the swing of owning their assets more so than they are right now. And that should be positive for us. Hamzah Mazari - Crédit Suisse AG, Research Division: Right, that's very helpful. And just a follow-up. Maybe if you could comment on how you think about buying back stock and leverage on your balance sheet? It seems like a lot of the heavy CapEx investments you've made are behind you. It seems like the stock is sort of stuck in this range for a while. You've raised their dividend slightly. But how do you think about buying back your stock right here? It doesn't seem like you're going out and acquiring other businesses. So just help us think about that?

Yes. This is Rob again. And, yes, a great point. Our CapEx certainly has diminished over the last couple of years. And going forward, as I said, we'd likely expect it to be lower than $60 million annually. That will generate free cash flow. And our expectation is to return that to shareholders, both by dividend and also, for sure, the investigation to make sure that we are -- we have the ability to buy back shares when the time is right. And that the time is right when you have that excess cash in hand already.

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

If I think back to your Q3 call last year, at that time you guys seemed very confident that something was occurring to tip the supply-demand balance of used equipment more in your favor. So I'm just curious, in light of your comments this morning, what did you think you saw happening then that didn't materialize as you thought it would?

Cherilyn, it's Pete here. That's a great question because we saw -- it's very -- it's murky out there and it's still murky. And a lot of companies are finding the same kind of challenge. A lot of it for our business is driven by what's happening in the United States' economy. 50% of our business is down there. So of course, we're quite focused on it. We've seen some very nice activity and growth in markets like Canada, in Europe, in Australia, some less than targeted growth for us in the Middle East, but there's a lot of strife over there. Albeit it doesn't take up a big piece of our business. But what we were seeing last year is some encouraging signs out of the U.S. that there were some small shoots of economic activity. I think what we see, even now, it's a continued -- the continued optimism out of the U.S. is one that a lot of people sort of are paying a lot of attention to, including us. For us, it's more about making sure that we execute our strategies more effectively. And I think that we were hiring a bunch of TMs last year, late last year and then hiring more this year. So we're fixing, I think, the strategic issues that we are able to fix in our business. And we have to continue to do that and get those people more productive. Things happen in the world that we can't control, so we understand that. And there's lots of macro winds and headwinds that happen and hopefully tailwinds as well, when you get the age of equipment sort of working its way through the system. But we've been working against that headwind for about the last 3 or 4 years. And we saw that sort of coming to an end. And I think we still see that in the metrics that we look out for 2013 and some of the assets that we're selling that are now not '09 and 2010 assets anymore. They're '11 and '12 assets. So they're starting to come to market, which is encouraging for us. But we were seeing, last year, more positive win or anticipating, I think, more positive movement, much like many other players in the industrial space. And that didn't ramp up as quickly as we had hoped. U.S. construction spending is an important metric we look at, res and non-res, especially you see the res go up and the non-res come off a little bit. So those are numbers that are important for us to look at. But I think that's probably all I can share with you around that.

Okay. And then can you help us think about the cost-saving initiatives that you've undertaken? And then what that might save you relative to your current $60 million quarterly run rate?

Cherilyn, it's Rob. Yes, as I commented earlier, likely the effect of the overall plan. I mean, including cost to implement the plan, probably you end up pretty close to a neutral effect in the latter half of 2013.

Okay. And then it starts to become positive in 2014, presumably?

It should be positive, but we haven't set our plans for 2014. So I can't tell you, for example, what our growth in our sales force will be in 2014 and the effects of that.

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

So on the productivity of the sales force, and we talked about how that's declined and the major driver being the younger sales force. But when you look at the delta between kind of the more veteran salespeople and the newer salespeople, what's the delta look like there? And then are both declining just kind of in a different clip because of the environment? Or can you just add some color around that?

