Q4 2019 Earnings Call
[music].
Good morning afternoon evening, My name is Amy and I'll be your conference operator today.
At this time I would like to welcome everyone to the Ritchie brothers Auctioneers fourth quarter Conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad.
If you would like to withdraw your question. Please press the pound Keith Thank you.
Ill now turn the call over to Mr. that he'd milani of Investor Relations to open the conference call Mr. Molony you may begin your conference.
Thank you Andy and good morning, Thank you for joining us on todays call to discuss our fourth quarter 29 human cells joining me today.
Our Chief Executive Officer insurance.
Financial Officer long when Carl Warner and other members of management will be available, but acuity coal.
The following discussion will include forward looking statements comments that are not the statement effect.
The actions of future earnings revenue growth transaction value and other items are considered forward looking and involve risks and uncertainties.
And uncertainty that could cause our actual financial and operating results.
For significantly from are forward looking statements are detailed in our SBC you securities filings available on our Investor Relations website at Investor Day, Ritchie Brothers Dot com.
We encourage you to review our earnings release and form 10-K, which are available on our website as well as Edgar and SEDAR on this call. We will discuss certain non-GAAP financial measures are the identification of non-GAAP financial measures. The most directly comparable GAAP financial measure in a reconciliation between good to see our earnings release informed consent for us.
Station slides to accompany our commentary today.
Slides can be used to LIBOR recorded webcast or downloaded from our website.
All figures discussed on today's call our us dollars unless otherwise indicated I'll now turn the call over at the end Sandoz and thank you and good morning, everyone.
Thank you for joining our fourth quarter earnings call. My first since joining Ritchie brothers at the beginning of the year.
As you saw in our press release today Ritchie brothers delivered a strong quarter I really like to think Sharon Carl and the rest of our team for the excellent leadership. They provided over the past several months, which contributed greatly to the company's ability to achieve these results.
The four Sharon delves into our performance for the quarter in Europe, I want to share some context and why I joined Ritchie brothers, along with my early observations of the company in the two months since I joined.
After meeting after auto I was looking for a company with significant scale.
Large industry and one of which has the opportunity to leverage technology to create a world class global multichannel experience.
Great scale.
Ritchie brothers is the definitive leader in the U.S heavy equipment industry, one with a global footprint that is deeply loved and trusted by our customers.
Second growth.
Ritchie brothers has a considerable competitor advantage and operationally that advantage on which to bill.
We operate in a very large and attracted industry estimated to be hundreds of billions of dollars worldwide.
And third technology.
T source of competitive strength is Ritchie brothers investments in technology, which have transformed the company into a true global month multi channel organization.
Having led technology enabled transformations for other businesses I.
I can tell you that we are in an exceptional position.
Harness these multi channel investments to redefine our industry globally.
The past two mines have validated the perspective I had prior to joining and what is abundantly clear is the numerous opportunities we have to drive consistent and sustainable growth.
In visiting many of our offices auction sites and recently Orlando auction I had been consistently impressed by the quality and commitment of our people.
We have an amazing team here at Ritchie brothers, who come to work each day with passion and purpose to service our customers better than anyone else.
We have an enviable customer base, which has been built on a foundation of trust and unmatched value over the past 60 years.
Allowing us the opportunity to drive even more value for them to beta tools and multiple channels.
With that let me stop there and turn the call over to Sharon to discuss the company's strong results in a quarter and then I will be back shortly to share my views on 2020, and some short term priority.
Thank you Anne and good morning, everyone.
Our strong fourth quarter results were driven by our 3.5% GTV volume growth strong guarantee contract rate performance and higher fee revenues contributing to our 10% service revenue growth.
Total revenue, however declined 7% due to a 28% drop in our inventory sales revenue, primarily due to lower inventory deal volume in Canada in in our international markets.
As a reminder, our overall mix of inventory deals can and does fluctuate each quarter and the presentation of total revenue under the new revenue recognition rule is highly sensitive involved held the fluctuations in our inventory sales mix.
Our online GTV had robust growth of 16% led by marketplace E delivering another tremendous quarter of growth up 37% over last year, along with strong double digit Ironplanet weekly and go planet growth.
Our lives option GTV was up 1% led by double digit GTV growth from our U.S. region, partially offset by softer volumes in Canada, and our international regions.
Regionally in the U.S., both the core and strategic accounts teams delivered another terrific quarter.
Drawn GTV growth led by double digit growth from both our online and lives channels.
Oh, yes, backlogs are moderating and overall market supply constraints are easing, creating some positive tailwinds.
The strong live auction comp growth came through strong performances in both Texas and our western state events, along with strong guaranteed contract deal performance, despite some softer transportation pricing and energy sector softness.
Our U.S. sales activity generation engine or stage program has begun to generate good momentum with the team engaged and showing a strong willingness to apply the sage principles.
Well it is still very early we are starting to see signs of incremental GTV arising from our efforts to increase territory manager total selling time with customers.