Yes. Sure, Nick. I guess the best way to describe is we're seeing attrition at much lower levels than we had in past years, number one, especially in the more veteran sales force. And we're seeing, because we hired so many in the last short while, the proportion of TMs under 2 years that are ones that are the least productive, I guess, if you could call it that. Although it's not a function of what they're -- how hard they're working, it's really a function of just them building relationships and learning our business and selling the value proposition of what we do. Having that ratio at 40% is significant, particularly in the U.S. I think our ratio is a little bit higher in the U.S., a little bit lower in Canada. So United States market for us, important. And we've got a high ratio of relatively new -- not only Territory Managers. In fact, there's the Regional Sales Managers, the guys that they report to. There's a bunch of them that are relatively new as well. So we've got a pile of good guys and good people on the team. It's just getting them up to speed as quickly as we can. And like I said in my comments, I think we overestimated our ability to do that quickly. So we hired a bunch of people in the latter half of last year and again in the front part of this year. And it's just letting them get their legs and get up to speed. So we're doing all that we can do to make them productive with tools and with coaching and training and mentoring. But it's just going to take a bit of time. And I think the more veteran -- ratio of more veterans in terms of retention there. We've actually seen some veterans leave a couple of years ago. Now they're coming back to work. And we brought a new sales comp system in the start of this year that is very simple and very easy to understand and can, for the guys that want to go up there and produce, can pay them significant amounts of bonus if they go and perform. And the guys really like that. So we've seen some very nice uptake and acceptance and attractiveness of that that's actually dragging people that left our industry and left our business come back in. We're opening our arms to welcome some of these guys back.

Okay, that's helpful. And then my second question here, I heard in the opening comments about July GAP growth being quite strong. I know July is not usually the biggest month of the quarter. But kind of what were the drivers of the improvement year-over-year in July?

Steve Simpson here. I think really just some of the things we've been working on with our -- like getting our new TMs up to speed. And we've -- some of the nice growth we had was in our U.S. business. We've also been able to put together some nice sales tools and some lead generation stuff for our guys in the U.S. And then we've also had the good fortune in some of the sales to have some of that nice mix of that late-model stuff that we were talking to you about. And I'll give you an example. We just had a sale in Chicago on Thursday this past week, and we had a really nice lineup with a lot of late-model stuff and a lot of different categories in that sale. And the sale was fantastic. We had a huge crowd and a big, big demand for that stuff for all of the world. And that's the kind of the stuff we need to keep trying to get our arms around because that's where a lot of the bigger guys are chasing that stuff. And that's the stuff we're a bit challenged to get right now.

Your next question comes from the line of Michael Feniger from Bank of America.

This is Michael Feniger filling in for Ross Gilardi, Bank of America Merrill Lynch. Just had a quick call. I mean, last quarter, you guys discussed how you walked away from some deals. You indicated that last quarter. Was that the case this quarter as well? Did you guys walk away from anything that you felt wasn't -- didn't meet your -- what you guys would consider profitable?

Steve Simpson again. I would suggest to you there was a few deals that -- and when we say we walked away from them, I mean we participated in the deals up to a certain level and once it got past that level, we decided it was in our best interest to walk away. And in most of the cases of all the stuff that we track again in this past quarter, we feel we made the right decision. It would have been wonderful to have the GAP. But at the end of the day, we're chasing revenue. And some of the folks seemed to like the stuff better than we did. And I'm thinking they probably didn't enjoy the result. So that was a little -- with the way we decided to do it. And that's our focus going forward.

And my second question would just be are you also seeing maybe more intense or increasing competition for the equipment out there? Especially since you're seeing some of these equipment holders holding onto their equipment in this type of an environment?

Yes. I mean, I think the level -- sorry, it's Steve Simpson again. The level of competition, I would suggest to you is pretty steady. I don't know that's it's going up or going down. There's the usual suspects. They're out there every day. And we're competing against the same folks every day. And there's a lot of cases that the owners themselves are trying to sell their own stuff sometimes prior to coming to us. And it's one of the, I guess, a benefit or a negative of the Internet. Say, if you fell off resolving prices [ph], but it's just the nature of what the market is. So -- but in general, I would say it's business as usual. And it's competitive every day. Don't think for a minute it's not, if the market is what the market is. And that's what we're playing it.