It was a challenging quarter for the Canadian business overall, while we delivered solid growth results in eastern Canada and through our online channel with marketplace He up 48%.
This favorability was offset by lower volumes in our Western region and Agriculture Division.
Specifically western Canada is facing headwinds from uncertainty in the oil and gas and forestry sectors.
As in many equipment owners to hold off on equipment selling decisions.
Consigners with sufficient liquidity are taking time to get a better perspective on current levels of demand for used equipment and pricing implications as well as the weighting government investment decisions within these sectors.
In the agriculture market, the continuing overhang from trade concerns with China declining crop prices and challenging harvest conditions contributed to less equipment being consigned and compared to prior year end cycles.
TTB in our International group was also soft in the quarter, principally due to economic uncertainty in certain markets within Europe, and Asia as well as cycling over strong auction comps from last year at our more dike and Dubai auction.
Our Australian market performed very well across both live and online platforms.
Our operational metrics remained strong with year over year growth in most of our key measures and most notably notably with our percent of winning bids online surgeon to 66% in the quarter.
Our price per sold item was stable versus Q3, but declined slightly over last year in the fourth quarter, principally driven by the combination of increased mix of transportation assets, primarily in the U.S. market and some price softening on a mix adjusted basis from certain construction equipment and transportation assets.
Moving now to the financial highlights.
As mentioned by total revenue decline of 7% was driven pregnant primarily by our 28% decline in inventory sales revenue, partially offset by the 10% increase in service revenue.
Commission revenues increased 7% in line with GTV growth and strong guaranteed contract rate performance.
He revenues were up 14% in the quarter as a result of the higher GTV volumes the impact of our feet harmonization and a higher online fee.
Our BFS also contributed to fee revenue growth in the quarter with their strong performance and produced its 32nd consecutive quarter of double digit revenue growth of 19%.
Our operating income was up 27% driven by our service revenue growth and solid operating leverage as we contained SGN a cost growth at less than half the rate of service revenue growth.
And adjusted net income improved 36% from higher operating income lower interest expenses and a favorable effective tax rate.
Turning to our options and marketplaces segment service revenue was up 13% in the quarter.
Regionally the U.S. post is 19% service revenue growth from strong online and like GE, Greek GTV growth, including higher volume from our strategic accounts and growth from South planet contracts.
Additionally, the U.S. team saw higher fee revenues and generated strong year over year guaranteed commissions growth with a better than 500 basis point improvement in the quarter.
Canada service revenues were up 7%, primarily due to strong fee revenue growth higher per lot fee rates and a modest year over year improvements in straight commissions.
Our international service revenue was up slightly in the quarter. The international region was cycling some strong comps from last year in Q4 from our $48 million more days, Netherlands auction, which was up 69% in 2018 and was their largest sale in 10 years.
Our Dubai site was also cycling a very strong 37 million dollar auction last year, which posted 47% growth in 2018.
Online volumes were also impacted by nonrecurring activity in Japan.
On a rate basis, we were pleased with our and service revenue rate coming in at 13.3% roughly 100 basis points higher than last year.
The rate improvement was due to fee revenue growth and the strong improvements in guaranteed commission rate performance in our U.S. region.
Moving onto our auctions and marketplaces segment inventory sales revenue.
The 28% decline in our inventory sales revenue resulted primarily from lower inventory volumes in our Canadian and international regions, partially offset by strong performance in our US region, which was up 29% primarily driven by the continued growth of the Gulf planet surplus contract and increased inventory contracts at the.
Alive onsite auctions.
Our Canadian inventory sales revenue decreased primarily due to a lower year year over year volumes as we cycle very strong inventory packages from Q4 last year, which also included large agriculture contracts, which did not repeat in 2019.
Our International region also declined from last year due to strong comps from last year in Q4 from a few major inventory packages sourced from Africa, Turkey, and the Middle East, which were sold at our 2018 more dike auction and online channels that also did not recur in 22019.
On a rate basis, our implied rate of return on inventory deals in the quarter was 5%, which was a 500 basis points decline year over year and roughly a 250 basis point sequential drop from Q3.
Inventory deals that sold in the quarter, where the result of highly competitive strategic deals that ceded successful live events in Canada and the U.S.
Certain asset categories, such as transportation and oilfield services did perform at or slightly below targeted expectations.
A reminder, that this metric only captures the seller commission portion of these inventory transactions and does not include other service revenues associated with these packages such as paint refurbishment logistics and buyer side fees.
In our total portfolio that risk contracts, we saw strong guarantee guaranteed rate performance and we were very pleased with the overall results during the quarter.
Moving on to SGN, a expenses are ftn $8 were essentially flat to last year inclusive of a $4.1 million share based payment expense recovery related to the departure of our former CEO.
Excluding was favorable onetime item SGN, a was up 4.4% compared to service revenue growth of 10%.
During the quarter, we continue to invest in our key growth business units such as our VSS ends of planet as well as to support key growth enablers like technology and improving customer experience.
These investments combined with higher marketing and professional services fees accounted for the majority of our SGN a growth.
We continue to see improvement with our overall sales force productivity, which on a trailing 12 month basis improved year over year led by the U.S. region.
Looking ahead, we will remain focused on solid cost management, but as a reminder, we have made investments in service offerings during Q4 to support longer term growth priorities in areas, such as our best appraisal clinics and inspection services and overall improved customer experience.
Based on these investments throughout Q4 in into Q1, we expect our first quarter ftn a to be moderately above our fourth quarter level of $100 million.
Now I'll transition My River remarks to review, our full year 2019 performance highlights.
Overall 2019 was another year of tremendous progress.
Our results demonstrate that our strategy is moving the company in the right direction and reflect continued progress on our multichannel strategy.
Financially it was a very strong year.
We grew our GTV, 5% on a constant currency basis to $5.1 billion with our total revenue topping $1.3 billion.
Importantly, we worked hard to control SGN, a cost and improved our operating leverage and growing our service revenue, 7%, while holding SGN eight growth, excluding the CEO stock based compensation recovery to roughly 1% contributing to our 23% increase in adjusted earnings per share.
Our EPS was also positively impacted by lower overall interest expenses transactional foreign exchange gains from international subsidiaries, partially offset by our higher effective tax rate of 21.8% to compared to 20.3% in 2018.
This increase in effective tax rate over 2018 was primarily the result of a greater proportion of earnings taxing jurisdictions with higher tax rates.
Moving on let me touch on our key growth drivers in 2019.
After unprecedented supply shortages in 2017 in 2018, the U.S. team capitalized on the improvements in the used equipment supply environment in 2019.
This coupled with improved sales execution driven by early foundations of Sage led to a double digit increase in GTV was positive performances in both live and online channels.
Marketplace. He continues to be our fastest growing solutions, surpassing 500 million in cumulative GTV since its inception in early 2018.
We have now sold more than 22000 items on marketplace.
And our very pleased with both the overall progress of this reserved platform and its exciting growth prospects.
In 2019, we acquired and worked with approximately 40 Ritchie brothers asset solution reference accounts to test our potential in the upstream market.
Adoption of our inventory management system or IMF has been strong and it has served as the foundation for selling additional services data and insights.
We installed 32, new Imus implementations and upgrades and we saw over 5000 assets flow to our marketplaces, why our our vasco to auction workflows functionality.
Overall, we're very pleased with our first year of our vast and more importantly, our bass is helping change the conversation with our Consigner base and the way the Ritchie brothers brand is perceived in the industry.
Our Ritchie brothers financial services team delivered 24% total revenue growth in 2019 and positive metrics across the board with funded volumes applications number of transactions and approval rate all up nicely in 2019.
In 2018, we also invested in warehouse infrastructure technology and personnel personnel to operationalize, our Gulf planet non rolling stock program.
Overall Gulf plan at U.S. delivered 85% full year GTV growth.
It was a substantial effort by the team and we have laid the foundation and basis for improved optimization of the model greater operational efficiencies and leveraging of our investments to produce stronger overall profitability.
Finally, I'd like to recap our performance against five Executional priorities, we communicated on our Q4 call last year.
In the first half of 2019, we set a new foundation by defining tracking and bringing organizational visibility to new customer acquisition metrics.
New customer acquisition was one of our key priorities and as a result of our stage initiatives new customer signings in the US were up 9% in the second half of 2019 over the first half of 2019 on a per TM per week basis.
As I discussed earlier, we are pleased with the progress was made with marketplace E scaling our business and delivering our key set of reference accounts for Ritchie brothers asset solutions.
Lastly, we continue to operate our auctions with attention to operating costs. Additionally, we merged the operations of our two customer service call centers into one centrally managed teams that handles all of our customer inquiries.
Now that we have the capabilities centralized we're better positioned now to refine the process and optimize our customer service experience.
Turning to our balance sheet and liquidity metrics are out operating cash flow of $333 million for the 12 months ended December 30, Onest represents an increase of 131% over last year.
The increase was driven by higher net income and improvements in working capital primarily from a decrease in inventory balances and some favorability due to timing of auctions closer to the end of the quarter.
On a trailing 12 month basis, our operating free cash flow increased a 166% to $298 million.
Our year to date 2019, Capex spend was $41 million at the top end of our revised full year guidance.
As we look ahead to Twentytwenty, we expect the full year capex spend to be in the range of $45 million to $55 million with primary focus on technology investments existing site maintenance and developments of our multi UK site.
Our debt reduction is well ahead of schedule was an additional voluntary repayments of 43 million in our fourth quarter, taking our total voluntary repayments for the year to $63 million and total debt reduction of $76 million in 2019.
We ended the year was an adjusted net debt to adjusted EBITDA ratio of one times down from 1.9 times last year and well within our evergreen target range of below two and a half times.
We closed 2019 with a very strong balance sheet and solid cash generation.
Since 2014, we have generated nearly a $1 billion a cumulative operating free cash flow and returned roughly $550 million to shareholders in the form of dividends and share repurchases.