Your next question comes from the line of Ben Cherniavsky from Raymond James.

Can you maybe just elaborate a little bit on the reorganization and rationalization and the restructuring or however you've described it in the company? Like how many people have you -- or has this affected any specific reduction in the workforce? And by how much?

Ben, it's Rob. Yes. Specifically, it wasn't a restructuring. I guess that has a lot of connotations to it. And really it was, as we mentioned, a reorganization of some departments that just made sense given where we're at in our maturity and growth of various departments, and also the ability to apply technology, merging some departments, looking at some procedures or operational procedures that we have. Well, I guess one specific example for you would be the volume of pictures and information that we gather as part of our detailed equipment information process and reevaluating that and making sure that we're focused on quality, not on quantity. And so our ability to rationalize some of those procedures and steps that we undertake to do that. Overall, it affected less than 5% of our worldwide workforce. Also, I guess it's important for you -- for me to reiterate, it wasn't restructuring. And so if you go on our website, you'll notice that we -- there are hiring opportunities. We are still hiring people. Obviously, looking at our sales force and also other roles within the organization that are key to moving us forward and helping us grow the business, and also undertaking our strategic initiatives that we have underway. Those are full steam ahead.

But to my knowledge, this is the first time you guys have ever done any kind of a, whatever word you want to call it, reduction, reorganization, rationalization, whatever, to your workforce in any material way, 5% still being I would consider somewhat material. I mean, if it weren't, then it's not worth talking about. But -- and so, I guess, the bigger question is, those actions in the context of GAP that has stalled, a share price that has stalled -- how is the culture at Ritchie Bros. these days? I mean, since your inception, you've been -- it's been a phenomenal growth story. You guys have been hiring, building technology, new offices, new territories. And the last couple of years, it's been very different. So what's the mood like around the organization? And how are people dealing with these challenges?

Well, Rob and I are just pointing at each other. You want to answer that? No, it's an excellent question because our organization, as you know, has a very deep and long built-up culture. And it is all about the people. That's our whole organization is based on people. We don't produce and sell our widget. So absolutely, in the last couple of years, with our challenged growth in GAP, growth in volume, growth in earnings, it's a bit of a different environment than we saw in the prior 5 or 6 years. And so that makes it a bit of a challenge to get all the troops revved up and ready to go and motivated, frankly. And so it is a bit of a different environment. How much impact does it have on our culture? I think the culture is incredibly strong and resilient. And the part of the culture in regards to providing great customer service and going out and making things happen, I don't believe it's been -- has been hurt or been diminished.

I'll do it. Ben, it's Steve Simpson.

You got the financial guy talking. Here's...

Yes, yes, yes. No, Ben, I mean great question, but I mean you've had the good fortune to meet a lot of our folks. And we have a ton of passionate people that is at work here. And nobody's enjoying the bumping along that we've been bumping. And as far as the sales force is concerned, sure, we have a lot of young guys, but we have a lot of great new young folks. And then, of course, the rest of our sales force is we have some fantastic people. And they're charged up to get this thing cranked up again. And we're on a mission to do that. And I'm thankful for all the folks that we do have because as I've said to you before, we have a lot of folks and a lot of passion determined to win. And that's exactly what they're going to do.

Your next question comes from the line of Bert Powell from BMO.

Just trying to square up the ARR guidance for the year versus what you've done in the first 6 months, and your commentary that you're being more prudent in walking away. Are you signaling a higher percentage of at-risk in the second half of the year?

Ben, it's Rob. And as we've commented -- sorry, Bert. As we've commented it before, we don't actually set targets for our at-risk volume that we'll do. It is a deal-by-deal, case-by-case situation. And so we don't -- our change in our revenue rate guidance isn't necessarily affected by us setting a target because we don't actually set the target. It's really based on our, obviously, our experience in the first 6 months of the year and where we're seeing things shape up as we go into quarter 3.