In the second quarter of 2019, we also increased our dividend by 11% for the full year and returned $83 million to shareholders.
We continue to strengthen our balance sheet to assure we have significant financial flexibility to fund our growth capitalize on high value opportunities and ensure Ritchie brothers is well positioned for any changes in market conditions.
Turning now to our Evergreen model update as a reminder, our evergreen model reflects our expectation of how we believe our business will grow on an average annual basis over five to seven year horizon. It is not intended to be yearly guidance. However in 2019, we delivered on all measures with very.
Very strong performance on our earnings per share growth rate and operating free cash flow measures.
We're also pleased to see continued improvement in EBITDA margins in the quarter and for the full year based on previously reported methodologies and our results reinforce that we're on track to achieve this evergreen model metric.
Also the ROI fee metric continues to show progress with year over year improvement and we remain confident in achieving our 15% target by the end of 2021.
Our financial objectives for Twentytwenty will be consistent with last year and were once again focus on driving operating leverage cash flow management and prudent capital allocation.
We made good strides increasing sales team productivity and achieving cost leverage in 2019.
In Twentytwenty, we're prioritizing growth initiatives to further improve sales team productivity enhance the overall customer experience and drive transactional volumes.
This topline growth together with disciplined cost management, and leveraging technology to drive increased efficiency positions us to deliver improved flow through and margin expansion. So that our service revenue growth continues to outpace our SGN a growth.
In 2020, we expect to container continued to deliver operating free cash flow growth through improved earnings and working capital efficiency, while still doing being well positioned to support growth initiatives and fund Atlas contract opportunities that arise throughout the year.
Turning to our capital allocation to reiterate our priorities as we shared on our second quarter call.
We will continue to focus on debt recover reduction and we remain committed to growing our dividend.
In pace with a earnings and maintaining a payout ratio of 55% to 60%.
Lastly, we will continue to look at share repurchases under our normal course issuer bid program aimed principally to offset option dilution.
Before I turn the call back to and I would like to take a moment to congratulate our entire global Ritchie brothers team for delivering an exceptional 2019 and thank them for their energy and passion in serving our customers and driving value for our shareholders.
Now I will pass the call back to an to discuss our Q1 option highlights in general outlook.
Thank you Sharon.
We are well within two or Q1 auction calendar and the outcomes. We are seeing are generally very positive.
I had the opportunity to attend my first Orlando auction.
And it was an amazing experience to see the breadth of equipment, the global buyer base and excellent execution by our outstanding team.
While our GTV was down from last year's sale.
I believe we need to understand this in the right context.
When we were solely alive auction company the Orlando auction was a big magnet events.
Now with our Multilocation multichannel platform.
And wealth of data and expertise, we have provided our consigners with multiple ways of selling their equipment.
We saw this manifest in Q4 in Texas with Consigners choosing not to wait Orlando.
Similarly in Houston, and Tipton together with our strong online sales continuing days.
Orlando's did set some amazing new records for total bidder online bidders Laughlin sellers, which suggest we have a robust demand environment.
We're also seeing great momentum building bar Las Vegas auction held during Con Expo next month, which only comes around every three years.
So while Orlando is a large an important events.
Needed to will framed it in the context of a broader Ritchie brothers platform.
Moving now to some considerations for the first half of 2020.
As we typically do on our fourth quarter call, we're offering a few of the following insights.
Taking stock of tailwind.
It's about the midpoint of 29 team, we have been experiencing an improvement in the overall supply environment and remain optimistic we will continue to see similar trends in 2020.
Significant needed spansion over the past few years combined with new equipment availability.
Is expected to drive increased fleet turnover.
Our early auctions are good indicator of this being.
That said favorable demand conditions continue to persist in the U.S. with customers and equipment still busy at work and construction activity remains robust with high utilization across many sectors.
We're also seeing strong private and public infrastructure investments in Eastern Canada, which continue to drive strong demand for equipment would usage being high the outlook is positive.
Turning to some headwind.
Construction activity remains robust with high utilization across many sectors and disposition of older fleet.
While this increases our lot count it could put pressure on Asap.
Transportation sector volume was positive with a strong supply could also leads to pricing pressure.
Commodity resource oil and gas agriculture, and forestry based markets in Western Canada continue to face uncertainty due to market pricing tariffs and environmental protest disruptions.
And while difficult to forecast, we must consider the uncertainties around the impact of the corona virus and potential impacts globally.
Well I'll have more to share about longer term perspectives in the coming months as I get deeper into our business. Let me share a few near term priorities, we will be focusing.
First we are committed to delivering against our evergreen model.
Our immediate priority is to execute our business with excellence and so where customers to the very best of honestly, while driving shareholder value.
Second we will continue our journey of delivering the very best multichannel solution for our customers enabled by technology.
The Ritchie brothers platform.
Made up of lie than online auctions listings and a menu of value enhancing services.
All facilitated by big data in machine learning will continue to grow and get better.
Third.