Okay. And just -- if I go back through the business model, it's always been -- you've always talked about this being a small percentage of a big market. It's been a market share gain story for Ritchie Bros. over time. I'm just wondering, if you think about your market today, you talk to your clients, how they're behaving, is there any leakage that you're seeing through other channels, other ways to accomplish the same objective, things that Ritchie Bros. perhaps in the past gave them comfort in terms of dealing with you that, today, they can replicate by other means?

That's a terrific question, Bert, and we talk about that incessantly, and particularly at the board level and making sure that the model is in fact working as it had. And I think if you look -- if you go back to sort of pre-Internet days, the competitive advantage that we have versus where it is today, you've got to acknowledge it's different, for sure. Owners of equipment have the ability to go and try to advertise their own through various listing services that are out there. So -- and we acknowledge that for sure. I think it's one of the supporting factors behind us trying to make sure that we created an alternate solution to help people exchange equipment through EquipmentOne. And that's got, I think, a long runway to go. So we're encouraged by early results from that. But overall, I think that the model has to be continually reviewed and examined to make sure that we're on point. And it is a very small percentage of a very big market, but we still have to go out there and execute every day. And the people that know our business well understand that's very, very much based on relationships. And those relationships are very important to us. You don't form those by walking in and doing a 30-minute presentation and then moving along. We're selling more than a can of peas. We're selling something that has intrinsic value. And people have to understand what that value is. So they can try. And people do try to do it on their own. But there are many parts of what they would have to do on their own that are not easy. And our solution isn't designed to be easy. So things like, for a guy who's going to try to sell it on his own, he's got issues about pickup, he's got issues about payment, he's got issues about trust and logistics. And there are so many things that get in the way of making it easy from an owner trying to sell it on his own. He could do one piece probably relatively easily, and my 13-year-old daughter could sell probably 10% of a guy's fleet because it's real easy, and people are phoning. But it's the other 90% that becomes much more difficult and much more challenging to make a market or to create a marketplace that will create global value. So acknowledging for sure that the environment is different, but I think you have to acknowledge as well that what we bring to the table is a pretty unique solution and something that's very hard to replicate through many other channels. Lots of people try, but you're selling used equipment. It's condition-sensitive. The value is driven by that condition. And people like our customers, they enjoy sitting on the assets and running them, or at least having someone that they know do that so that they can create more comfort and more confidence that the condition is what it is. And then they can bid accordingly. So we'll tend to get higher value because we provide that ability to do that. So it's an excellent question, Bert.

So the reasons that people do or don't deal with you have remained constant? The sales guys aren't coming back. With things that you're going, that's changed. We're sensing a change in our potential customer base?

Yes. No, I don't know if it's a change in customer base, although we have seen some consolidation over time. And that sort of works in our favor because bigger players demand a more comprehensive and more global solutions. And that's something that we can provide to them. But we haven't noticed a lot of leakage, I guess, if you call it earlier. People will try anything. They're going to say, "Well, listen, if we're going to pay you guys 11% or 12% commission, then if we try it ourselves, then maybe we can save that 11% or 12% commission. But by the time they get what they get, and they deal with all the added cost of doing it yourself is sometimes buried in just the fact that you've got people on staff and whatnot. So it's a game of math, if you want to look at it. And typically, people that are selling the equipment, that's not their business. They're usually building roads or schools or bridges or renting equipment or doing whatever they're doing. That's their sweet spot of their business. Now when they get into the different part of the business, it's very different. And it's what we do well. And we can prove our value. So the best salespeople that we have in our business are our customers. And there are people that have actually tried this, and they said, "Man, those guys are the real meal deal." So we lever that by testimonials and creating friends in the business that allow us to lever and create more friends. And it's just that continual process and momentum of building more customers who in turn build more customers, and more salespeople get more relationships, and that continues to build. And it's a very progressive model that we built over a number of years. It doesn't mean to say that models don't modify and competitive strengths don't get challenged. And so we have to make sure that we're continually relevant in our offering. But I think we're well-positioned and we are very good at what we do. And we've just got to keep executing and keep finding, as Steve said, those passionate people that are out there that are delivering service to our customers. That's all -- it's all about the customer in the end. And you have to continue to be relevant and add value. And then you'll continue to grow your business.