As any growth business has to do we will prioritize and focus our efforts, we will be investing in compelling opportunities to drive profitable growth, while adding meaningful value to our customers.
Before I close the prepared remarks section I'd also like to say, how thrilled I am to lead this great organization.
In the 60 years and Steve Ritchie founded the company. It has operated on timeless from fundamentals anchored to the philosophy that treating customers like they are your friends will make them be customers for life.
I am honored to join this organization and committed to continuing maturity date started.
And with that we're ready to move to the Q and a portion of the call.
Operator, please open the line to question.
As a reminder to ask a question you will need to press Star then one I know telephone.
It would try your question you May press, the pound or hash key.
Your first question today comes from the line of Sharyland Redpoint TD Securities. Your line is open.
Thanks, very much and good morning.
Good morning, Sharon just wanted to ask a question on the live auction trends growth there has been pretty subdued dating back to the second half of 18 really so I'm just wondering what you make it bad is is that just the nature of what's for sale being better suited to an online channel is that.
Customers migrating more to online channels, what do you attribute that to.
Hello, Sherlyn and Sandoz easier.
The best way to think about this is that Ritchie brothers is really a multichannel platform of solutions and services.
While we are agnostic about which channel our customers want to use.
And have the capabilities to serve their needs on their terms.
We just want to be the first choice, regardless of channel and we have the technology platforms.
The sites, a global customer base to allow us to take advantage of it.
Okay Fair enough maybe just another question on the service revenue it seems like a lot of the growth in recent periods has had to do with the fee harmonization that took place last June and I'm. Just wondering how you feel about growth in that area. Once you lap.
That fee harmonization.
Yeah, Sherilyn it Sharon year hit so yes, there is no doubt that the fee harmonization has had an impact, albeit it's really de minimis. When you look at though the entirety of our service revenue and service revenue rates.
What's really impacting it is mix and the broadening of our business to increasing lower lots and so therefore, increasing the fee rate per launch and that's really what you're seeing.
And it's a combination of our Gulf business as well as our online channels and and live events, it's across all platforms.
And we talked about this last quarter, but are you broadly comfortable with that shift in mix towards lower value items, which I assume you know there's more competition to sell.
Yeah, we don't turn much away. So we're prepared to take whatever our consigners want to sell through us and zone I think the the balancing of the buyer fee is really attributing that value added service that we are offering to those consigners and to the buyers.
To be able to get best value on whether they're small lots are large loss.
Okay I'll leave it there thank you.
Your next question comes from the line of Michael do matter of Scotiabank. Your line is open.
Yeah, Hi, good morning, everybody.
Good morning, Michael.
I didn't want to particularly asked this question, but it feels to be off in the room. So just with all the uncertainty relating to the Cronto virus just wanted to get a sense for how you're thinking about managing potential risks.
Particularly as it relates to some ever the international markets and second I mean, any early sense for how customers are reacting to a change et cetera.
Yeah. So I'll start and then maybe Carl because it's probably most some important for the international region, let's start first by saying the most important aspect for US is both the safety of our employees and our customers and as we do run large events. As this is something that we are really.
We are monitoring quite closely.
And then also our next priority is making sure we're getting optimal price value for our Consigners, though is we're sensing that demand is perhaps week is live attendance is going to be down we are considering the option of running online events that really well position us to be can be able to continue to.
Meet that consigner need to sell but optimized some NAND. So I think Carl if I can throw it to you and if you have any additional international comments that you'd like to make.
Sure excuse me I'm picture, we weathered the storm back in 2009 2010 with a 21.
Virus as well and we're starting from the same precautions at all of our large sites or overseas crude with large gather into people so with him sanitizers and so on.
But does it affected or or to whether Q4, so the end of it.
And where we're seeing higher outbreaks or we postponed but live event there, but we also replaced so that's a big difference between today in 2010 as we've got our multichannel to be you know so we didn't replace it with a more online event.
Pushed out our life Shelby to wait until later in the spring.
And then also I had a cold this morning with our team in Italy.
And from same thing there were looking at potentially postponement and event, there, but moving to online as well.
We're closely monitoring margin everything across the board.
Okay, No guys I appreciate that understanding it's quite early but.
Okay, and then maybe just moving on to.
Really different topic here just flip into ROIC, that's up 180 basis points. This year in effect invested capital was essentially flat.
Compared with last year now you've you've reiterated your 15% ROIC target there, but I want to stick to specifically on what your thoughts were for keeping invested capital relatively flat going forward or close to it as you continue to grow the business.
Yes, so it's Sharon all handle that I get you know clearly to get to the 15% rate target. We're looking at a combination of factors. So first is continuing to drive earnings growth, but also on either holding invested capital fat flat or reducing it.
As our cash position develops on those increased earnings and so that will be a combination of our capital allocation strategies as we talked about which is increasing our dividend.
Continuing with our share repurchase program for option dilution as well as looking at continuing to repay debt.
Okay, well those are my two thank you.
[noise]. Your next question comes from the line of Craig Kennison I've Baird. Your line is open.
Good morning. Thank you for taking my question I wanted to ask about Ritchie brothers asset solutions, and I'm kind of working from numbers in the 10-K, but I believe you added 25, new customers in the year, including 15 reference customers.
To me that seems like a small number and that when this is successful you will have thousands, but maybe I'm misinterpreting what success looks like in that market could you help us frame or what your goals might be for 2020, and how should really look at success in that market.
Hello, Craig and Vanderzee here, Yeah excellent question.
Really last year was a learning here for off for all that that's the way to think about it for Ritchie brothers assets solution. So we wanted to launch a at a limited number of customers because we really wanted to learn what are the mechanisms water. The levers what are the features that they need in order to optimize the value.
And we really took that's a hard and 29 teams are working about breast, which is about depth of understanding.
That's number one one of the things we've learned Oh, Oh as we've worked with them is the very specific needs our customer base has.
Oh, and how we can best so event. So now when we turn our attention to how we can scale Ritchie brothers asset services, we're really not focusing on becoming a SaaS software company. We are focusing on how best to provide services for our customers to allow them to use our various channels to.
In their goods to market whenever and however, they want to bring.
Got it is there any internal.
Goal to reach a certain number of key reference customers for 2020 or is it preliminary too preliminary to know.
It's too preliminary to know we are in full learning mode.
Okay, and then I continue to hear more discussion of <unk> machine learning.
Throughout your conversation and clearly you're sitting on a gold mine of data and have an opportunity to really leverage that data through machine learning, but I'm looking for some tangible example, about what tools you might be using and how those tools may enhance your marketplace is there anything you can share along those lines.
Yes, so just a few things I think everybody on this call has heard of algo pricing, which is a tool fueled by machine learning in order to facilitate kind of the supply demand on and very nuanced bases of what the value in the market our Consigners unit.
I think vessels tangible example.
But candidly to take one click down the value of machine learning and the rich data as you. So after we say I'll finds itself in Oh lots of ways for US teams teams that one example would be as we are the trusted advisors of our customers and how we.
I advise them to move goods and services off to allow our value chain in order to extract the highest pricing for them. We sought as we move all volume around our various slide channels online channels and additional service offerings. We can provide all of that is fueled by machine learning.
Got it thank you.
Thank you.
Your next question comes from the line if Michael Feniger of Bank of America. Your line is open.
Hey, guys. There. Thanks for taking my my question I guess really just dive in a little bit to what you're seeing on on the mix. I mean, you mentioned a little bit more transportation I'm just curious what you're seeing on on the fleet age is this the quality of equipment coming coming to fleet is that that different outcomes.
Her to a few years ago.
Yes, so Sharon all tackle that you know clearly with some of the on stresses that we're seeing in the transportation and energy sector. We're clearly seeing some mix in those assets, where we're getting a combination of of good aged equipment, but.
Right now kind of hitting a pocket of poor demand.
And so we have seen actually stabilization in our overall age of equipment across the year.
But over 65% of our assets that we're selling our plus six years of age and so that is a bit older than what we would like.
But certainly you again, that's that's really the needs of the Consigners in terms of what they have available to us and you will always have the opportunity to sell at good prices and get price realization for the great New equipment and you know there we used to kind of asked.
Yes, but clearly with the transportation mix right now that new age is is coming more in the transportation fleet side as opposed to new construction assets.
That's helpful. I mean, I guess, Sharon I'm on the construction equipment and Aeroworks work platforms and equipment like that what what are you seeing on a like for like basis, you know in at the Orlando auction odd in terms of values on a year over year basis in Edmonton and and Houston and then just following up on.
Oh, I always thought Houston in Western Canada kind of share some similar characteristics as an auction market just kind of odd or interesting to see that Houston setting a record while Edmonton is struggling could you help us understand the dynamics there as well thanks.
So I'm going to recommend we throw that to maybe Jeff and carries so they can comment specifically on what their consigners are seeing inside of bode us markets.
Yeah, Michael This is Jeff theater.
We all the way to think about mix, what I think.
Part of the answer to your question.
But we're seeing in the back half of my team and we're going to see you know with 2020.
On the mix side, you know the large national rental companies. You know these these fleets have grown very large over the last two years and while you know while activity Utilizations are still high.
You know some of that fleet is starting to turnover oh come out of their fleets as they bring new fully.
Suppliers opened up so whether it's a WP we're like dirt Oh, you know you are saying its change year on year old or mix basis. So that's part of I think what you're saying that you see.
Oh, you know change Oh, we're just saying that in likewise for dealer dealer fleets.
The large OEM dealers to saying things happening ride the older fleet has been aging their utilizations have been high.
Well I, just read up and you're just starting to see a turnover Roe of older fully.
The dealers or this or general the though.
On the real size its naturally lower radios to just because of the merger of equipped with the goal properties or so.
[laughter] carry Taylor, what I would add particularly from Orlando and Houston isn't magnitude a strong Byron demand.
Auctions set records in terms of registered bidders.