Your next question comes from the line of Scott Schneeberger from Oppenheimer. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: The first question is kind of a 2-parter. With regard to you guys mentioning that training's not where you want it to be yet, but improving, a, could you speak a bit to what you're doing there and how you're accelerating that? And then, b, someone alluded to lead generation. And, Peter, I know you've spoken about that before. Could you speak to what you're doing there and how it's progressing in the sales force?

Steve Simpson here. So as far as the training goes, we just finished 3 to 4 quarterly sessions with all our regional sales managers. And actually all our regional sales managers add up all the way to Peter Blake and myself and all the other guys that's been involved. So that's been very, very productive and helpful for all those guys. And at the end of the day, the RFM level, that's really the guys where the rubber hits the road. And they all have anywhere from 2 to 12 sales guys reporting to them. And so we're very pleased with how that's been working for us. Our on-boarding process for our new TMs has been elevated significantly, everybody recognizing that the timing that those guys produces is crucial for the growth of our company. So I think we're in this level at all -- from all to get everybody up to speed as soon as possible is there. And the next question was -- oh, lead generation. Yes, we have 4 or 5 different things that we've -- our business intelligence group and our marketing folks have gathered up to enhance. Most specifically, our U.S. business, which as we've commented, is our focus at the moment. And so we have our in-house lead generation group on the phones canvassing that. We have also have a bunch of lead generation people at our individual offices. And they're utilizing all these new data that we've received of potential opportunities for us to go out and call on. And it's been very well-received from the field, already seen a bunch of traction with it, converting it to business to sales. And the guys are liking what's coming out. And then that can only prove to be positive going forward. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: Since I snuck a double on that first question, I'll make a quick second question, which might have a very quick answer. You guys fed us July GAP. Would you want to speak to July ARR, auction revenue rate, and trends you're seeing there?

No, we would not like to provide to you the auction revenue rate for July.

We did update our guidance on the back part of the year. So hopefully you get that, Scott.

[Operator Instructions] Your next question comes from the line of Craig Kennison from Robert W. Baird. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: In the past, you stressed the need for a higher salary component to the Territory Manager compensation. I'm just wondering if you still think that formula has been optimized.

It's Steve Simpson here. I don't know how I could answer that because I never really was a proponent for that. But I mean I think the key for our salespeople is to pay them a fair, solid base to enable them to live comfortably, and to keep them motivated to go out and knock the ball out of the park with the contribution on revenue. And I think we have accomplished that. We've made it very fair and very simple for all the guys to realize what we've got. But I'm more focused on paying the guys for performance. And when they're nailing it, I'm hoping we can pay them a lot. Because if we're paying all of our sales guys a lot, you guys are all happy, which is what we're trying to do. Craig R. Kennison - Robert W. Baird & Co. Incorporated, Research Division: And then, Bob, with respect to EquipmentOne, is that strategy evolving in any way? And do you see any opportunity yet to start cross-selling some of those services? Or do you still like the idea of keeping them very much independent?

So strategy is unchanged, still developing as a complementary marketplace. But we have already seen a number of people with listings on EquipmentOne that don't sell, then move those listings over to the auction. And that was always one of the divisions, that these 2 would be complementary market places that would, in fact, provide a broader range of solutions to our customers. So when we see customers using both, starting at one then moving to the other, that's pretty cool. That's capturing the full transaction. And that was always one of the reasons we wanted to launch it as a complementary strategy. But I think the basic answer to your question is the strategy is unchanged.

There are no further questions at this time.

Okay, that's great. Thanks, Kyle, and thanks, everyone, for joining us on the call. We look forward to chatting to you next quarter.

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