A lot of work and news customer markets. The buyers are very busy.
And that added to the ability to deliver on price.
[noise] [noise] since your next question comes from the line of Scott from some of it see Ibcs. Your line is open.
Hi, Thanks, and good morning.
So Craig I guess my our best question.
Just a quick question like most things have been gone over what changes do you anticipate making them event of an economic pulled back.
Hi, Scott.
And here. So we now have started kind of contingency planning that you would expect and continue to do as Sharon said, you know, starting obviously with our employees and our customers.
But we continue to monitor or on the global situation or the good news is given the various black ones. We have at our disposal, we really view that as a way to be there for our customers in whatever way they need us whichever way the market scope.
You see any any of the segments are platforms benefiting most would it be arbus.
Oh, Yeah I'm not sure are about said again I think it if the economic situation gets to a point, where consigners end up and increasingly distressed state and the need of liquidity.
You know the multi channel that we offer give them loves various disposition solutions to be able to get that liquidity based on their needs and their timelines.
So that's across whether its life marketplace, the or weekly featured event.
Okay, great. Thanks, that's helpful.
[noise]. Your next question comes from the line extension ASCII of Raymond James Your line is open.
Good morning, guys.
One of them.
Oh, sorry, just a I guess a few housekeeping items around the income statement I just want to.
Good clarity on the.
Can you remind me with the other income represents a two recorded for the year on a quarter.
So other income is where we record kind of earn out type payments or.
Kind of.
Non operational transaction costs related to either acquisitions or investments that we've made in year.
It also will pick up interest income.
As we invest our working capital.
To basically generate returns on that cash level holding it before we've had to consigners. That's for the bulk of what's really in there.
But none of that is adjusted for in the adjusted.
Income that you report.
Its recurring so it's not doesn't meet the requirements and the conditions for adjusting the regular raised revenue stream because we're doing it on on a regular basis right I guess, the foreign exchange gain would be the same thing last quarter that you wouldn't adjust for that because it.
Occurs.
Yeah, Yeah, those are transactional related foreign exchange transactions due to international subsidiaries that operate in a different local currency compared to our U.S.G. reporting.
And so again, its regular and not a surprise or in a highly volatile FX environment that we would see you kind of amounts of this magnitude and clearly you look two years ago. When FX was going the other way it went against US and was not adjusted EBITDA.
Point either.
Yeah.
Okay, and then but the.
But the recovery of the comp accrual.
Was like that's in the 95 million without it that would be 100, you're saying right.
Yes, yes, so the.
So Robbie its accrual released for his stock option accruals and long term incentives.
<unk> was of magnitude and was a nonrecurring event. So it was it didnt meet the criteria for us to adjust out.
And so that's why you see it adjusted from S and when we talk to SDMA is buried right now and that asked DNA number. So we wanted to draw out that without it.
Based numbers sitting up closer to $100 million.
Okay. That's helpful. I, just wanted to get clarity around that.
Because my second question would be I appreciate that you guys have become.
Ignostic about which channel VR and falls into and I guess to Shareowners point, you know live auctions been down.
You might see that uptick in in the.
On the online platform, but I remember, having this conversation with Robby.
Some time ago that is.
You wouldn't want one to cannibalize the other you'd like to have some.
Some of the parts grow together and yet.
Last year, the GTV was still below where the combined GTV at both our planet Ritchie brothers, we're almost.
We're over three years ago, when the time on the acquisition was announced when these two companies were competing with each other.
TV to disclose that at the time.
On a trailing 12 month basis was together more than what you're doing now.
So I just I mean, you guys have spoken a lot about how have you are with the integration and everything is running smoothly now.
Why is GTV still not bigger than it was wise to pause to not equal to five in a situation, which is what you'd probably want to see.
So Ben this is an I, obviously have a limited view of history, but the one thing I think we would all agree on is that the underlying economic environment around the globe is very different today than it was at the time of acquisition, though availability of goods very different swung.
Sure. That's you know that's quite an apples to apples comparison, a and obviously the mix of goods flowing through the channels. So there's kind of many levers we can point to save by you know things are different today than they were before one thing I can tell you, though coming in you know fresh set of eyes is that it's the.
It is a transformative acquisition.
It allows us to service our customers in a way that no one else can do globally.
And the biggest I think example of that is actually booked playing out with a global uncertainty right now our message to our customer base, our message to our employees as well here for you.
In whatever way you need so to the extent that you acquire liquidity we're here.
If the physical auctions, we have the back.
If their online reserved unreserved.
Listings and a slew of services to allow customers money manager threats platform Ritchie brothers has at their disposal. So.
To me that is really the best way to think about.
But that message I understand that the message was very clear at the time the acquisition that was the strategic imperative and I understand that Salesforce has been.
There's been Vocalizing for three years now so I just like I got the market's been type, but I think because we've always discussed is not this isn't really a supposed to be a cyclical you're supposed to be grabbing a bigger share the pie.
And so I guess, what you're saying is now that the mark now that the market is changing.
Equipments, becoming more available.
And you've got all these ducks lined up properly them. This is going to be a figure for you.
I think our words are we are cautiously optimistic about a year or what we love. The the platform that is Ritchie brothers.
Well what would be I get that it was obviously it was transformational acquisition is also very expensive $800 million what would be.
In a disappointment then like at what point do you guys say this isn't.
TV isn't growing as fast as.
We would like it to be because these these two parts art art.
Our synergizing, except that you would expect for that kind of acquisition. It was transformational we should be seen transformational results, we havent really to date.
So all of the tackle that a bit then you know again you know the deal was definitely the rights deal for us going forward.
We're now at a point, where with you know the numbers, we just put on the board well ahead of our EPS value that when we started so you know it's it is beginning to show the value that we believe is there and it's not all coming through volume when.
New rate one of the pieces of the revenue rate that's driving growth is the ability to leverage that platform to drive non volume related revenue opportunities whether it be our vas revenue inspection revenue appraisal services et cetera. Those are all key drivers of what the growth.
Essential of this combined company now provides so although volume is key and we're not losing sight of that we would love to see you in in Q4, we just said that the U.S. GTV growth was double digit on both platforms live and online, but it was really math because you had to other end.
Engines that Didnt fire, which was international and Canada, when we love all regions to fire all the same time, absolutely and back to our core driver for for next year is is looking at getting that volume growth. So, but we are very pleased and so I think success is just continuing to move.
Forward and grow this business to what we've seen its full potential.
As I think that's a fair answer share I realize it's probably better than unfair question, then being new there, but I think it's the same time because as I just wanted to make it clear that there are a lot of investors were I think are still waiting to see this model really get traction.
Yeah totally for that.
Thanks.
[noise] not again, ladies and gentlemen, if you looked like to ask a question. Please go ahead and press Star then one I know telephone keypad.
Your next question comes from the line of Maxim Sytchev here from National Bank Financial Your line is open.
Good morning.
Act more demand.
I just sort of quick question in terms of the evergreen and maybe that's a question for Sharon.
In terms of the removal of the EBITDA target is a just the lack of comparability to the previous.
Margin definitions or how should we think about this.
Yeah, it's completely the fact that we can no longer speak about the agency proceeds. So you know again the information is all there for you to continue to use that measure we do track it internally and so when we talk about margins, we are basically referring to that historical measure in it.
As something that we're quite pleased with in terms of our performance both in the quarter and our ability to get to the 2000 and a 20 target that was established before the accounting rules changed.
Okay. That's helpful. Thank you very much and then the other question that I had was do you mind I don't know if you have these numbers in front of view, but in terms of the overall equipment, which is exposed to the energy markets is it's 10, 15% or or or is it more than that.
Yeah, So actually we don't really speak about that in in terms of the segments and where the assets are really coming from by sector.
Yeah, we we actually are fairly small in pure energy related assets. So that is such a it's still a very small component.
But we are affected by the energy business because some of our larger sites are really in energy dominated economies like Houston and Edmonton.
No because I, just I guess I would've thought that maybe what we would have a bit more of a pickup given.
You know it feels like a perennial dislocation on the commodity side.
I I guess are you seeing.
That commencement off you know people purging there.
No balance sheets, or it's still still too early.
Yeah, I'll start and then I can pass to Kieran, but you know really it's kinda back to the Canadian comments, where we're seeing that consigners are really I'm still on a bit of a wait and see and that was in Q4. So they weren't if they could afford to hold onto their equipment. They were nervous that pricing was going to fall a and so therefore there.
They were holding off on decisions and they were waiting for real government.
You know intervention, which looks like it has not come so as we feel pressure financially starts to push onto those businesses then potentially that is an opportunity for volume and again, we're there to support our consigners.
Whenever they need us to dispose of equipment.
For sure and then.
Just going back to two warranties 16.
Looking at that dislocation that obviously was beneficial for your business versus kind of now I was still in that's kind of window or off of not seeing.
The resumption of equipment, becoming available I'm, just trying to see how similar now versus 2016 in terms of the client behavior that you have on a daily basis.
[noise] somehow so saying yeah. So I would say you know it's kind of I look at the macro environment and obviously not around in 2016, I think awards are uncertainty and probably.
When you do Latin would be the words as there's so many macro economic conditions flame playing out right now.
Some similar to 2016, some very very different candidly, we're watching we're cautiously optimistic and basketball poised and ready to be here for our customers of consigners in many many ways that candidly didn't exist the 2016.
I think the best way to say this as well we're ready when they need us.
Okay. No. That's that's very helpful. Thanks very much.
[noise] not us all the time for questions for today I will now turn the call back to Mr. model sorry, My wanting.
Thank you Amy and thanks, everyone for joining us on our fourth quarter earnings calls and we look forward to see with everyone on the call again, you know he made during our first vertical so thanks very much in that concludes our CFO.
Ladies and gentlemen, this concludes today's conference call.
Thank you for participating you may now disconnect.
[noise].